TIF Districts: More

Does District 99 understand what TIF’s are doing to District 99?

From the DT TIF JBR minutes at the top of page 4:

Mr. Mark Staehlin commented that he wanted to clarify a statement made by Ms. Bennett. He said speaking from a school district perspective, any taxing body that is tax capped has not lost any dollars. He explained that the school district would get a consumer price increase (CPI) in their extension every year, so whatever  mount was levied last year the school district gets a CPI this year of 2.5 percent. Tax caps guarantee the  school district that same increment amount whether or not the property is protected by the  TIF.

He explained all the other tax payers participating in the districts levy make up for it. He said to clarify; the school district is not behind in collecting dollars. Prior to the creation of the TIF District, the EAV was  growing at 5 percent over a 4 year period which indicates that the EAV was barely growing. He said the  current EAV has really taken off and he supports the TIF because he feels it does help regenerate certain  areas and he thinks that the surrounding areas increase in EAV while a TIF is in place. The dynamic of a TIF is that these EAV’s had gone up and may not have happened if it wasn’t being spurred by the TIF creation. It would have been dormant. He said after 23 years, the TIF increment will be new construction to those  capped entities and you will see a relief.

The emphasis are mine.  I hope this guy he was misquoted.  As District 99 Comptroller, he does understand how inflation eats away at buying power, and that 99 has lost 20% of it’s 1997 buying power, dollar for dollar?  That an inflation indexed correction every year is the only way to compensate and actually keep a baseline from getting smaller every year?  One has to wonder, has 99 or 58 totaled up what they’ve lost as a TIF increment downtown since 1997, and on Ogden since 2001?  Done the math as it were?

The dynamic of the DT TIF is that over $50 million was committed to downtown, that the village may or may not get those monies back via TIF surpluses, and over the next 12 years before the DT TIF expires (if it expires) 99 will forego at least $10 Million dollars in real estate tax revenues.  If you think your property tax bill has any chance of ever stabilizing, dream on. Taxpayers will pay up for the funds that slosh over from the schools to the village via the TIF spillway somehow, kicking other taxes and fees from overlapping taxing bodies higher.

58 is losing even more, even with the 50/50 increment sharing agreement with DG on Ogden that gives them half of their own loss back. That agreement is being expensed from the general budget and in 2008 and before was never properly explained as a TIF district revenue sharing agreement, instead being called:

496-Intergovernmental Support—Includes expenses to be paid to other units of government, including to District 58 based on the Intergovernmental agreement between the district and the village, and to certain fire protection districts for recently annexed property as required by state statutes.

it’s down at the bottom of Section III page 2-20. Fingers are crossed that it will probably finally get corrected by Fieldman and Buttney in this year’s budget, and be properly reported in the the TIF annual report, and properly accounted for in the TIF financials.

Will the Downtown TIF ever break even?

According to the village in years past, yes, it will be a smashing success and all will bathe in endless revenue at the end of 2020 2032 20… well, someday.  Then you wake up and realize not only do TIC count (total interest costs, also known as interest and other loan expenses), but there’s also the downward drag of needed TIF repairs being fixed with regular infrastructure budget money, and it would also ignore millions in interest paid for TIF bonds issued as GO bonds and funded from real estate tax revenues instead of TIF district increment surpluses, and…well, I hope you get the idea. And I’m not even talking about the land giveaways.

Don’t be too upset, though.  The village was schooled pretty well by a couple developers, so staff learned a bit along the way.  They don’t make mistakes on the Ogden TIF like they did with the DT TIF, and it shows.

A case could be made that such funding sloshes from one category to the next without consequence, but accuracy in efficacy is critical.  Knowing as we go along whether the DT TIF is worth it would be handy to know if DG ever considers another such endeavor.  Knowing Ogden is clean now is useful to measure future progress against.  Maintaining proper accountability is important, and accounting makes all the difference.  Having some trained accounting and budgeting residents volunteer oversight to such a task would be a good thing.

Below is a summary of General Obligation Bond borrowing for TIF District purposes.  The interest payments are estimated and have been shaved due to some bonds being rolled to lower rates.  The bonds were used to buy some land for Station Crossing, buy some more land for Acadia On The Green, rebuild the downtown infrastructure, and build the parking garage.

