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Black Hills Corp. received a $6 million tax increment financing district in 2016  for construction of its new headquarters at the intersection of U.S. Highway 16 and Catron Boulevard. The diverted property tax monies helped the company build an office space for up to 150 employees. 

Rapid City – long known as a TIF-friendly community – could soon change the way it helps finance large construction projects, which is long overdue.

Since 1983, the Rapid City Council has approved 80 tax increment districts, including for recent projects like Black Hills Energy’s corporate headquarters and Buffalo Crossing on Highway 16, Rushmore Crossing along Interstate 90 and the yet to be built President’s Plaza in the downtown. Currently, 24 TIF districts involving millions of dollars are active.

Community Development Director Ken Young, who started with the city in September 2017, said he is surprised by how liberally Rapid City uses tax increment financing, or TIFs. “It’s just been too loose,” he told the Journal.

The appeal of TIFs is undeniable and no one can fault a developer or builder for seeking the tax break. A TIF freezes the value of property and the amount of property taxes paid to local governments for a designated period of time. Instead of paying more in property taxes as the project takes shape and increases the value of the land, money is instead diverted to a fund to pay for project costs approved by the city council. 

The policy drafted by Young and his staff makes significant changes in the approval process and clarifies where and how TIFs can be used. First, it designates that TIFs should primarily be used in what is referred to as the community core, which includes the downtown and immediate surrounding area. It also establishes redevelopment corridors that now include Deadwood Avenue and St. Patrick Street.

Young said TIFs can still be awarded for a project outside those areas, but applicants will have to make a strong case that it fits criteria that relates to “public use,” which includes addressing blight, affordable housing or economic development. In addition, TIF funds can only be used for infrastructure and not for buildings or other project amenities, he said.

The other important change aims to limit discretion in decision-making. Currently, a TIF committee consisting of two city council members, two Pennington County commissioners, a city planning commissioner, a school district representative and an Economic Development Partnership representative review requests and send their recommendations to the city planning commission, which reviews them and then can send them to the city council for consideration.

The new policy has a TIF Review Board examining applications and determining how many of 15 criteria are met, which means applicants are required to submit cost projections, fiscal impact studies, market analysis, evidence of need, a legal review and other information. Applicants need to receive 10 points to be eligible for a TIF, which will still need final approval from the city council.

If the council approves the new policy, it will have a significant impact in how taxpayer funds are used. Young said only four of the 24 current tax increment districts would qualify under the proposed policy. He also believes that at least some past projects would have happened without the aid of a TIF.

Developers and builders learned about the proposed policy at a recent public hearing. They also will have the opportunity to comment on it at an upcoming planning commission meeting and before the city council.

The proposed policy is a step forward for Rapid City. It makes the TIF process more clear and fair and less susceptible to politics and charges of favoritism. More importantly, however, it helps insure that tax breaks approved for large projects are in the best interests of the community at large and not just for private companies that may not need the financial assistance or whose projects don’t fit the city’s development priorities or goals.

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