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Tax Increment Financing – even less effective as property values decrease

Tax Increment Financing is a dubious economic development tool used by Illinois municipalities seeking to increase the assessed value of property within “blighted” areas of the municipality, through public investments, to create new growth and new taxes.

Any increase in the assessed value of property within the TIF district over a period of 23 years, which is above an initial base Equalized Assessed Value (EAV) that existed when the TIF was created, is called the Tax Increment EAV.

This Tax Increment EAV is multiplied by the current tax rate of each taxing body within the municipality to determine the TIF tax increment to be removed by the County Clerk from each taxing body’s property taxes, prior to distributing those taxes to each district.

The TIF tax increments diverted from each taxing body in the city are deposited into Rockford’s Tax Increment Allocation Fund for investments in the TIF project areas and/or to repay any investment capital obtained by debt financing or bonds.

The City of Rockford’s total Tax Increment EAV this year dropped to $30,809,162 from $37.9M last year, and over $41.6M two years ago, a 25.9% drop due to decreasing property values.

Therefore, at a current tax rate of $6.6884*$30,809,162/100, RSD205 had $2,060,640 of their property taxes diverted to Rockford’s TIF districts in 2013. Similarly, the city paid $776,114, the county paid $290,314, and the Park District paid $292,687 to TIFs.

The total tax increment received by Rockford’s TIF districts was $30,809,162/100 *the current tax rate of $12.9016 (Tax Code 001) = $3,974,875. The city’s tax increment was $4,708,650 in 2010, a 15.6% decrease in two years, which exacerbates the TIF Increment Allocation Fund deficit. The decrease in TIF tax increment was less than EAV drop because tax rates were increased under Tax Caps.

The City of Rockford is presently considering its 33rd TIF District, despite the current consolidated TIF districts annual deficit estimated to be $2.75M by the end of FY2013. In the next decade, the annual deficit in the TIF Allocation Fund was projected to be $4.1M, not taking into account the recent drops in the city’s TIF tax increment.

Rockford’s consolidated TIF Allocation Fund isn’t projected to have a positive balance until 2031, 18 years from now, and only two years before many TIF terms expire. This projection also doesn’t take into account the city’s current decreasing TIF tax increment.

The consolidated TIF deficit will require continued support from successful adjacent TIF districts and the General Fund until such time as property values reverse their downward spiral or until the TIF terms expire in 2033, resulting in higher property taxes or diverting funds from other city services to repay the TIF bonds.

Rockford filed its 2011 TIF Report with the State of Illinois Comptroller’s office but at this time had not filed their FY 2012 TIF Report, which ended on December 31, 2012, almost a year ago.

However, the 2012 Rockford TIF data was available from the Winnebago County Clerk’s office from their Tax Computation Reports, since that department calculates the tax increment to be removed from the other taxing bodies for the Rockford TIF districts.

These reports show a few of the 32 decreasing tax increments generated from Rockford TIF Districts, which are substantial in some districts.

Tax Increment District          2011 increment        2012 Increment        Percentage Loss

West State & Central TIF      $186,632                   $121,335                   (35%)

East State & Alpine TIF         $200,541                   $135,312                   (32.5%)

West State & Kilburn TIF      $14,662                      $8914                         (39.2%)

Jackson School TIF                $93,551                      $56,532                      (39.6%)

Eastside TIF                            $350,103                   $312,764                   (10.7%)

Westside TIF                          $444,888                   $415,656                   (6.6%)

Seventh Street TIF                 $1,061,593                $857,440                   (19.2%)

Totals                                      $2,351,970                $1,907,953                (18.9%)

To answer the question – have Rockford TIF districts been successful in developing growth, we must look at how many districts have expired with a positive cash balance and placed a larger asset back on the tax rolls, than the blighted area asset that was present 23 or more years ago – Anyone, anyone?

Tax Increment Financing in this economy of decreasing property values, decreasing tax increment EAV and decreasing tax increment has not provided the economic goals for which it was intended. The 32 TIFs have been more of a drag on Rockford’s economy, than a source for economic growth.