Principal

Interest

total of payments

GO Bond 1999

6,380,000

3,606,595

9,986,595

GO Bond 2000

6,055,000

4,043,194

10,098,194

GO bond 2001

6,000,000

4,515,214

10,515,214

GO Bond 2001A

3,410,000

698,530

4,108,530

GO Bond 2002

6,000,000

3,878,643

9,878,643

GO Bond 2003

4,500,000

87,300

4,587,300

GO Bond 2003A

12,000,000

5,960,077

17,960,077

Totals

$44,345,000

$22,789,553

$67,134,553

Additionally, the DT TIF District has run expenditures higher than revenues from startup to 2006, creating a negative cash flow:

Year

(Deficit)/Surplus

2000

($2,235,229)

2001

($5,674,188)

2002

($9,340,239)

2003

($7,082,471)

2004

($405,306)

2005

($1,244,680)

2006

$1,084,118

2007

$516,102

Running Total

($24,381,893)

Not exactly streaking to the riches some had predicted.  Paying off this deficit is where the increment is accounted.  The first four active years did not see any assets come on line, but the last four have, and you can plainly see that there is an upward swing.

So, to the question will the DT TIF ever cover it’s nut by breaking even?  Short and long answer: No.

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Posted in budget, TIF. 7 Comments »

7 Responses to “TIF Districts: More”

  1. Art Jaros Says:

    Quoting from above: “Mr. Mark Staehlin commented that he wanted to clarify a statement made by Ms. Bennett. He said speaking FROM A SCHOOL DISTRICT PERSPECTIVE, any taxing body that is tax capped has not lost any dollars. He explained that the school district would get a consumer price increase (CPI) in their extension every year, so whatever amount was levied last year the school district gets a CPI this year of 2.5 percent. Tax caps guarantee the school district that same increment amount whether or not the property is protected by the TIF.

    He explained all the other tax payers participating in the districts levy make up for it. He said to clarify; the school district is not behind in collecting dollars. Prior to the creation of the TIF District, the EAV was growing at 5 percent over a 4 year period which indicates that the EAV was barely growing. He said the current EAV has really taken off and he supports the TIF because he feels it does help regenerate certain areas and he thinks that the surrounding areas increase in EAV while a TIF is in place. The dynamic of a TIF is that these EAV’s had gone up and may not have happened if it wasn’t being spurred by the TIF creation. It would have been dormant. He said after 23 years, the TIF increment will be new construction to those capped entities and you will see a relief.”

    MT’s critique: “The emphasis are mine. I hope THIS GUY was misquoted. As District 99 Comptroller, he does understand how inflation eats away at buying power, and that 99 has lost 20% of it’s 1997 buying power, dollar for dollar? That an inflation indexed correction every year is the only way to compensate and actually keep a baseline from getting smaller every year? One has to wonder, has 99 or 58 totaled up what they’ve lost as a TIF increment downtown since 1997, and on Ogden since 2001? Done the math as it were?”

    Frankly, MT, I think that Mr. Staehlin accurately describes the impact of a TIF district upon a tax capped unit of local government, with the amplification or clarification that his phrase “not lost any dollars” means “not lost, during the life of the TIF district, any EXISTING (as of the creation of the TIF district) dollars or the purchasing power of those dollars, ” further assuming that CPI accurately measures purchasing power and that CPI has not exceeded the tax capped max of 5% per annum. I also frankly do not understand why MT feels the need to demean Mr. Staehlin by use of the descriptor “this guy.” Why MT is rambling on in critical fashion about loss of purchasing power escapes me; that’s the whole and obvious purpose of the CPI adjustment which the tax cap law allows (up to 5% per annum). Controller Staehlin is obviously aware of this and his comments so indicate.

    A tax capped district like D99 DOES lose “new tax monies” that would be derived from its ability–outside of the TIF context-to tax “New Property” being added inside the TIF district to assessed valuation. So, D99 has “lost” monies it never did have in the first place but would have had if the value of New Property inside the TIF district had come into existence even if there had been no TIF. But, the context suggests that was not the subject of Mr. Staehlin’s comment and it plainly appears that MT has either misinterpreted Mr. Staehlin or misunderstands the interplay between TIF District and tax capped taxing districts.

