At last week's meeting, the Madison City Commission approved a Tax Increment District (TID -- also known as a Tax Increment Finance District) to support the development of 12 housing units -- 5 houses, 2 duplexes, and 1 triplex -- on land owned by local developer Randy Schaefer.
The Madville Times has offered its opinion on the design of the development (culs-de-sac are so 1970), and further opinion is forthcoming. But first, let's take a moment to describe just how this tax increment finance district works (Quit your groaning in the back row, there! And take out your notebooks...).
Right now, the land in TID #1 is mostly undeveloped (see 2007.11.19 City Commission agenda packet, p. 64 for grainy map, p. 65 for proposed development). The district does appear include the current Schaefer Plaza, a strip mall with Schaefer's insurance office and some other businesses, plus the Second Street Diner. There is one house on the property as well.
Here's the plan: the city takes out a loan for $203,485. The city uses the money to acquire and demolish the one house in the designated area (that lot provides access to Grant Avenue); build water, sewer, and street with curb and gutter; and cover fees for the contractors, engineers, and lawyer, as well as capitalized interest. Then Schaefer sells lots so other folks can build and own their own little piece of Madison heaven.
Here's the TID twist: Randy Schaefer doesn't have to pay off the loan. As the land is developed, its value will go up. Schaefer projects that, once all the planned structures are up, the TID will generate $29,150 in property tax (Exhibit C, agenda packet, p. 66). The numbers are a little unclear, but let's assume that the current house and bare land in the district are producing $1000 in property tax. That $1000 will still go to the city, county, and school district. The "increment" in revenue generated by the development, that additional $28,150, goes toward paying off the loan the city took out to get the development started. After the loan is fully paid off, the total tax value then starts going to the regular taxing entities.
Now Schaefer could still get stuck with the bill. The TID has a maximum of 15 years to pay off the debt (see SDCL 11-9-25). If Schaefer's development doesn't take off -- if there are delays or people say, "A cul-de-sac? Why would I live in a cul-de-sac?" and don't buy -- and the TID does not produce a sufficient increment in the property tax revenue to pay off the loan in 15 years, Schaefer has to cover the difference.
We should note that this residential development exists at the edge of the legally acceptable uses of TIDs. SDCL 11-9-42 declares, "Tax increments not to be used for residential development. No tax increments shall be used for the construction of residential structures." TIDs are generally used for business development (like the TID Flandreau created to attract the new Alco store). Schaefer's housing development still qualifies for TID status since the actual TID funds are being used for the utility infrastructure, not the dwellings themselves.
There are the nuts and bolts of this TID project. Stay tuned for commentary... after I get some supper!
Often tax increment financing is used in blighted, or substandard areas.
ReplyDeleteIt's sold to the public as a mechanism to revitalize those neighborhoods where private dollars wouldn't otherwise go.
But my fear is the big boys know all about these. Take Cabela's, the Nebraska-based hunting, fishing, sporting goods retailer. Cabela's will pit city versus city when it plans to open one of its new stores. Cities in turn use TIF and TIDs to buy so-called blighted areas and Cabela's gets a great deal.
Or what's happened where I'm at, the city declares farmland a blight so developers of an ethanol plant can qualify for TIF.
Since when is productive farmland a blight? I think Prairie Roots would take issue with that.
And you wonder, wouldn't the development happen without TIF?
It's easy to make the case it's corporate welfare. Sadly, I worry many supposedly fiscal conservatives probably love it.
There are positives and negatives to this. First, a point of clarification, the city isn't taking out the loan, Schafer is. The city's only obligation is to say the loan amount makes sense based on the taxes that will be brought in on the development.
ReplyDeleteThis TIF/TID will allow for the infrastructure development. And, this one will be paid back over 18 years.
The downfall -- only the additional taxes from the property development can be used to pay the TIF.
If you recall, The ethanol plant used a TIF to devleop the infrastructure only to squawk at the value because they didn't think it would be sufficient to pay off the tif. The company also found out that annual profits can't be used to pay toward the TIF bonds to get them paid early.
The larger question is why LAIC was involved, purchasing that house at 533 S. Grant Avenue clear back in June, five months before Schaefer's proposal to the City. Randy simply could buy it himself instead of letting LAIC pay for it. Some are saying the purchase was not approved by LAIC's board. One also wonders who will want to live there, with the unprotected creek and poorly maintained homes, not to mention the west nile mosquito issue. Moderate income families means children, and I certainly wouldn't want my child near that creek. A recent article said homes from $120,000 to $150,000. That is $1300 a month for payment, taxes and insurance. Which low to moderate income families will be able to afford that? How about developing an area for Governor's Houses where a person has $60,000 invested with home, lot, basement and garage. That is nice moderate income housing, but maybe the city can work with Dr. Belatti or whoever owns land east of Madison so there is no creek fears. Just because Schaefer owns a piece of flood plain property doesn't mean it needs to be developed. There is better land in Madison.
ReplyDeleteCorey If I were you I would would explore further the legality of using a TIF within a residential district. The infrastructure installed will still be within the residential district itself. I don't think think the City's loophole is valid.
ReplyDeleteIt'll take a better lawyer than I to nail down the exact intent of SDCl 11-9-42 on TIFs for residential development. I can see where the loophole might lie, but I can also see where some research might turn up that the legislative intent was to see TIFs not applied toward residential development in any way, even a supporting role. Stay tuned... maybe some of the other entities impacted by this move -- surrounding property owners, the school district, and the county -- will find a way to raise some objections to this increasingly questionable tax deal.
ReplyDeleteRapid city is FULL of TID's. All built no where NEAR a blighted area. Behind the rushmore mall area is the new favorite! I'm fighting to remove my land from a proposed tid, that is being called an "Economic Tax Developmt Dist", because the developer drew 400 acres in his DISTRICT that happened to include my 1 acre commercial lot. The requirement for this type of district is that it have commercial land...MY one acre. No one asked me...I requested to be removed for the plat!!! We well see what happens.
ReplyDeleteHey, Jami! Sounds like a sneaky deal to me. Of course, if you can't get your land removed, maybe you can make some massive capital improvement and get the city to let you apply your property tax towards paying it off, just like the rich developers will. ;-)
ReplyDeleteJust curious -- what impact does the TID designation have on your taxes?