A potentially prosperous business corridor is emerging at the intersection of U.S. Highway 16 and Catron Boulevard, and at least one hefty subsidy provided by Rapid City property taxes is helping that happen.
A second such subsidy also may be approved as early as Monday.
The Rapid City Council recently created a tax-increment financing district, colloquially known as a TIF, for the Buffalo Crossing development on the southeast corner of that intersection.
The TIF, an often-used device in economic development, will provide $5 million in property-tax revenue for public infrastructure projects on the Buffalo Crossing site.
On Monday the council will consider granting TIF status to the new Black Hills Corp. headquarters on the southwest corner of that intersection. That TIF would provide $6 million to build additional office space in the headquarters.
Critics, including some on the Rapid City Council, argue that TIFs sometimes are granted too easily, and that companies would develop their projects or add jobs even if the TIFs were not approved. And Don Frankenfeld, who helped write the state's TIF law when he was a state senator, said Rapid City has a history of "misusing" TIFs, adding that some of the council members have been "gullible" in accepting companies' pleas for financial assistance.
Aid to Buffalo Crossing
Communities nationwide have been using tax-increment financing to persuade companies to move to an area.
When a piece of land is the site of blight or even vacant, it produces little in the way of property-tax revenue for local governments. But if there is development on the land, the property-tax revenue increases.
Without a TIF, that increase in tax revenue goes into governments' general funds.
But with a TIF, the increase is pledged to pay for some project, usually referred to by the blanket term infrastructure, that will make the land more attractive to a private company.
A split Rapid City Council voted last month to create a TIF district for the medical and commercial campus known as Buffalo Crossing, which is planned to rise from the rubble of the demolished Rushmore Waterslide Park.
By a 6-3 vote, the council approved the creation of a TIF for the 58-acre plot. More than $5 million in TIF funds will be used for public infrastructure projects around the property.
According to a city document, the actual construction cost of the TIF projects will be more than $3 million, with financing costs and interest on the TIF loan estimated at more than $1.9 million.
A question raised by at least one of the council members who voted against the Buffalo Crossing TIF is whether the land is considered blighted, a common requirement for the creation of a TIF district. Alderman Brad Estes argued that the property is not blighted.
But Mayor Steve Allender said in an interview that the fact that the developer had to clear the land and prepare it for construction meant that blight was an appropriate label.
Buffalo Crossing is the 77th TIF district created by the city since 1983.
The developers are a pair of newly formed limited liability corporations — KS West LLC and SK East LLC — both of which are headed by Hani Shafai, a leading developer in the area.
Shafai said the TIF funds will allow him to move forward with building the multi-use development.
"There is actually a huge public benefit," Shafai said in an interview on Friday. He argues that land was not producing much tax revenue before he purchased it, and now the public will benefit from the increased property value as well as the public infrastructure upgrades.
Buffalo Crossing is designed to be a campus of medical buildings including a research center, a physical-rehabilitation facility and professional offices. There also will be a hotel and retail businesses on the property.
Estes was joined by Alderman Steve Laurenti and Alderwoman Charity Doyle in casting "nay" votes.
"I think TIF districts are a great tool," Estes said in an interview after the TIF vote, "but I thought this one was too rich."
Buffalo Crossing is not considered a blighted area, Estes said, and the jobs added by the development were going to be created with or without the TIF district.
Rapid City publishes "A Guide for Applicants" seeking TIF districts. Under a heading of "Purpose of Tax Increment Financing," the guide lists five criteria, the first of which is "To encourage the redevelopment of deteriorated, or otherwise blighted real property." The list also includes "assisting projects that promote the long-term economic vitality" and "to stimulate increased private investment in areas that would have otherwise remained undeveloped or under-developed."
Allender said the Buffalo Crossing property could be considered blighted because of the waterslide business that was left on the property and because the giant hill for the slide had to be removed. The developers removed the slide and the hill before applying for a TIF district.
"I think the particular confusion with this TIF is, the developer didn’t apply for a TIF until after some of these things were done," Allender said.
Estes said he also worries that the council's action on Buffalo Crossing may set a precedent that means all future commercial developments will apply for TIF districts.