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17 Comments

  1. CarolF964

    Ted
    Here’s one for you to ponder in the absolutely dumb department in TIF.
    Machesney Park did a TIF and added bonds to expand the business when it brought in Lowe’s. The problem was the TIF ended 7 years before the last bonds taken for the Lowe’s project. They committed their sales tax revenues, in writing, to finish paying off the bond debt when the TIF ended.
    Now the frosting on that little cake was it cost more in bond funds to develop that area than they got from the developer.
    Machesney Park has NO property tax as you know, and relies on sales tax as one of it’s largest sources of income. Because of their bond obligations,(TIF), they have now added new taxes to be sure they can pay them. The redo of the old MP Mall area has an additional tax if you shop there, and they added a utility tax to resident’s bills that can be used for anything, including paying TIF bonds. Like Rockford, they have a 1% Road Tax.
    TIF used correctly is a good deal for all concerned. TIF should never be used that the debt obligated to it isn’t paid for by the end of the district. Borrowing from on contiguous TIF to another is a sure sign you did it wrong the first time.
    I certainly said very loudly, when Treasurer, the Lowe’s deal was risky business for the Village and a big no no financial move as the Home Depot & Menards were already in place and doing very well. Please note the mall is no longer a sales tax producing spot, but will soon have a call center that will employ several hundred persons, and the out-lots, key to bringing in business have never sold to this day. It’s a perfect example of what not to do in TIF.
    My conclusion is you can show any elected board pretty pictures of development and sell them on it. Cities don’t often have a clue about business needs to be successful. TIF’s intentions are good, but those using it often make a mess of it. Areas used aren’t “blighted” but in need of attention not a total renovation.
    Sorry to be so long-winded on this but it rankles my feathers to bond, tax etc., when they should have had more good old fashioned horse sense than to have done it.

  2. Ted, the main reason that a TIF district is so “dubious”, is the lax methods in declaring properties “blighted”, as well as how the TIF funds can be distributed. It is possible for productive farmland to be declared “blighted”, so funds can be used to attract commercial users to the site.

    TIF funds should stay in the district that creates them, rather than being passed from productive TIF sites, to failed sites, or used for other purposes.

  3. CarolF964

    SNuss
    They can decided one business, already in the area they want to become a TIF, doesn’t produce enough revenues, and get that area made a TIF to place a more productive business in its’ place.
    All monies from the TIF must be used in the TIF. That’s why they run Contiguous TIF’s so they can roll-over funds from one to another. As long as TIF boundaries touch that’s legal.
    At the end of a TIF, if there’s funds left after all financial obligations are paid, those funds go back to the school districts etc. who had their portion of tax revenues frozen for the past 23 years. Cities don’t like to give back so they run contiguous TIF’s to hold onto the funds even when boundaries aren’t always making sense.

  4. Carol, your “facts” about TIF funding are not accurate. For example:

    Shifting TIF dollars

    Controversy bubbled over Aug. 17 when aldermen shifted money from the healthy Seventh Street TIF district to help pay for security at On the Waterfront, the city’s annual Labor Day festival.

    A direct shift of such funds isn’t allowed because the downtown festival isn’t a proper TIF expenditure. Furthermore, the festival is staged outside the Seventh Street TIF. Officials targeted the Seventh Street TIF, however, because it has money to spare, unlike other TIF districts in the central city.

    To make the transaction legit, the city sent $10,000 from the Seventh Street TIF to the Redevelopment Fund, a separate city fund originally established to subsidize the MetroCentre. From there, the money was funneled to On the Waterfront.

    Read more: http://www.rrstar.com/x863069318/In-Wednesdays-paper-City-Council-re-examining-TIF-subsidies#ixzz2p9osOvsG

    So, Carol, TIF funds ARE being shifted out-of-district, by “laundering” them through the Redevelopment Fund. Sounds like something that drug cartels would do, doesn’t it?

  5. Carol, there ARE cases when a TIF district will make a difference. However, the track record of the Rockford TIF districts shows far too little return on investment, which would seem to indicate poor site choices, and/or poor management. Worse yet, it could indicate some type of cronyism.
    Tapping funds from the few sites that were showing improvement, for unrelated uses, is a loophole that needs to be plugged.

