Tax Increment Financing

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A presentation explaining tax increment financing used while with the City of Ottawa, Kansas.

Text of Tax Increment Financing

  • UnderstandingTax Increment Financing(TIF)

  • TIF: What is it?A local government financing tool that can be used to target development to specific areas to capture new tax dollars to fund the needed public improvements that would not otherwise have occurred.

  • TIFs PurposePromote, stimulate and develop the general and economic welfare of Kansas and its communities. Assist in development and redevelopment of areas designated as blighted, environmentally contaminated, conservation, and enterprise zones.-taken from Kansas Statutes

  • TIF Pays for Public ImprovementsAllows part or all of future growth in property tax revenue resulting from redevelopment to be used to pay for the public improvements involved in a project.

  • Public Improvements TIF will FinanceSanitary and storm sewers and lift stations;Drainage conduits, channels and levees;Street grading, paving, curbing and guttering;Street lighting fixtures, connection and facilities;Underground gas, water, heating and electrical service and connections;Drives and driveway approaches in right-of-way;

  • Public Improvements (cont.)Sidewalks and pedestrian under and overpasses;Water mains and extensions;Parking facilities;Landscaping and plants, fountains, shelters, benches, sculptures, lighting and similar amenities and;

  • Public Improvements (cont.)All related expenses to redevelop and finance the redevelopment project (such as bond and legal counsel, or other required studies).

  • TIF Includes:Incremental increases in property tax revenues from:CountyCityUnified School DistrictAny other taxing subdivision levying real property taxes

    Does not include: state authorized school district levy (20 mills) and state mill levy (1.5 mills).

  • Calculating the Increment

  • Items Needed for Calculation(Example: Anybiz, Inc.)Original market value ($25,000)New market value ($100,000)Assessment rate (25% because property is commercial)Mill rate (Ottawas is 136.538)

  • Calculations before TIF Project1. Multiply original market value prior to creation of TIF district by the assessment rate.O.M.V. is $25,000A.R. is 25% (business)

    $25,000(.25) = $6,250 in assessed valuation2. Multiply assessed valuation of $6,250 by mill rate of 136.538. $6,250(.136538) = $853.36

    3. Taxes equal $853.36 prior to the establishment of the TIF district.

  • Calculations after TIF Project1. Multiply new market value after TIF district is created by the assessment rate.N.M.V. is $100,000A.R. is 25% (business)

    $100,000(.25) = $25,000 in assessed valuation.2. Multiply assessed valuation of $25,000 by mill rate of 136.538. $25,000(.136.538) = $3,413.45.

    3. Taxes equal $3,413.45 after the TIF project.

  • The department stores incrementA soybean field is assessed at $25,000 and generates $853 of property taxes per year.A developer builds a department store on the grounds, increasing the market value to $1,000,000. The generated property taxes will increase to $34,135.The increment of property taxes to be used for investment into the TIF district is $33,282.$853$34,135

    Chart8

    987Before District/Project

    98738522

    Base

    The Increment

    Sheet1

    Before District/ProjectAfter District/Project

    $987$987

    $38,522

    Sheet1

    Property Taxes

    The Increment

    Sheet2

    Base

    The Increment

    Sheet3

  • Value of the Increment$33,281$665,623All things being equal, the increment over the life of the TIF district will generate $665,623 in property taxes to be used for public improvements within the TIF district.

    Chart2

    38521

    770420

    Property Tax Increment

    Sheet1

    First Year20 Years

    $38,521$770,420

    Sheet1

    0

    0

    Property Tax Increment

    Sheet2

    Sheet3

  • Possible Use of Increment*Construct approximately 6 city blocks with street, curb and gutteringExtend water, sewer and electric services 2,600 feetAllow landscaping of up to $25,000Invest $8,595 for other uses allowed in citys TIF policy*This is only a hypothetical analysis and should not be construed to be the actual costs of a project. This example is only meant todemonstrate a possible scenario of the use of the increment to fund public improvements in the course of 20 years.Actual project costs will be determined by the citys engineer and are subject to change and a variety of other variables.

  • Financing TIF

  • Types of TIF BondsSpecial obligation bondsIndustrial revenue bondsFull faith and credit or G.O. bondsPrivate activity bonds

  • TIF Repayment OptionsProperty tax increments generated within redevelopment district; (preferred)From revenues of the city derived from or held in connection with the undertaking and carrying out of any redevelopment project or projects;Any private sources, contributions or other financial assistance from the state or federal government;Increased franchise fees collected from utilities and other businesses using public right-of-way within the redevelopment district;Local sales and use taxes collected or; By any combination of these methods.

  • TIF Eligibility

  • Areas Eligible for TIFBlighted areasConservation areasEnterprise zonesMust be within city limits

  • Enterprise ZonesAreas:designated prior to July 1, 1992;conservation, development or redevelop is necessary to promote the general and economic welfare of such city and;typically include properties that are undeveloped and may serve as future industrial/business park sites or residential subdivisions.-taken from Kansas Statutes

  • Areas Eligible in the Ottawa Area

  • Enterprise Zones within city limitsHigh Priority Enterprise Zoneswithin city limitsEnterprise Zones outside city limitsAreas Eligible in the Ottawa Area:Franklin County

  • Enterprise Zones within city limitsHigh Priority Enterprise Zoneswithin city limitsAreas Eligible in the Ottawa Area:City of Ottawa

  • Areas Eligible in the Ottawa Area: Northeast Industrial Park

  • Areas Eligible in the Ottawa Area: K-68 Corridor**Requires annexation into the city limits

  • Areas Eligible in the Ottawa Area: 15th and 17th Streets

  • Areas Eligible in the Ottawa Area: The Granger Property**Requires annexation into the city limits

  • Areas Eligible in the Ottawa Area: Fogle Quarry**Requires annexation into the city limits

  • The TIF Process

  • The TIF ProcessThe City Commission establishes a TIF district by adopting a resolution, holding a public hearing and then passing an ordinance creating the TIF district.A redevelopment plan is then created for the project area that is consistent with the comprehensive plan after a resolution, public hearing and ordinance have been adopted by the City Commission.-taken from TIF policy

  • TIF Success StoriesMerriam Homestead Village5.2 acre extended hotel projectEstimated project costs: $4,250,000Leavenworth Wal-Mart13 to 15 acres for construction of Wal-MartEstimated project costs: $5,200,000Wichita 21st and Grove StreetAbout one square mile for strip mall, branch bank, Cessna training facilityEstimated project costs: $17,000,000

  • TIF Success StoriesLenexa Thompson Farm Preservation Project83.5 acres for renovation of historic home and commercial districtEstimated project costs: $1,600,000Kansas City, KS East Armourdale10 acres for warehouse facilityEstimated project costs: $2,500,000Kansas City, KS Gateway GardensApproximately one city blockEstimated project costs: $6,000,000

  • Olathes Success Story:151st Street$6.9 million in public improvements

    5 commercial entities214 acres of vacant field developed into commercial district

  • Questions or Comments?