Partners for Growth: TIF districts let cities pay it forward

The 150-year-old Arnold Hotel, which sat vacant and boarded up for more than a decade, was finally removed last year to make way for a new Ace Hardware store, thanks in part to a TIF district created by the city to pay for part of the project. (Southern Minn Media photo)

By: Tom Kuntz
February 1, 2018

Merry Christmas and a Happy New Year to all. I hope everyone had a very blessed Christmas and will safely enjoy the New Year.

In October of last year, my wife and I took a trip out East, and in the Providence Journal was an article on Tax Increment Financing. The article said, City officials have mapped out a 60 to 70-acre swath, covering downtown and surrounding neighborhoods, where they would dedicate new property tax revenue to cover the city’s investment in a new stadium for the Pawtucket Red Sox.

Mayor Tom Kuntz

How a TIF district works: A tax-increment financing district is a way of paying for part or all of a project by setting aside tax revenues that result from the project. It captures some or all of the extra revenue paid in taxes by new development, redevelopment of once-vacant properties in the district or by increased property values.

An example would be a vacant building that generates $1,000 a year in taxes. A new developer renovates the property into apartments and/or retail space. The new facility now generates $10,000 a year in taxes. The city could use the difference of $9,000 a year for a period of, say, 10 years to help up front with the development. After the ten-year time period, the whole $10,000 generated by taxes goes back into the general fund.

TIF is used to encourage three general types of private development: redevelopment, growth in low- to moderate- income housing and economic development. Such districts are created for a certain number of years depending on the type of district. After they expire, new tax revenue again flows into the community’s general fund.

All TIF districts must meet a “But for” test. The development is only possible but for the use of tax increment financing. An elected body must make this finding. There are strict restrictions on how the increment is spent too. TIF eligible expenses include: land acquisition, demolition and relocation, site improvements, environmental cleanup, parking, utilities, streets, sidewalks and building rehab for substandard housing.

Owatonna uses TIF for that very reason to improve property values and increase tax revenue for the great City of Owatonna. In 2017 we purchased 122 Vine Street (which was the Arnold house) and used TIF to help develop Ace Hardware. This neglected property sat empty for years due to barriers to redevelopment such as potential soil contamination, asbestos removal and costs of demolition. TIF dollars were used for purchase of the property, demolition and the public parking lot.

This is a good example of how tax increment financing is used to increase the city tax base over time and help redevelop properties.

Tom Kuntz is the Mayor of Owatonna and a member of Owatonna Partners for Economic Development.

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