Vail Daily column: Bill would help ensure success of TIF districts
June 4, 2014
During this past session, the Colorado Legislature passed House Bill 14-1375, which makes changes to the way urban renewal authorities are comprised and funded. The Eagle County commissioners lent their support to the passage of this bill and are urging Gov. John Hickenlooper to sign it into law.
An urban renewal authority is a powerful tool that cities and towns can use to promote the revitalization of blighted areas. Through a funding mechanism known as tax increment financing, or TIF, a development can be paid for through anticipated tax revenues more than and above the pre-development tax base. These incremental taxes can be diverted for up to 25 years to help pay off bonds or otherwise finance the development.
The concern for counties, as well as other entities that depend on property taxes, is that this revenue is diverted without their input. The result is that taxes levied by these entities are not expended on their own programs or services, nor do the entities have any say in the matter. In addition, the state is required to backfill any revenue losses to school districts precipitated by urban renewal projects. In 2012, that amount was almost $40 million from Colorado's general fund.
Two redevelopment projects desirable to our towns have come to fruition through the use of TIF districts. In both instances, it was assumed the diversion of property tax revenues from these districts would be offset through a combination of increases in the base value of those developments, increases in the value of properties near the district and additional sales tax revenues.
Unfortunately, that has not proven to be true. Instead, public service needs have grown without a corresponding increase in revenues. County property tax revenue diverted from the time the first local TIF district was implemented in 2007 through 2013 equals approximately $4 million. The incremental increase in sales taxes during the same time frame amounts to $250,000. This $3.75 million gap represents a real threat to our ability to meet growing demands for service.
The argument that TIFs increase the value of surrounding properties, and therefore their property tax payments, has also not borne out. Several commercial properties near the two TIF districts are contesting their assessed value based on reduced net operating income. They contend their business has been eroded by properties built in and benefiting from the TIF districts.
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While some revenue reductions can certainly be attributed to the timing of this past recession, years of studies on urban renewal authorities across the country have shown this type of financing has consistently failed to result in promised revenue gains since their inception more than 40 years ago, regardless of economic circumstances. Many states have corrected their urban renewal authority laws to require counties have a voice in these discussions — we are looking to follow their wise lead.
The intent of HB 14-1375 is to preserve the favorable aspects of TIF districts for cities and towns while increasing accountability for their expenditure of taxes levied by others. The legislation amends the existing Colorado Urban Renewal Law in two significant ways. We believe both of these changes are important to the success of future local TIF districts.
First, the bill requires county participation on urban renewal authority boards which allows affected entities to have a seat at the table while urban renewal plans are being developed. Secondly, municipalities will be required to either contribute a percentage of their own new incremental sales tax revenue in a proportion equal to that lost by entities that collect property taxes, or engage their local government partners in an alternative funding arrangement.
During the past few years, the governmental entities within Eagle County have worked hard to improve cooperation and collaboration between our organizations. The county views HB 14-1375 as yet another way to continue this progress.
John Lewis is Eagle County's finance director.
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