Understanding The Use Of Tax Increment Financing Districts
If you’ve been to a recent Wichita City Council meeting, you’ve most likely heard the term, "tax increment financing," which is usually shortened to TIF. These redevelopment incentives are common throughout the U.S.
But what exactly are TIFs? And how are they being used to help shape the development of downtown Wichita? KMUW’s Sean Sandefur has this report…
Real estate developer Dave Burk is looking down a rough, unkempt stretch of Mosley Street in Wichita’s Old Town neighborhood. It’s about two football fields long, sitting between 2nd and 3rd streets.
“It's always been part of my master plan for the Old Town area, to get all the streets redone, that type of thing,” Burk says.
This area is the last bit of blighted real estate within the true boundaries of Old Town, according to Burk. But it won’t stay that way for long. This area is part of a new tax increment financing project that’s already received support from the Wichita City Council.
“It's hard to rehab these older buildings without good infrastructure," he says. "And that's one of the city's duties, is to provide infrastructure.”
Private developers pour money into blighted areas because the buildings are often cheap, but because of their size and location, they could mean future profits. That is, if the streets, sidewalks and utility lines are also updated. Enter Tax Increment Financing.
“We see TIF as a vital tool," says Mark Elder, development analysis for Wichita's Urban Development office.
Elder considers TIF projects a mutually beneficial way of fixing up rundown parts of the city.
It’s up to private developers to propose an area for a TIF project, and the city decides whether it will finance the improvements to public property.
“It basically utilizes an increase in taxes from a redevelopment project in order to reinvest in a specific targeted area,” Elder says.
Here’s that broken down: a developer comes to the city with a plan to transform an area that’s rundown. The developer crunches some numbers and proposes that in the area's current state, the land isn’t worth much and only generates a small amount of tax revenue. But, if renovated, that same real estate could be worth a lot more and could generate a lot more tax revenue for the city. These future tax increases can entice city officials to issue bonds to cover public improvements for the redevelopment.
“The purpose of TIF is to help out projects that would not otherwise occur," Elder says. "If we don't have this tool, we're taking a risk that these projects wouldn't happen and downtown would stay stagnant, and we wouldn't have the development that we need.”
The City of Wichita has used TIF districts for over two decades. There are currently nine still active throughout Wichita. They include the Warren Theater in Old Town and one that surrounds the Hotel at WaterWalk. They can also be much smaller, like a Save-A-Lot grocery store at 13th and Grove. These TIF projects are considered a win-win for both the city and the developer. But, do they benefit the taxpayer?
“The answer on that is really mixed,” says Kenneth Kriz, professor of public finance at Wichita State University
Kriz studied TIF districts in Omaha, Nebraska before coming to Wichita in 2013. He says throughout the life of TIF district, increased tax revenue goes towards paying back bonds, not into city coffers.
While there’s no doubt property values often increase inside Tax Increment Financing districts, Kriz says TIF investment isn’t always a slam-dunk in terms of economic development.
“Most of the studies have indicated that there's either a small, positive impact or no impact overall,” he says.
His study indicates that counties in Omaha that approved a lot of TIF projects saw only a slight increase in per capita income when compared to counties that rarely used them. He contributed this to municipalities being too concerned about increased property values, rather than policy aimed at economic growth.
He isn’t against using tax increment financing. But, he says it comes down to whether or not development would occur even without incentives.
“'What would happen to the property if the TIF district wasn’t created?' I think that’s the real question," Kriz says. "If there'd be no development without the use of TIF, then the developers, in a way, are creating something that benefits the entire city.”
If you ask Mark Elder at Wichita’s Urban Development office, TIF districts have been absolutely essential to the revitalization of downtown. He says the city itself can’t afford to develop these blighted areas. But they can encourage and provide relief to the private developers who can.
“We need the developers out there interested in investing in downtown and the city as a whole," Elder says. "We need a positive relationship with the development community, and I think we have that.”
The latest report on Wichita’s TIF districts is from 2011. The study indicates that each district is expected to repay every bond issued for public improvements on time. And developers and the city aren’t done.
It’s estimated that the public improvements on Mosley Street will cost about $1 million, which will go towards laying brick roads, installing lamps, new utilities and even bike racks.
Once it’s finished, Developer Dave Burk says it will be a strong commercial sector, with retail shops and restaurants.
“I really believe that downtown is everybody's neighborhood," Burk says. "We’ve made a lot of progress over the last several decades trying to restore downtown. We're heading the right direction and I think it's beneficial for everybody.”
Wichita City Council will hold a final vote to implement TIF projects for both Mosley Street and one for Union Station in the coming weeks.