Rapid City is tightening its policies for tax increment financing district applications in a move that’s likely to cause concern for local developers.
The policy change comes at the direction of Ken Young, the city’s Community Development Director, who has been working with staff over the past few months to change how the city handles TIF district applications and limit where they can be utilized. The issue has been on his mind since his first day in Rapid City, Young said in a Journal interview Wednesday.
“One of the first things that I noticed coming into the community is that we need to tighten this up,” Young said.
He first became aware of the situation during a three-hour tour of the city with Public Works Director Dale Tech while interviewing for the position he’s held since October. As Tech pointed out the various TIFs across the city, Young was shocked.
“I’m just going ‘My goodness! What are we doing here?’” he said.
His conclusion of Rapid City’s TIF process was simple.
“It’s just been too loose,” he said.
Tax increment financing districts are intended to encourage economic development or public improvement projects in blighted areas by diverting the payment of property taxes in the district. In essence, as the construction or improvements are completed, the district’s property valuation and subsequent property taxes increase. But instead of collecting the increased property tax payments and allocating them to the city, county and schools, the money is instead diverted to a fund to pay for project costs approved by the city council. Property taxes are still collected by the government but only for the amount related to the valuation of the property before the work begins, called the base valuation. The additional tax payment monies related to the increased valuation are diverted toward the TIF’s pre-approved project. Theoretically, the diverted funds make it possible for a project that would have otherwise been unfeasible to move forward.
In the past, Young said the city has been too lax with its definition of blight and its requirement that a developer prove a project would be difficult or impossible to achieve without the TIF. It’s also been too easy for a developer to divert TIF funds to project costs that weren’t specifically related to the project’s public benefit, he said.
“It appeared that there were a lot of projects that would have happened anyway without that (TIF),” Young said. “There are several projects in the past that have been approved that probably wouldn’t be now simply because of our new focus.” Young refused to give examples of those districts, saying he didn’t want to “hurt any particular developer’s feelings.”
As part of the city’s new focus, priority will be given to applications within an area Young called the “community core,” which encompasses the city’s historic boundaries of North and South streets and East and West boulevards, as well as all land within one mile of those boundaries.
Outside that area, “redevelopment corridors” would be created in locations where blight is prevalent and economic development is needed. Young mentioned Deadwood Avenue and St. Patrick Street as two possible redevelopment corridors.
“We’re certainly not trying to chase any developers away,” he said. “We’re just trying to say we want the focus to be more on the central core of the community.”
Currently, Young estimated the city has about 80 TIF districts and 24 active districts, with many of the largest districts on the outskirts of the city. Under the new policy, approval of a TIF outside the community core and redevelopment corridors wouldn’t be restricted but the applications would need to be very strong, Young said.
The presence of blight, potential for economic development, location in the community core or redevelopment corridors, and the necessity of the TIF to the project’s viability would be the four largest components in the city’s decision on TIF applications, Young said.
In conversations about the anticipated policy changes with area developers Doyle Estes and Hani Shafai, both men were hesitant to comment, saying they would prefer to wait until April 24 when the city plans to unveil a first draft of the policy at an open house meeting. Developer Pat Hall was not available for comment.
Shafai said he remained hopeful, noting that the language, not the overarching policy, would determine his opinion.
When the expected policy of prioritizing TIF applications in the community core and redevelopment districts was explained to Estes, he offered a brief take.
“If that’s the case, it’s rather disappointing to me,” Estes said.
But one area man with a deep connection to TIF districts, Don Frankenfeld, sang a different tune. Frankenfeld helped write South Dakota’s TIF district laws when he was a state senator from 1977-1984.
“My immediate reaction is euphoria,” he said. "It sounds terrific. It sounds like we have a person (Young) who understands TIFs and their uses and also understands their disadvantage and that has, in my opinion, been lacking in the city culture for as long as I can remember.”
The new policy and associated ordinance amendments setting it into city law are expected to be considered by the Rapid City Council in May.