USD 410 concerned with loss of tax revenue
USD 410 Superintendent Steve Noble came to last Tuesday?s Hillsboro City Council meeting to present questions from school board members about the impact the city-initiated tax increment finance district (TIF) would have on local schools.
Noble received answers to his questions, but along the way discovered it was too late for either the school district or the county to do anything about the outcome.
The exchange came during a public hearing called by the council to review the Midway Motors project plan within the TIF district, not the impact of forming a district itself.
Andrew Kovar, representing the city?s bond counsel, said the opportunity for taxing entities to challenge the TIF district was within 30 days of its formation in 2008.
Noble paused momentarily, then asked, ?What is the purpose of this hearing then since the opportunity (to protest) maybe has passed??
City Administrator Larry Paine pause, then responded, ?The purpose of this?I?m making an adjusting now, too?is that we have a special plan to address the needs of Midway Motors.
?There is a statutory require?ment that we have to do a public hearing in advance of approving an ordinance that creates that next protest period.?
Noble said the school district has what he perceives to be a ?tremendous? working relationship with the city and appreciated the time Paine and Clint Seibel, the city?s economic development director, spent explaining a TIF district to him in a previous meeting.
?Quite frankly, it?s quite a complex situation,? Noble said of the concept.
In addition to asking a few questions about the details of a TIF district, Noble noted that when Midway moves into its new facility and USD 410 takes over the old building for its central office and transportation center, the property on Date Street will be taken off the tax role, resulting in an additional loss of tax revenue for the city, county and school district.
Noble estimated the loss to the school district to be between $3,000 and $3,200 per year. He estimated the loss to the district from the new facility over the life of TIF district to be about $7,600 per year.
?As that (business park) continues to develop, the potential revenue we wouldn?t receive would go up as well,? he said. ?Eventually, it would come in, though.?
Noble said the board appreciates the city?s aggressiveness in economic development, but during a time when funding is tight for public education, the loss of additional funds is more disconcerting.
?We?re experiencing very challenging times, which I think causes the dynamic to shift a little in terms of their comfort level with the project,? Noble said. ?I felt that last night (Dec. 6) at our board meeting, and felt I needed to share that with you as well.?
Marion County Commission Chairman Randy Dallke entered the discussion later in the council meeting. He asked how the TIF project would affect the county?s neighborhood revitalization program. He was told a business must participate in one or the other.
Dallke asked about what the city would do with the money it received for selling the lots to Midway Motors. Paine said the money would go back into the city?s capital improvement or general funds.
Dallke said residents in other parts of the county are talking about the TIF method in Hillsboro, and how it might affect them. The city of Peabody is considering TIF financing for existing buildings in its downtown.
Paine offered to attend a county commission meeting to explain Hillsboro?s TIF program.
Once Dallke completed his comments, the council approved the city ordinance that outlines the TIF plan designed for Midway Motors by a 4-0 vote.
In other business, the council:
? meeting as the Public Building Commission, approved an audit proposal by The Arbritrage Group Inc. An audit is required every five years when bonds are refinanced, Paine said. The cost of the audit will be $2,500.
? authorized the mayor to sign a permit application for the city?s new yard-waste compost location.
? appointed Councilor Kevin Suderman as the city?s representative on the Combined Town?ship Boards during its discussion of financing the purchase of a new fire truck.
? approved a request for proposal for companies interested in bidding their services as the city?s auditor for 2010 through 2012. Proposals are due Jan. 3 and candidates will be interviewed Jan. 5-12.
? delayed action to get input from the city attorney regarding a policy change that would give the city administrator and mayor case-by-case flexibility to determine when an employee who is on injury leave should be allowed to accrue vacation and sick-leave days.
Council members expressed concern about legal ramifications if action for an employee deviates from a written policy.
? approved a job description and level of benefits for a temporary laborer when one is needed.
? approved an ordinance changing the names of certain streets in Hillsboro Heights.
? authorized the mayor to sign a 90/10 matching-grant application with the Kansas Department of Transportation that could result in $25,000 to $40,000 to develop a comprehensive airport facilities master plan.
Such a plan is one of the primary documents needed by KDOT and the Federal Aviation Administration for funding airport improvements.
Commissioners say they weren?t informed
Marion County commissioners and Hillsboro city officials had a frank exchange about tax increment financing during Monday?s commission meeting.
Hillsboro City Administrator Larry Paine defended the city?s use of TIF in the development of Hillsboro Business Park on the north edge of town along U.S. Highway 56 as a ?very positive economic-development growth tool.?
Two of the three commissioners present, chairman Randy Dallke and Dan Holub, chided Hillsboro for not clearly communicating to county government the tax-revenue impact of a TIF district when it was formed in 2008.
What is TIF?
Tax increment financing involves forming a tax district for undeveloped property with the primary purpose of easing the upfront investment of an enterprise interested in locating there.