Laurenti, who sits on the city's TIF Committee, has spoken out against this TIF district in previous meetings.
"Developments happen in Rapid City without creating a burden like a TIF for the rest of the taxpayers,"Laurenti said at the March 16 meeting of the City Council's Legal and Finance Committee.
Laurenti argued that the Buffalo Crossing developers have not established a real need for TIF funding.
But the developers have said that creating a TIF district at the property will allow them to build larger medical buildings, which could translate to more jobs.
TIF-funded projects for the district include the construction of Healing Way, Buffalo Crossing's main road; installation of a traffic light on Healing Way and Catron Boulevard; a turning lane onto Wellington Drive, which provides access to an existing subdivision; and water hookups for the property.
Patsy Horton, Rapid City long-range planning manager, said the TIF process works this way:
As the land is developed, the higher assessed value will increase tax revenues collected on the property. All of the increase is placed in a TIF fund, which is then used to pay back the money borrowed for the public infrastructure projects. The term of the Buffalo Crossing loan is 20 years, although a city document estimates that the loan will be paid off by the end of 2024. Without the TIF, the increase in tax revenues would be distributed to the city's general fund, school district and other taxing entities.
Buffalo Crossing planners highlighted the potential economic benefits of this development in their TIF application, including:
• More than $100 million in development in the area previously occupied by the Rushmore Waterslide Park.
• More than 400 full-time jobs with an annual payroll of $25 million.
• Close to 180 full-time construction jobs annually for the next five years.
Allender sent a letter to the full council asking members to support the TIF because it will encourage commercial development in Rapid City and ultimately help the city reach its goals in terms of job growth and economic development.
Black Hills Corp.: The next TIF?
Last week the Rapid City Council's Legal and Finance committee voted to move the Black Hills Corp. TIF request to the full council without recommendation.
The full council will consider the TIF application at its meeting on Monday, which begins at 6:30 p.m. at the City/School Administration Center at 300 Sixth Street.
What makes the Black Hills Corp. TIF different from other TIFs is the area being developed is not considered blighted, and none of the TIF money is going toward public infrastructure projects.
The TIF funds would be spent to create additional office space in the $70 million headquarters already under construction.
Black Hills Corp. is requesting $6 million in TIF funds to expand by almost 40,000 square feet the headquarters' amount of office space, which Black Hills Corp. says will provide seating for an additional 150 workers. According to planning documents, $3.2 million is needed for the construction of the office space. The distribution of the other funds for this project could not be confirmed.
Without the TIF, Black Hills Corp. was projecting 550 employees would work in the new headquarters.
"The TIF would help us bring at least 50 jobs to Rapid City and create the potential for more jobs here," Jafar Karim, Black Hills Corp.'s director of corporate affairs. "It also affirms our decision to build our multi-state corporate headquarters here."
Karim said the 50 new jobs could generate $8.1 million in economic activity annually in the Rapid City area.
According to the project plan for the Black Hills Corp.'s TIF, the average salary for the employees working at the new headquarters will be $85,000.
Laurenti said he doesn’t buy the job-creation rationale for the TIF. He said he thinks those jobs were coming to Rapid City anyway because it benefits Black Hills Corp. to centralize its operations as much as possible.
“The costs covered by the TIF are not the things that wouldn't be completed if the TIF was not approved,” Laurenti wrote in an email. “For this very reason, the TIF should be denied."
Frankenfeld, the former South Dakota state senator who co-authored the state's tax-increment-financing law over 30 years ago, said the Rapid City Council has a history of misusing TIFs.
"Too many people on the City Council have been gullible about TIFs for too many years," Frankenfeld said in an interview on Friday.
Allender on Friday called the proposal "an economic development TIF," adding that Black Hills Corp. indicated it could be years before it built the additional office space. Granting the TIF now, Allender said, would speed up that process and more quickly bring jobs to Rapid City.
Although Frankenfeld said he supports the development of the Black Hills Corp. headquarters in Rapid City, he disagrees that tax revenues should be diverted from the general fund to finance something like an office space for a profitable company.
He added: "There should be a very disciplined process before the City Council writes welfare checks to rich people."