Last month I wrote an article about the Divergent Diamond Interchange improvement and our Moody’s Investors Service credit rating and I briefly mentioned “TIF” as the means to pay for the improvement.
This article explains what a TIF is and how they’re used to improve our Township.
The idea of Tax Increment Financing, or TIF, was first used in California in 1952. Since then, it’s been widely used by communities around the United States to provide funding to either develop raw land or re-develop (gentrify) blighted areas. Primarily, TIF investments are used for infrastructure and community improvement projects.
From the Ohio Township Handbook a TIF is: “an economic development mechanism available to local governments in Ohio to finance public infrastructure improvements and, in certain circumstances, residential rehabilitation.”
So here’s how they work:
Step 1: Identify a large amount of farm land (or blighted property) that’s uniquely positioned close to a primary road or highway (think about the Union Centre Blvd interchange on I-75).
Step 2: TIF’s are boundary or geographic specific which means the area is clearly defined with coordinates. Essentially you draw a box around the land you want in your TIF.
Step 3: Next the current value is assessed by the County Auditor and a beginning tax basis is established. In this case, the farm land is zoned agricultural so the current tax valuation is relatively low. For our purposes, let’s say the beginning TIF tax valuation is $100,000.
Step 4: The local jurisdiction bets on the future or appreciated value of the TIF district after it has been developed (or redeveloped) and takes out a bond (loan) to pay for public infrastructure like roads, bridges, water, sewer, etc. Let’s say the future TIF tax valuation is $1B.
Step 5: As developers, entrepreneurs and risk takers commit to projects, the local jurisdiction builds more public infrastructure to meet the needs of the district.
Property tax collection in TIF districts are called PILOT payments or ‘Payment In Lieu of Taxes’. These PILOT payments are made on the appreciated value only and is caused by the investment in the area. Ultimately the same amount of money a property owner would normally pay in regular property taxes, but they are distributed differently, i.e. a greater portion of the taxes goes to the local jurisdiction.
For instance, in West Chester all property taxes in non-TIF areas are distributed as follows:
• 63% to Lakota Schools,
• 19% to West Chester (Police, Fire, Roads, General Fund), and
• 13% to Butler County.
• 3% Butler Tech
• 1% Metro Parks
• 1% Midpointe Library
PILOT payments in TIF Districts are distributed differently. Generally speaking, 66% still goes to Lakota Schools & Butler Tech, but now West Chester gets the remaining 34%. West Chester uses this money to finance the debt (make bond payments) and to build more infrastructure in the TIF districts.
Two other important points – TIF money can ONLY be used for the benefit of the TIF district, and TIF’s retire after a set period of time, usually no more than 30 years.West Chester Township has seven (7) TIF districts. They’re listed below with their current ‘Cash Balance’ AND separate ‘Debt Fund Cash’ at this writing.
• Union Centre Blvd TIF, Cash Balance $27,544,000 + Debt Fund Cash $7,175,000
• Central Business District TIF, Cash Balance $6,027,000 + Debt Fund Cash $209,000
• 747 TIF, Cash Balance $24,840,000 + Debt Fund Cash $1,789,000
• Tylersville Road TIF, Cash Balance $26,000
• Tylersville Place/I-75 TIF, Cash Balance $11,000
• Cin-Col Road TIF, Cash Balance $2,800
• Cin-Day Road TIF, Cash Balance $215
In West Chester, TIF funds have been used for various public improvements including road improvements in the Union Centre area, construction of West Chester Fire Headquarters and Fire Station 71, acquisition and renovations of the West Chester Safety Services Center/Police Department and construction of amenities such as the West Chester Library.