In the case in question, the developer?the city of Hillsboro?made the $400,000 investment to develop the property and install streets and utilities to accommodate a new facility for Midway Motors.
The business will pay for the development of the property through property taxes over the life of the TIF district instead of all at once. A TIF arrangement cannot surpass 20 years.
Instead of being divvied out in the usual way between the city, county and local school district, the tax revenue will be designated for the TIF district and most will be directed to the city to pay off the bond that financed the development.
City, county and the school district will continue to get property tax revenue on the value of the property before it was developed. When the TIF arrangement ends, the three taxing entities will receive the property-tax revenue according to current valuation.
Paine said by using TIF, the developer and business both win. The business has financial incentive to build on property with a smaller upfront investment, and taxing entities eventually will benefit from the property?s significantly higher valuation.
Commissioners Holub and Dallke expressed concern about the loss of tax revenue to the county and school district in the short run, and that the loss of those dollars ultimately affects all of the county.
Paine said the county initially would miss out on the $12,000 it would otherwise be receiving on the property once it was developed. Also, the county will benefit from additional sales-tax revenue generated by increased vehicle sales once the dealership is located along a major highway.
Holub said when Midway inhabits its new facility, the former facility along D Street will go off the tax roll because USD 410 will be using it as a central office and transportation center.
Paine acknowledged the transition, but added that the city of Hillsboro will be adversely affected in the same way.
Clint Seibel, economic devlopment director, encouraged the commissioners to look at the ?big picture? of economic development. True, the former dealer?ship property will be coming off the tax rolls, but a new $10 million hospital soon will be coming on line as a fully taxable entity once it is completed.
?We need to talk about what we?re gaining, not just what we?re losing,? Seibel said.
Dallke and Holub suggested Hillsboro officials did not communicate clearly enough about the formation of the TIF district in 2008, when the county would have had a chance to be part of the discussion.
?It should have happened two years ago,? Holub said about Monday?s conversation. ?We?re talking big bucks here. You owed us a visit here to tell what was going on.?
Dallke said: ?It?s new for Marion County, and something we?ll have to learn on.?
Paine said he had a preliminary visit with the county in 2008, and the county was notified of the city?s public hearing on the TIF district in early 2009.
Paine admitted the city could have done a better job of keeping the county and school district informed of the impact of TIF so the two entities wouldn?t have been ?blown out of the water like they were? when they discovered last week that the time to protest the TIF district had passed.
Informing or interfering
Paine did voice objection to an unnamed commissioner calling the owner of Midway Motors to say, ?Hills?boro is taking advantage of you, you need to think of doing the (county?s) neighborhood revitalization program instead of using TIF.?
?We?re wondering why one of you would want to put your nose into the camel?s tent to sully the deal,? Paine said.
Holub identified himself as the commissioner in question, and said he resented the implication that he was interfering in the city?s business.
?Isn?t it the county?s business too?? he asked.
Holub said all he was doing was letting the business owner know how much money the owner was giving up?about $150,000?by not participating in the county?s neighborhood revitalization program.
Holub said he was not trying to sway the owner one way or the other, but that the owner was not aware of the county?s option when Holub called him.
Paine said the owner could have opted out of TIF, but he would have had to pay upfront the $400,000 the city invested for infrastructure, plus about $178,000 in interest.
Paine said a business cannot participate in both a TIF district and another tax-abatement program of any kind.
?It?s one or the other,? he said. ?It doesn?t make sense (for the auto dealership) to use the neighborhood revitalization program.?
Terry Eberhard, president of the Peabody-Burns board of Education, was on hand for the discussion. His observation at the end was that the TIF approach seems to pit taxing entities against each other, which is unfortunate.
The city of Peabody also is exploring the forming of a TIF district for economic development purposes.
Commissioners did experience a first at Monday?s meeting?an in-person visit from its representative to the Kansas Senate regarding the TransCanada Keystone pipeline tax-exemption issue.
Sen. Jeff Longbine, newly elected successor to Jim Barnett, listened to Holub?s assessment of the situation and asked several follow-up questions.
Holub repeated his contention that Marion County is losing a minimum of $3.5 million per year in property-tax revenue because of the state?s 10-year exemption.
?Looks to me, from the outside looking in, that Kansas made a bad deal,? Longbine said.
He encouraged the county to continuing following application review by the state?s Court of Tax Appeals for possible disqualification.
But Longbine did not offer much hope that state lawmakers would try to fix the problem midstream through legislation.
?I believe it would send a bad message for all future economic development in Kansas,? Long?bine said in regard to changing the pipeline agreement. ?It doesn?t send a good message to future investors and employers in Kansas.?
Holub said the exemption agreement was more than just a bad economic deal.
?It was fraud on somebody?s part,? he said.
State Rep. Bob Brookens arrived late to the discussion because of travel issues over the weekend. He said he was not aware of any new developments on the issue since his last conversation with the commissioners.