    Apart from the value of New Property being added inside a TIF distict, a tax capped district loses property tax revenues from inside the TIF on account of the interplay of two factors: 1) the tax cap typically forces the tax rate to fall on a taxing district-wide basis; and 2) that falling rate is applied by multiplication to the TIF’s frozen-for-non-TIF-taxing-body-purposes-only assessed value (even though overall assessed value is increasing). Therefore, a district like D99 gets smaller nominal tax revenues from property located within the TIF year-after-year. But, as the Controller Staehlin accurately points out, all of the property outside of the TIF makes up for that entire shrinkage (apart from the inability to collect new taxes from New Property inside the TIF). Why is this? Because a property tax levy made by a taxing unit of government like D99 (a) is expressed (in the levy ordinance) in dollars, not in a tax rate; and (b) for a tax capped unit of government like D99, the tax cap to limit the unit’s dollar increase as to existing property rather than setting a maximum nominal rate. Many folks get confused on this point.

    As to the statement: “Prior to the creation of the TIF District, the EAV was growing at 5 percent over a 4 year period which indicates that the EAV was barely growing.” This, too, needs a bit of clarification. EAV within a geographic area can grow in two legally distinct ways: 1) from the physical construction of more valuable New Property than what was there before construction began; and/or 2) from the general run up in property values. As to the latter, for a tax-capped unit of local government, there is absolutely no impact on such a unit’s property tax revenues. As to the former, the greater the amount of New Property the greater the amount of property tax revenues for such a unit. So, from D99’s property tax revenue standpoint, only the former is important and that’s likely what the Controller (if accurately quoted) had in mind. That is, he desires to see a boosting of EAV FROM NEW PROPERTY and if, within the TIF area, there was little or no such growth without a TIF district, and if the creation of the TIF causes such growth to increase, then it’s a good thing in the long run for D99 and in the short run D99 isn’t harmed (except to the extent NEW PROPERTY would have been added inside the TIF area even if the TIF had not been created)–rather taxpayers outside the TIF now bear a higher proportion (burden) of D99 taxes relative to the share of those taxes borne by property inside the TIF area than if the TIF had not been created.

  2. markthoman Says:

    “Therefore, a district like D99 gets smaller nominal tax revenues from property located within the TIF year-after-year.”

    Which is my point. The real dollar purchasing power inside the TIF district goes down by the rate of inflation each year because there is no dollar increase to offset it. Any agreement like that would be reported within the annual TIF District report (as hopefully 58’s agreement someday will be accurately reported within the Ogden TIF report). Outside the TIF there are tax caps which cannot be exceeded, but there is no relationship to TIF baselines and increments. While Staelihn’s comments may be true outside TIF districts, there are not accurate within the TIF itself. I did not cap the phrase “this guy”. To do so changes the meaning of the sentence.

    You are also correct that the tax revenues from outside the district make up for the difference. That’s why TIF’s are a hidden tax on taxpayers; the areas outside the TIF are forced to a higher rate to compensate for the lack within the TIF.

    “…taxpayers outside the TIF now bear a higher proportion (burden) of D99 taxes relative to the share of those taxes borne by property inside the TIF area than if the TIF had not been created.”

    It’s pretty rare we both agree so well, Art.

  3. Art Jaros Says:

    MT, just two additional points.

    1) Re: your latest statement: “The real dollar purchasing power inside the TIF district goes down by the rate of inflation each year because there is no dollar increase to offset it.” As I attempted to explain, the purchasing power of tax revenues derived from a taxing body like District 99 goes down by greater than the rate of inflation!

    If the nominal tax dollars derived from properties inside the TIF district remained exactly the same, the purchasing power of those tax dollars would, as you observe, decrease due to inflation alone. But, in truth, the nominal tax dollars do NOT remain constant; they actually decrease because the assessed valuation is frozen and the tax rate decreases by operation of the tax cap law (PTELL); therefore the nominal tax dollars dervied by multiplying the constant (frozen) assessed valuation times the decreasing tax rate must likewise decrease.

    2) Re: your statement: “Outside the TIF there are tax caps which cannot be exceeded …” This is not a correct understanding of the tax cap. The tax cap does not apply on a TIF district or non-TIF area basis. It is a limit on the aggregate dollar amount of increases of a tax capped unit of local government’s aggregate property tax revenues. Where those revenues come from (from TIF district property or from non-TIF district property) is irrelevant to the operation of the tax cap). When you write: “While Staehlin’s comments may be true outside TIF districts, they are not accurate within the TIF itself,” this is, sad-to-say, sheer confusion. Mr. Staehlin’s comments were accurate and correct because the distinction you are drawing does not exist. Your comment unfortunately reflects a “confusion-of-the-categories,” Mark.

