Proposed changes to Rapid City’s tax increment financing (TIF) district policies were met with objections Wednesday from one city council member and private developers during the Legal and Finance Committee meeting.
City planners have been examining changes to the approval process since 2018, citing a new focus on promoting new infill development within the core areas of Rapid City and for economic development and affordable housing rather than incentivizing development in areas outside of the city’s center.
According to documents from the city’s Community Development Department, Rapid City has approved the creation of 80 TIF districts. The bulk of them have been in fringe areas of the city’s core. As of September 2019, 22 TIF districts are still active and four of those are within the core community.
Additionally, city staff are looking to emphasize that TIF public financing should only be used when necessary. The developer looking for the incentive must follow state law to prove that a project could not be built without TIF incentive.
Long Range Planning Manager Patsy Horton said the proposal comes after several months of public meetings for input on how TIFs are being used in Rapid City.
“We’re trying to come up with an end product that is best for the public as a whole, and the developer as well, so that we can encourage development and get some infrastructure constructed,” Horton said Tuesday. “At the same time, we still need to provide some means of accountability, some means of evaluation.”
Horton said the current policy lacks the tools necessary to determine if TIF projects are feasible or if there is a necessity where the developer needs help to get the project completed.
“We’re trying to identify and better define what we have today to get the best project that we can,” Horton said.
However, Ward 3 City Council member Chad Lewis made it clear Wednesday he would oppose the changes when it comes before the council on Jan. 21.
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“Why are we fixing this? I’m not sure what’s broken,” Lewis said. “I would say (property) evaluations have gone up drastically because of TIF. We have projects that would have never, ever gone forward had the TIFs not been there.”
Attorney Kent Hagg said he has seen both sides of the TIF system as both a former and current city attorney as well as a developer. Hagg argued the proposed TIF guideline changes are the wrong move.
“There are some fundamental changes in there that absolutely … gut the abilities of what a city can do under state law,” he said.
Hagg said the proposed guidelines would limit the city’s “broad discretion” in customizing economic incentives through TIF and, in the long run, do little to promote the goals of infill/revitalization of Rapid City’s core area, creating affordable housing and stimulating economic development.
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.
A September 2018 study by University of Illinois at Chicago Professor David Merriman showed that in most cases, TIF does not accomplish the goal of promoting economic development. Merriman wrote a book on the matter, entitled “Improving Tax Increment Financing (TIF) for Economic Development.”
In the book, Merriman cautioned that TIF districts need high levels of scrutiny in order to make sure the benefits outweigh the risk.
“Tax increment financing has the potential to draw investment into long-neglected places, but its success requires rigorous analysis, transparency, and oversight to ensure that the expenditure of taxpayer dollars truly benefits the public,” Merriman wrote.
Rapid City’s proposed changes to the TIF policy will be heard next by the Rapid City Common Council at 6:30 p.m. on Tuesday.