  6. CarolF964

    SNuss
    You aren’t understanding what I said in the matter.
    The shifting of funds from one TIF to another is permitted when you have Contiguous TIF’s. To be Contiguous, and transfer funds, the border of both TIF’s need to touch.
    You can’t use funds from any TIF for items not associated with actual TIF projects. Infrastructure items would be OK, but buying fireworks, festivals etc. not OK. Signage OK, adding more policing not OK.
    What I’m saying in relationship to TIF is the idea was correct, but the actual execution is often flawed because those being asked to vote on the projects don’t understand much past the pretty drawing shown them what will and won’t happen. They rely too much on city staff to tell them without asking questions.
    When Machesney Park bonded 7 years past the life of a TIF, that should have set off an alarm with their Board. They had already borrowed funds to give the developer the ability to buy land to enlarge past the boundaries of the TIF for parking space for what they thought would be Home Depot. That developer got those funds FREE and Home Depot didn’t build in that TIF but another spot in the Village. Lowe’s didn’t come for some years later to that spot so they bonded again to develop the land and sold at a loss. The key to paying off the bond debt for Lowe’s deal was to sell the corner lot in that TIF. As of two years ago, that lot was still unsold.
    To show the learning curve of the Village in TIF matters, the MP Mall’s success is based a good deal on selling the out-lots of the property which are also still unsold.
    Now hers one more for the ability to understand the use of TIF in that Village. There’s an old quarry and they made that small area into a TIF. The developer said he’d fill it and it would become a sales tax producer. Must be around 7 years and it’s still a hole in the ground and the 23 years are ticking by. They could undo it as a TIF, which I suggested (also said don’t make it a TIF) but than gov doesn’t like to be proven wrong at any level. So they pay small legal fees each year to keep it a TIF for the paperwork. They were more than angry everytime I’d refer to it as The Hole in The Ground TIF. No one could ever answer the question of materials to be used for the fill and how long settling would take before it could be built upon? The developer was a very nice man, but it’s still only a hole in the ground whose clock is ticking away.
    The Village’s first TIF was a success and did remove blighted housing.

    • Ted Biondo

      Carol, TIF money can be transferred to an “adjacent” TIF, but there have been examples of transferring the money that was transferred to an adjacent TIF to an adjacent TIF that only touches the second TIF not the first TIF; so in effect money can be transferred from one TIF to a TIF it does not touch.

    • Carol, had you read what I posted, the City of Rockford DID use TIF funds to help fund the On the Waterfront festival,as described below:

      “To make the transaction legit, the city sent $10,000 from the Seventh Street TIF to the Redevelopment Fund, a separate city fund originally established to subsidize the MetroCentre. From there, the money was funneled to On the Waterfront.”

      why can’t you comprehend what was so clearly written?

  7. CarolF964

    Ted
    Are you saying they can play musical chairs with the funds by multiple transfers as long as one TIF touches another in the process?
    California did away with Redevelopment Districts (TIF) here because of the way it was being handled. I testified before a Grand Jury many years ago and the subject of Redevelopment came up and how the community funded it. Changes as to who sat on the committee that over-saw Redevelopment and reported to the City Council was changed. The committee & Council, plus the legal advice were identical except for one person. Not exactly what I’d call a difference of opinion that protected funds from being spent in ways that didn’t benefit that community. I noted MP had about the same set-up. Only they did it with mostly Village Staff, one member of the Board, and one business person from the community plus the same legal advice used for both the committee & the Board. I just didn’t say anything except you don’t give away money to a developer you had to borrow to buy him extra land outside of the TIF. You don’t bond past the life of a TIF. And you don’t make a hole in the ground into a TIF.
    If you have to point out the committee isn’t really set-up properly be able to advise the voting authority, and that authority can’t see it, it’s a waste of time.
    Failure to handle TIF usually begins with the committee.
    I always felt if I had to hear one more member of a voting authority say, before they voted funding a TIF project, the staff was so competent and they trusted their recommendation, I barf on the spot! It’s like allowing the car salesman to select the vehicle, make your deal for you, and than thank him when he hands you the bill. You can certainly do it, but that won’t exactly make you the sharpest pencil in the box.
    Guess I’m saying Ted, they rig the committees, vote, and than wonder why the projects fail.
    Transferring funds from one TIF to anther shouldn’t be allowed. Left-over funds should go back to the school district and county whose taxes were effected for the 23 years. After all they had to vote to give the city the opportunity to have the TIF in the first place.