  4. markthoman Says:

    First, I changed this guy to he. When you pointed to it with caps, it seems out of place. I hear that guy is a nice guy.

    The TIF annual meetings concern specific TIF Districts,not tax capped school districts, which are much larger (here at least). Tax capped school districts don’t factor into this TIF discussion at all. Staehlin’s extensive quote regarding tax capped and TIF districts are comparing apples to oranges.

    The dollars are frozen in a TIF district, not the rates or even the appearance of your property tax bill. A DT TIF tax bill shows monies divided as they would be normally at whatever their rates and dollar amounts may be, but that tax bill does not reflect how the TIF actually redistributes the dollars.

    Rates and PTELL do not effect dollar distribution inside a TIF district, the school share remains fixed at a dollar level from the start of the TIF district’s 23 year life.

    Mr. Staehlin’s comments seem to favor the DT TIF (remember it was at the DT TIF meeting he made the comments). In a different context I find his comments, if separated into the two distinct elements, normal, but in the context of a meeting for the DT TIF, and in response to the questions posed by a resident, his comments wander to the PTELL tax capped school district, then to the standard talking points in a TIF’s favor.

    Proponents of TIF usually say that no increase in property values would have occurred “but for” the project, so requiring the overlapping taxing bodies to participate by foregoing their share of growing property tax revenue is fair because development costs are shared in exact proportion to their participation in future revenues.

    The annual levy is the amount of money a taxing body uses in a year. The EAV of property is determined by the Township Assessor. The tax rate is calculated so that the money collected equals the levy needed. These three elements are in order of importance. If EAV increases and school district budgets or levy stay the same the rate should go down because the tax base (the EAV within the school district) is larger.

    PTELL creates a real dollar upper limit to that increase. If the EAV grows enough, policy allows a rate cut. If a government is not taxing at its maximum levy ceiling, it may increase its levy by more than 5 percent.

    My comments were directed at confusion of category.

    I still think we are agreeing on this.

  5. Art Jaros Says:

    Mark, We do not agree on how the TIF interplays with the PTELL (tax cap law). You write:

    “Rates and PTELL do not effect dollar distribution inside a TIF district, the school share remains fixed at a dollar level from the start of the TIF district’s 23 year life.”

    I do not agree with this statement of yours that the tax dollars received by D99 from property inside the TIF District remain at the same nominal amount throughout the TIF district’s life. I maintain that that nominal amount decreases as the PTELL works to force a decrease in the tax rate. If I’m in error, point me to the source for your statement. Basically, you’re saying that what the TIF law freezes is the dollar amount of tax for tax capped districts whereas I’m saying that what is frozen is the assessed valuation that tax capped (and other non-TIF taxing bodies) may subject to ad valorem real estate taxation. This is the core of our disagreement. One of my sources is here: http://www.revenue.state.il.us/publications/LocalGovernment/PTAX1080.pdf (the Illinois Department of Revenue’s “official” manual on the tax cap law). P. 18 of the manual expressly states: “The amount the TIF will receive is equal to the tax rate times the incremental increase in the EAV. The [tax cap] limitation may result in a lower tax rate than would otherwise have been extended. If so, the TIF will receive less than it would have without the limitation.” So, the TIF’s retained portion of the property taxes is based upon the continually larger (until recently?) excess of (a) total (and ever increasing, until recently)assessed value, over (b) the level “frozen” for other taxing bodies at the creation of the TIF–times the ever decreasing tax rate. The ever decreasing tax rate (due to the tax cap) is applied to the entire assessed value as equalized by the state (and ignoring any exemptions). Over the total tax dollars, the TIF District’s share is based on the appreciation portion of the EAV in excess of the frozen amount and the other taxing district share is based on the frozen amount of the EAV. So, the nominal tax dollars to the other taxing units under the tax cap decrease year-by-year. That’s my understanding and the [IDOR manual appears to confirm my position.

