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Wednesday, July 22,2009

TIF for tat

Refinancing the city’s TIF saves the city millions, but leaves no room for anything but paying debt.

by Neal McNamara

 


The city of Chicago used revenue from one of its many tax increment-financing districts to build a Frank Gehry-designed amphitheatre, sculpture park (you know, that big, shiny bean and the fountain with the big video screens?) and a bunch of other great stuff for tourists and — weather permitting — downtown office workers on lunch break right downtown on Lake Michigan.

Lansing, on the other hand, is using its TIF district — bordered roughly by Lenawee, Walnut and Shiawassee streets and the train tracks on Michigan Avenue — revenue to pay debt on renovations to the Lansing Center, the building of the Veteran’s Memorial Courthouse and the handful of downtown parking ramps.

And that’s how it’s going to stay until at least 2033.


If you’re confused so far, that’s probably because what is “tax increment financing?” is hanging you up. Tax increment financing is an economic development tool that freezes taxes for city services and captures yearly increases — the increment — after the TIF has been put in place. The increment is used for public improvement projects. It’s not that you’re not paying taxes — and Lansing’s TIF includes personal property taxes, property taxes and the CATA millage — it’s just that each year your taxes go up, they go to the TIF instead of city services.

Last year, the Anderson House Office Building — that white building with the stained-glass windows that spans the intersection of Capitol Avenue and Ottawa Street — came off the tax rolls when it was sold to the state by its developers, Joel Ferguson and Gary Granger.

At over $1.2 million in property taxes per year, the sale of that building to a taxexempt entity leaves a 20 percent revenue hole in the TIF.


Up until the sale of that building, things had been going pretty smoothly for the TIF. Most of its roughly $5 million in yearly revenue was being put toward payments of debt for the above-mentioned projects (the rest, 5 percent, was going to the Lansing Economic Development Corp. for administrative costs). But now, facing a $1.2 million shortfall, something had to be done so that the TIF could continue to pay the debt and so that the general fund would not have to cover it.


So, the EDC decided to refinance some of its debt. The move was approved by the City Council last week, with First Ward Councilman Eric Hewitt the sole nay vote. The
EDC and the Building Authority will now bond over $20 million to cover
the shortfalls from the loss of the House building until 2020. After
2020, the TIF will be extended to 2033 to continue paying debt.


But
before the EDC could do all this, a change in state legislation was
required to allow for entities such as the EDC and the Building
Authority to bond for the purposes of refinancing (it’s House Bill
6620, if you want to read the whole mess). Last summer, the EDC’s CEO,
Bob Trezise, had made comments about refinancing the TIF debt so that
more money could be freed up for “fun” things, like a downtown
performing arts center, or whatever else. That was the plan, at least.
When the bill passed the House, the TIF was allowed to use any extra
money left after paying debt and administrative costs.

But, to
throw another spice into this already confusing tax soup, since
Lansing’s TIF captures state education taxes because it was set up
prior to Proposal A (a 1994 constitutional amendment that, among other
things, shifted school funding to a state responsibility), some had a
problem with us using those funds for our downtown. In fact, 40 percent
of Lansing’s TIF revenues are from state education taxes, and the
Senate version of the bill, which became law, did not allow for extra
room in the TIF for public improvement projects like a performing arts
center, water fountain or whatever.

The other 60 percent of
TIF revenue comes from local taxes. Twenty-six percent of that 60
percent is city taxes that would otherwise go to services like police,
fire and all the rest.


However, the EDC did manage to eek out an extra
2 percent for its administrative costs, if necessary.

Extending
the TIF means that all the tax increment produced downtown will
continue to feed the TIF until at least 2033. By then, the TIF will be
over 50 years old and all Lansing will have gotten out of it is a few
parking ramps (the debt for which, in another complicated TIF move
executed last year, are paid for by a lease with the city for the
Townsend ramp on Allegan Street), a courthouse and the Lansing Center.

This
refinancing, while it might not spice up downtown, will save the city
$15 million it would have had to pay over the next 11 years to cover
the TIF’s shortfall from the sale of the Anderson House Office
Building.

Someday we’ll get that Gehry-designed performing arts center.



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