    • Ted Biondo

      Yes Carol, you are correct. I’m saying that they sometimes use the TIF Fund as a slush fund to cover TIFs that are not successful. The city has transferred money from the Seventh Street TIF to a non-adjacent TIF district while the deficit for all 32 TIFs of almost $3M dollars is paid by the general fund, our tax dollars.

      Also, a TIF that expires, may be recreated for another 12 – 24 years and the tax increment balance may be used by the new TIF instead of being returned to the schools, the park district, etc. It’s really the city using tax money that should be going to other taxing bodies.

      I have this blog post in the paper Sunday, so a lot more people will get to read it.

  8. Carol, that was exactly what I was trying to explain to you. This TIF law is being treated the same way that ObamaCare is being twisted and turned by Obama. The statute means whatever the powers-that-be want it to mean, changing it by executive fiat, NOT by re-writing and re-passing the law, as SHOULD be done.

  9. CarolF964

    SNuss
    TIF isn’t healthcare insurance. It’s complicated in ways you don’t understand. The insurance is pretty well cut and dried compared to city planning issues and both short and long range growth problems.
    The item I went to the Grand Jury with was actually a contract between the school district and the city that wasn’t being honored by the city. Redevelopment came up in the discussion because some of the property involved was in what you call there a TIF. Couldn’t get help with the contract, but they sure as heck changed Redevelopment practices.
    And there’s always another way to skin a cat, so the city paid dearly to get out of that contract in the end.
    I don’t plan to turn TIF into a discussion of the healthcare issue. Ted has taken the time to provide interesting figures on the failures of TIF in Rockford. I’ve mentioned Machesney Park TIF’s and why I feel they were often flawed.
    TIF is far too serious for any of your YOUTUBE antics. Some things just aren’t politics as usual and crosses party lines for the benefit of the community.
    Planning for keeping a community viable for 20 years into the future includes everything right down to the landscaping and it’s all important.
    So, SNuss, are you really interested in TIF or just healthcare, calling names, and YOUTUBE junk?

  10. Carol, I didn’t post any YouTube videos on TIFs. I simply (for your benefit) compared how the two laws are twisted by the powers-that-be to change the original intent of the law, as written.

    You MAY want to watch THIS YouTube video, Tax Increment Financing 101

    Please pay attention to the problems with TIFs, towards the end of the video.

    http://www.youtube.com/watch?v=0u5aPAyeXGQ

  11. CarolF964

    SNuss
    Try sitting on a committee, or attending a TIF meeting, and when you can’t make your point, suggest they go to youtube and see what happends. Try that same tactic for any committee or any meeting.
    You couldn’t survive 60 seconds with any group using basically Robert’s Rules. Hate to break it to you, but that’s usually what’s used with most local governments etc..
    Committee’s usually don’t allow speakers, you just get to attend the meetings as they are open to the public.
    You don’t do your leg work on youtube. It’s hours spent looking at maps, seeing the sites personally, understanding the laws involved in creating and maintaining TIF. Speaking with committee members, developers etc., who won’t speak to you if all you can do is annoy those who don’t agree with your perspective.
    There’s the real world of gov and the one you pretend exists who wants to pay attention to the uninformed, one dimensional thinker quoting Jefferson in an effort to make a point. If you are unwilling to listen and compromise, you won’t be heard in matters.
    There must be a reason why I only recommend you might want to read a certain Dr. Suess book. What you do is read or watch video designed to give you your opinion. You are unwilling to do the work it takes to have an opinion. It takes lots and lots of homework to deal with any TIF. It’s a long road between beginning and the vote by the governing body to start a TIF. Twenty three years after that to watch it’s growth patterns to keep it on track. Make adjustments. Cope with changes in the laws. And you expect to make a judgement based on only the end results and a youtube video?
    Like so many, you want to be in the moment but not the 23 years to produce a community that remains vibrant and viable in the future.

