After reading columns by City Administrator Bill Reynolds, Joe Ditto and Councilor Matt Lehman, I feel I need to present my take on TIF.
The city website definition of TIF could be read as a government subsidy for business. I see it as a type of investment in businesses by the city. Citizens are not responsible to pay the TIF loan that the business acquires from a bank. TIFs are only allowed to be used when normal business practices fail to supply an avenue in which development might occur.
When a project does not make complete financial business sense, TIF may offer a way for a government entity to correct an inequity such as higher than normal costs affiliated with demolition of structures that have reached the end of their usefulness. Buildings or property that would cost more to rehabilitate than they are worth. In the case of the property between Home Depot and the theater, the cost to remediate the poor soil condition due to the property being used as a dump site some time past will cost more than the property is able to be sold for.
Any developer would walk away from this property if not for TIF. When the developer walks away from the property, the county takes title to the property and attempts to sell the property for back taxes. No one knowing about the remediation problem will purchase the property and the property will sit vacant in perpetuity and drag down the surrounding property values which lowers the property taxes collected from those properties by the county. Less property taxes to the county equals less property tax revenue for the city and the school district. Thus it is a better plan to allow the property owner a TIF on the property.
Shakopee’s consultants use state guidelines along with a very conservative formula in their calculation of the TIF amount. This TIF is scheduled for 20 years. By using the local property tax increases for the past 10 years of 5 percent, the TIF has the ability to be repaid in 11 to 12 years. That is less than half of the original duration. State statistics say 81 percent of TIFs are repaid in 12 years. Compare those numbers with how long it takes you to pay off your house which is normally 30 years.
I believe that this use of TIF provides our citizens with a great return on investment in which our investment was to allow the property taxes being paid by the property owner to pay for the TIF. No money out of a single citizen’s pocket and the TIF paves the way for higher property taxes to be paid on that property in the future. Particularly when the property comes off the TIF.
At a 5 percent inflationary rate on taxes, in 12 years the property will be paying double the taxes originally paid. If you average out the property taxes over 25 years at which time the property will be providing almost four times the original property taxes. A virtually small investment provides a fantastic return in future tax dollars.
Ditto states that we are unable to predict the future. He is correct in that statement. But we are able to look back at previous tax rates and they show that relying on taxes increasing is a safe assumption. Ditto states that TIFs do not provide for current increases in services provided. Property that is forfeited to the county for delinquent taxes pays zero taxes to any entity and actually causes more problems by dragging down surrounding property taxes which increases taxes needing to be paid by residents.
If we look at the proposed downtown redevelopment, the city made requests of the developer which provide benefits for every citizen of Shakopee who visit downtown. Reconstructing the alley and resurfacing streets along with updated street lighting and other amenities paid for by TIF is an intellectual way for the citizens of Shakopee to have the county and school district assist in paying for benefits to our citizens.
Would you rather divide a pie by three and attempt to feed a large number of people with one-third of the pie or would you rather use the entire pie to feed the same number of people with the promise of many more pies to feed the people in the future? City-owned parking lots pay no taxes — no taxes no pie. Development means taxes and taxes increase year after year — more taxes equates to more pie.
With all of his past experiences in housing, Ditto should be able to understand that TIF is an investment in our future. I am in agreement that TIF provides some with the ability to over use this method of redevelopment. Overuse of TIF caused California to ban their use. Many investors find themselves in similar situations when they get greedy or do not use common sense and fully investigate the pros and cons of a development. I believe that our city council should consider that we are currently maxed out in the form of TIF until one of the current TIFs are paid off.
The Canterbury Commons development provides Shakopee the ability for the property upon completion of development and repayment of the TIF to provide $16 million in new taxes. If the TIF is repaid within the 12-year time frame stated in the state issued TIF information. Who would like to remain collecting $1 million in tax revenue from the current property with the lack of any amenities other than the track and what it offers? And who would like to take advantage of the state allowed TIF and the possibility of numerous added millions in tax revenue for the city county and school district, along with all the proposed amenities?
I believe that we all hope to leave things better than we found them. I believe that we will be better able to achieve this goal if the city makes better use of its stormwater and sewer funds which only provide the city with 2 percent interest. The developers will need TIF loans that accrue at 4 to 5 percent. If the city loans revenue from city funds at the 2 percent that we currently receive or at 4 percent which we are legally allowed to charge, the duration of the TIF loans would be shortened by years and thus provide new taxes to the three taxing entities earlier. I read the survey in the paper on this subject and the majority who responded were in favor of this approach. Please contact members of the city council with your thoughts on the subject.
I have a couple of comments pertaining to Councilor Lehman’s article. First, there will be no added streets to plow and maintain connected with the downtown housing project. In fact, less needed per the fact that the city currently plows and maintains the parking lot and staff will no longer have to plow and maintain what will not be there.
The Canterbury Commons development will only add two miles of roadway that is not currently plowed and maintained by the city. Little if any maintenance will be needed on the new streets and infrastructure for most likely the first five years, most likely longer. By the time the maintenance costs amount to any substantial amount, the TIF will be repaid and the new property taxes will greatly offset any previous expenditures for maintenance provided by the city.
Statistics show high-end housing of the type that is planned for Canterbury Commons and the downtown development provides a less than a 1 percent uptick in police or fire calls which is substantially less than a similarly sized market rate apartment building. The downtown area needs new housing options to assist in the redevelopment that the city has already spent millions of dollars attempting to provide.
All of the market-rate housing in downtown is over 100 years old. I am not referring to the senior housing which is of a current building format. If the new housing fails to assist with the revitalization of downtown I am at a loss of what to try next. It may be time to state that it is what it is, and no amount of dollars of investment will create what most are looking for.