    Here’s a second source: “When a TIF redevelopment project area (often called a TIF district) is created, the value of the property in the area is established as the “base” amount. The property taxes paid on this base amount continue to go to the various taxing bodies as they always had, with the amount of this revenue declining ONLY IF if the base declines (something that the TIF is expected to keep from happening) or THE TAX RATE GOES DOWN. It is the growth of the value of the property over the base that generates the tax increment. This increment is collected into a special fund (the Special Tax Increment Allocation Fund) for use by the municipality to make additional investments in the TIF project area. This reinvestment generates additional growth in property value, which results in even more revenue growth for reinvestment. ” (http://www.illinois-tif.com/about_TIF.asp) My very point is that for tax capped units of local government, the tax rate DOES GO DOWN and therefore, the nominal tax dollars to D99 from inside the TIF fall year-by-year instead of remaining constant as you claim, Mark.

    If you have counter-authority, then we may need to resort to the statute books.

    I also do not understand the basis of your statement: “If a government [and I presume you mean one subject to the PTELL] is not taxing at its maximum levy ceiling, it may increase its levy by more than 5 per cent.” That, too, is not my understanding of how the tax cap law works. If in year 1, a tax capped district levies, say, 90% of its maximum under the tax cap, then in year 2, the levy is limited to the year 1 amount plus an increase for the increase in CPI (up to 5%) plus taxes from NEW PROPERTY (newly constructed or newly annexed). [I’m ignoring for simplicity any right of the government to issue non-referendum g.o. Limited Tax bonds]. The year 2 levy cannot be based upon the prior year maximum which was, in fact, not levied. Please provide me with some authority for your statement because I think it is incorrect.

  6. markthoman Says:

    Oddly enough,page 18 of the Tech Manual is one source! Keep reading:”The TIF increment is excluded in calculating the limiting rate for a district. Section 18-235 of the Property Tax Code provides that the portion of the taxes that go to the TIF are not included in the district’s extension base when computing the numerator of the limiting rate. Likewise, the value of the increment is not included in the current year EAV in the denominator of the limiting rate.” There is no PTELL connection to TIF Districts, which stand alone and have their own accounting.

    As to my sources for these articles (besides our TIF annual reports, and local EAV information and so forth):

    See The NCBG’s treatise on TIF’s with pertinent section here: http://www.ncbg.org/tifs/game.htm#how

    Dr. James Banovetz founded NIU’s Center for Governmental Studies, and writes often on local government issues and is considered an expert on TIF’s and Home Rule.

    Richard Dye and David Merriman have done extensive analysis of TIF districts. Their most recent conclusion: TIF’s hinder EAV growth.

    Illinois’ Tax Increment Allocation Redevelopment Act (65 ILCS 5/11-74.4-1 through 11-74.4-11). Good luck with this one,it says the same thing over and over and over.

    Now, none of those sources say that the rate, whatever the current rate is, effects the overlapping taxing bodies payout year to year. They all say a baseline is established, and that the dollar amount that goes to each overlapping taxing body stays the same for the life of the TIF district, not that it gets recalculated every year based on the most recent rate.

    TIFs are districts in which all the property taxes taken by the local overlapping taxing bodies are frozen for 23 years. Frozen; no adjustments unless there is a specific agreement. If a school district gets $2,000 on a building within the TIF district when it starts, it stays at $2,0000 for 23 years. Again, the rate no longer factors into the TIF baseline calculations because the amount is frozen when the TIF is implemented. The only way the overlapping taxing bodies get less is if the base itself continues to decline-except for inflation eating away at the buying power of the dollars themselves, which brings us back to my original comment that at the very least we need an inflation index to prevent that from happening.

    The tax payer inside the TIF district gets a bill that has rates that may change down or up, reflecting the rest of the community, but that tax money gets split up and divvied out as established by the baseline amounts, and the rest becomes the increment that goes to the village.

    If what you maintain is true, and I won’t simply discard it, there is additional reason to be concerned about TIF districts. The math may get away from me but I’ll see what I can find out.

  7. markthoman Says:

    I’m thinking the TIF forces the overlapping taxing body (OTB) rates higher than they would otherwise be, due to the TIF area within the OTB districts. The levy requirements trigger the rates, and with some of the increased EAV set aside in the TIF area, the rate would have to be higher to compensate.

    No TIF’s: 2008 levy divided by 2008 EAV equals 2008 rate.
    With TIFs’: 2008 levy divided by (2008 EAV minus TIF EAV increment) equals 2008 rate.

    I’m not sure where to check and see if this might hold true off the top of my head. I’ll have to find some real figures to plug in. Stay tuned.

    Art, I think you pointed me to subject matter for another post. Thanks!


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