Communities use TIF districts to attract business

But one funding mechanism – tax increment financing, or TIF – has in particular become a favorite for redevelopment in southwest Missouri communities.

The TIF program is different from other community redevelopment funding options; while CIDs, TDDs and NIDs are all ways for additional property or sales taxes to be levied in particular areas, TIF districts don’t increase tax rates. A CID, for example, might be an area in which sales tax is 4 percent, instead of 3 percent in the rest of the community.

A TIF, however, doesn’t enact a higher tax rate. It boosts property taxes by increasing the property value through new development within the TIF district.

The TIF system takes a portion of future tax money created by the project and uses it to finance the project.

Cities can establish their own TIF districts to recapture city tax dollars, and they also can apply for a state TIF district to capture state tax money.

The process

Springfield established its TIF district to cover several downtown developments, including the Springfield Expo Center, Jordan Valley Car Park and Hammons Field.

The process of creating the district, as with all TIFs, starts with an 11-person TIF commission.

For the Springfield TIF, the commission comprised two people selected by the Greene County Commission, two selected by the Springfield R-XII School District, one selected by the other taxing districts as a group, and six others appointed by the mayor. Springfield’s TIF region is generally defined as Jordan Valley Park.

Once a commission is formed, it prepares a redevelopment plan and a cost-benefit analysis to determine how much money taxing entities – such as the public schools, the library system and the city itself – would lose from the TIF’s tax withholdings and comparing that amount to the overall benefit to the community.

At this point, Springifeld’s TIF plan had to be submitted to City Council for approval.

“Once council and the commission have taken action, then they have the legal authority to capture that incremental increase in revenue and redirect it away from the taxing jurisdictions,” said Springfield Economic Development Director Mary Lilly Smith.

Encouraging redevelopment

TIFs are designed to encourage redevelopment of areas that, for the purposes of establishing TIF districts, are otherwise considered blighted, conservation or economic development areas. (See box.)

That redevelopment is why the city of Branson established a TIF district for Branson Landing.

Rick Huffman, CEO of Branson Landing developer HCW Development, said his $420 million multiuse project on Lake Taneycomo is bringing millions in tax revenues to the city and state.

“It truly was a blighted area,” Huffman said of the area where Branson Landing now stands.

“The land had several old businesses and old resorts that were not producing much in the way of sales tax anymore. By creating a TIF district, it took the sales tax from practically nothing to about $10 million a year,” he added.

Half of that money goes back to the development to pay off construction bonds, while the rest goes into city coffers. A state TIF district also will contribute about $54 million to the development.

Jumping on the bandwagon

Other communities are looking to get in on tax increment financing.

Ozark recently formed a TIF commission to study the idea of using TIF funds for the Finley River Redevelopment District, which comprises 47 blighted acres between downtown Ozark and the river. City Administrator Collin Quigley said TIF capability is crucial for successful redevelopment of the area.

“It’s a lot cheaper to just go out and get some green land, put roads in and water and sewer lines, than it (is) to buy existing property with inadequate sewer and water and redevelop it,” Quigley said. “The costs are substantially higher, and to make it work financially, both for the city and the business entity, there has to be some opportunity to capture that new growth.”

As for the argument most commonly levied against TIF funds – that they pull tax money away from area organizations such as schools and public works – Quigley said it’s not really an issue.

“Whatever taxes are being generated by the property today would continue to go to the organizations that have always received them,” he said. “It’s the increase from the base rate to the improved rate that goes to put in the things that made the project possible, such as sewer, water and lighting.”

What is Tax Increment Financing?

Tax increment financing allows communities to use a portion of local property and/or sales taxes to help fund redevelopment. Tax revenue is expected to increase in the designated area after redevelopment, and a portion of the future tax collections can be allocated to pay certain project costs.

There are limits to what areas can use TIF funds – they must be classified as a blighted areas, conservation areas or economic development areas.

Budget items that TIF pay for also are limited and include:

• Professional services such as surveys, plans, financial management or legal counsel;

• Land acquisition and demolition of structures;

• Rehabilitating or repairing existing buildings on site;

• Building necessary new infrastructure in the project area such as streets, sewers, parking and lighting; and

• Relocation of resident and business occupants located in the project area.

Source: Missouri Department of Economic Development

What areas can be included in a TIF district?

Areas eligible for local TIF must contain property classified as a blighted area, conservation area or economic development area, or any combination thereof, as defined by Missouri law.

• Blighted area: An area which, by reason of the predominance of defective or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improper subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire and other causes, constitutes an economic or social liability or a menace to the public health, safety, morals or welfare in its present condition.

• Conservation area: Any improved area within the boundaries of a redevelopment area located within city limits in which 50 percent or more of the structures in the area are at least 35 years old.

• Economic development area: Any area or portion of an area located within city limits in which the city’s governing body finds that redevelopment will not be solely used for development of commercial businesses which unfairly compete in the local economy and is in the public interest because it will keep business in the area, result in increased employment or preserve or enhance the city’s tax base.

Source: Missouri Revised Statutes