04 - TIF for Dummies
Steve Stanley provided many presentations to the Huber Heights City Council explaining TIF funds as they relate to Huber Heights. (This is the same video and article as found in in the TIF section 02 -Tax Increment Financing)
Here is a copy of a similar presentation that came from the April 12th, 2011 Planning Commission Minutes; This discussion starts the last paragraph on page 4.
Steve Stanley stated he ran the Montgomery County Transportation Improvement District. He would explain how this project came about, and wanted to set the stage for any questions this Commission might have regarding the project. He explained that TID is a special purpose local government created by the Montgomery County Commission in 2001. Their primary purpose is to expedite and finance high priority transportation projects, and related development projects in communities in Montgomery County that had a significant economic development and quality of life potential. He stated that he has been the Director since 2001, and their first project was located in Huber Heights.
Mr. Stanley explained the partnership began officially in early 2002, and the top priority was to expedite and finance the intersections at SR 202 and SR 201. At that time, the City had been looking to upgrade the interchange at SR 202 which is a City bridge over the interstate highway, and therefore, was the City’s responsibility to do so. SR 201 was on a schedule set by the Ohio Department of Transportation to be upgraded as a result of ODOT’s desire to add additional lanes to I-70. Funds have been programmed for this, and the project was probably not going to just significantly impede local traffic going north and south on 201 without a real relief being provided because the 202 interchange was already overburdened and the bridge was not big enough, but it was also, at some point, likely going to shut down north/south traffic within the City with the only outlet being the overburdened and under designed interchange at SR 202.
Mr. Stanley further stated that a significantly large amount of local money was placed on the table. They convinced ODOT that the 202 project needed to move ahead that would include the 201 interchange. As part of the persuasion, they convinced ODOT they would bring in some federal earmarks into the community to help finance the bridge project. To do this, they worked with the City to create TIF (Tax Increment Finance) legislation that was adopted originally for parcels within Montgomery County in 2003. He stated that he would be happy to answer any questions the Commission might have regarding TIFs. He explained that it did not increase taxes in any way locally, but was allowing the development to help finance public infrastructure that benefits the parcels in the community around it. The City subsequently enacted legislation in 2005 that was in the Miami County portion of Huber Heights under a different section of the Code that provides for residential incentive districts. Today, that is part of the economic structure for DEC’s development in Carriage Trails.
Mr. Stanley stated that both interchanges were completely rebuilt and reconstructed within five years with the cooperation of ODOT. Normally, such a project requires at least 10-15 years. A critical part of the success and expediency of the project was putting local money on the table through TIF. The City borrowed funds for both projects from the State Infrastructure Bank at the total of $3.5 million. Today, the City still owes approximately $3 million on the loans. Most of the debt is due at the end of a 10-year period for each loan. He was asked last Fall to evaluate the performance of the TIF area, and to see whether the City had the capacity to go beyond the financing of its share of those two interchanges, and begin to look at investing remaining TIF revenues being generated to see if they could be reinvested in other infrastructure or amenities within the City. He explained they were integrally involved with the creation of the legislation, and the capacity to finance public infrastructure and amenities with it.
In summary, Mr. Stanley stated they identified a number of issues they needed to work out. He stated further that they were focused on the future of TIF revenue capacity the City has to invest into other infrastructure and amenities. He stated that in the original scope of work, they were not asked to look at the Miami County TIF revenue even though there is some activity on the Miami County side. Therefore, he is basically talking about the parcels in Montgomery County generating TIF revenue. He added they were looking at revenue coming from developed parcels after the effective date of the original legislation. There is more than enough capacity coming from such developed parcels to cover the City’s debt service requirements for the two interchanges. He explained they presented a picture to City Council of the capacity the City had to finance additional capital improvements or amenities using the available TIF revenue, beyond the City’s need to retain revenue for the debt service required for the two interchanges. He stated they reviewed the existing parcels within the Montgomery County TIF that were developed and producing TIF revenue, and subtracted the required debt service, and projected the debt service capacity for the City in order to finance the additional capital improvements or amenities with such funds. He explained that the City had approximately $6 million depending on interest rates and terms, which are variable. This was beyond what was needed for the interchanges.
Mr. Stanley stated that a formal report will be provided to the City. He recommended that the City use or lose the revenue. These are more difficult economic times and public budgets are strained, both locally and at the State level. This revenue represents a significant capacity for the City to finance things that would help advance its future for both quality of life and economic issues. Not using the revenue and letting it accumulate over time was not a good scenario. He recommends they move forward with plans to invest those funds. He feels they should focus on significant improvements because you don’t want to treat these monies like a capital improvement fund. You want measurable impacts that can be tied back to benefiting the properties that are generating the revenue. There are certain legal requirements in using these revenue funds.
What evolved from all these discussions was a major recreation complex on the north side of I-70 because that is where most of the TIF parcels were located on City-owned land. The City was also looking to see how other properties could be consolidated. This would help create a corridor development strategy that ultimately would be in the best interest of the City as a whole.
Ms. LaGrone asked about the phrase “use it or lose it.” She stated that she understood the use it portion, but was not sure if she understood the lose it part, if it was generating revenue. She asked how the funds would be lost.
Mr. Stanley stated it was complicated. In TIFs, they freeze the value of a property at its pre-improvement level. Then, improvements that occur, including increases in the value of the underlying ground one built on, were not taxed as ordinary income. Improvements increase the value of the property, and payments in lieu of taxes are made by the developer or owner of the property. Such revenue is not generated as regular property tax. The other taxing districts that might ordinarily be receiving the benefit of the improvement of such properties, do not receive the revenue. It goes to the municipal government that created the legislation that allows the valuation to be captured as payments in lieu of taxes. It can only be used for capital improvements and development incentives. The funds cannot be used for regular operations.
Mr. Stanley stated they accomplished what they set out to accomplish by capturing the valuation increase and allowing it to be invested in the interchanges. At the time the legislation was passed, no one knew how much would be needed for the interchange projects, but reserved as a first call on the monies financing the debt service to upgrade the improvements. Subsequently, there is more debt service capacity and income is being generated beyond what was needed. He recommends that the City or any government engaged in TIF legislation could hold on to the monies and continue to accumulate revenue that could only be used for one thing, but these were tight economic times. Therefore, this was not a good scenario. He feels there will be tighter and tighter budgets throughout Ohio, and other taxing districts would look and say some of that money is not going to them and why is it not being used in a productive way for the community.
Ms. LaGrone asked if TIFs had sunset clauses. Mr. Stanley explained that in this case, there is an agreement with the School District which lasts for the life of the TIF. Every parcel subject to the TIF legislation has a 30-year life from the date of improvement. Depending on when a parcel was developed, there could be a 50-year life for the TIF. He explained further that you depended on them staying in the TIF so they could complete the financings that were in place.
Mr. Stanley stated the most significant issue in this matter is there is current capacity to finance infrastructure and amenities that were a benefit. City Council is interested in a major recreational complex. It happens that property is available for such a project. They put themselves on a fast track in order to accomplish this. He was asked if the TID could assist in the process since they were closely tied to the entire TIF legislation created. He stated they were presently involved in an agreement with the City, and DEC is also a partner. He explained that he is the project expediter. He stated that all of this occurred over the last two months.