  12. Carol, I HAVE sat through TIF meetings, and seen how the proponents describe TIF districts as the best thing since sliced bread. When confronted with the fact that all other taxing districts get short-changed, by having to provide more services to these districts, with no additional funding, they say that they will rebate monies to them. If so, why even bother with a TIF district? It is just one more level of bureaucracy that has to be funded.

    As I noted above, the powers-that-be seem perfectly willing to divert TIF funds for non-conforming purposes.

    That is why TIF (and other) laws must be carefully written and implemented, to avoid such abuses.

  13. CarolF964

    So it’s one more level of “bureaucracy?” And the “powers that be.” Really?
    Ted has shown a number of TIFs not making their intended goals and all you have to say is the usual political speak.
    Would you like to tell us all exactly how big (numbers please) is this “bureaucracy?” How you plan to encourage growth in which areas without it?
    Never mind, you are unable to ever think out of your little political box. You are the reason why Rockford does so poorly.
    TIF can be executed and work well for communities you just have to understand why Rockford ended up at a financial loss with theirs rather than using the same old political whoha in place of solutions.
    TIF is a tool that Rockford hasn’t learned to use correctly. So you are prepared to throw the baby out with the bath water. I’m saying you learn from the mistakes and don’t repeat them again. Evidently Rockford is a slow learner.

  14. CarolF964

    Ted
    I’m sorry for for not getting back to your comment on the General Fund picking up the bills for an unsuccessful TIF. It’s one of the things I warned the MP Board about often and especially the TIF whose bonds ran 7 years past the life of that TIF.
    What’s often missing is continuity between administrations, staff, and newly elected persons. The right hand is oblivious of the left hands former promises in these matters. Once passed, the governing body takes no interest in a TIF until the roof falls in and the General Fund begins bailing it out. I’ve found many elected persons don’t even know what the General Fund may or may not pay. If it’s suggested a loan from one fund to the other is the solution, they buy into it and don’t do the homework of simple reading so they can make a real informed choice.
    If you don’t understand how the money works you will fail.
    If you don’t read the bond agreements, etc., you will fail. In MP, when they ran the loan past the TIF’s life, they told the Board the sale of a lot within the TIF would pay off the rest of that bond debt. That was never in writing, just the agreement to use sales tax dollars to pay the debt after the TIF ended. Now there are others in those elected seats, and another head of finances, and yet another in charge of Village Hall. No one has been marketing that lot because they don’t know that was the poor plan a Board long ago put into place. If the lot sells, that money will be used elsewhere.
    As they began developing HWY 173, I went to Village Hall and read the Annexation Agreements for that area. Turns out much of that land was acquired with a deal for any development that produced sales tax dollars, the owners would get a percentage of that revenue. I have no problem in convincing those land owners to annex to MP with that in the deal. I have a problem, when develop is sold to the Board, those deals aren’t talked about where expectations are concerned for revenue growth for MP.. I doubt any Board member knows which property’s are getting sales tax revenues even though it’s a budget item.
    Most likely the amount of needed information a business would understand to ask, an elected body is in the no clue department. It would be nice to see a yearly report on each TIF. One that includes the basics of the original agreement with tax rebates etc and land usage, with up to date P&L for each year.
    Another thing they pull is the continual refinancing of the bonds for a TIF. They claim the interest rate saves money. What the voting body never understands is the first two years of that new lone is borrowed money to pay the TIF’s bills because the TIF can’t afford to pay its’ bills. So they borrow and borrow. Pay interest upon interest which increases the cost of that project and decreases its’ overall value to the community in the end. Unlike the Fed (and I understand you’ll disagree) who borrows to pay salaries for military, etc., they borrow to cover up a bad business plan and than keep making other bad business plans.
    People who care about their community take the time to find out how it spends its’ money and why? TIF is excellent example of how little the average resident knows or cares about their city’s finances. I’d like to see you take more time teaching Rockford about TIF. If all they understand in the end is when a TIF dips into the General Fund, which services the average resident can expect to see beginning to go down the drain for them, you’ll have made a big difference. People won’t care about diverting a seasonal creek so land can be used, but they do care if the street lights are waving bye bye.

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