You might consider the topic of Tax Increment Financing a dry one, and you might have used my column last week as a sleep aid (habit-forming, I hope), but the townspeople of Jenks are quite exercised about that city's latest proposed TIF district, which would reimburse developers for $220 million of the cost of building the billion-dollar mixed use River District.
As Tulsa leaders ponder establishing a TIF district to encourage west bank development near 21st St., we need to pay close attention to the debate in Jenks.
As faithful readers will no doubt recall, TIF is a tool that local governments can use to lay the groundwork for economic development in a small area without raising tax rates. A city establishes a TIF district, and for a set number of years some or all of the extra (incremental) sales and property tax revenue generated by new development in the district is captured to pay for public improvements in the district, making development possible where it might not otherwise occur.
The appeal of a TIF district is that the money for assisting new development doesn't increase the property or sales tax rate for anyone--the taxpayers feel no impact--and it doesn't reduce the amount of tax dollars being received by any government entity. So, the tax recipients feel no impact. The tax revenues captured within the TIF are revenues that wouldn't exist without the development that is made possible by the existence of the TIF.
The administration and board members of Jenks schools take issue with that theory. Superintendent Kirby Lehman compared TIF districts to crack cocaine for municipalities, calling them "an addictive way to get development into the community on the backs of the state's school districts."
The public education lobby--the Oklahoma Education Association and the Oklahoma School Boards Association--has been the most consistent and persistent critic of TIF at the State Capitol, working to restrict further how long a TIF district can exist and how TIF money can be used, and to increase penalties for cities that violate the restrictions.
School districts and other governmental bodies that receive property tax play an advisory role in the establishment of a TIF. Each such entity (e.g. City-County Health Department, Tulsa Community College, Tulsa Technology Center) has a seat on the Local Development Act Review Committee (LDARC). The LDARC is established by state law as part of the process for setting up a TIF district, and it must make a recommendation to the city council.
But the decision ultimately belongs to the city council. A supermajority of the council can approve a TIF district despite a recommendation to deny from the LDARC. The public education lobby has sought, so far unsuccessfully, to limit a city council's ability to override the wishes of the affected school district.
Are TIF districts really "on the backs" of public school districts? TIF proponents argue that the only revenue the school district is missing out on is revenue that wouldn't exist except for the TIF.
In Jenks, the school district is arguing that even if the 18-year TIF district isn't established and the River District weren't built, that land would develop and increase in value to some extent between now and 2025, bringing in more revenue to the school district. Freezing property tax revenues to the school based on the land's current value is unfair, they say.
Jenks city officials have responded by offering to pass through some TIF property tax revenue. The schools would receive $500,000 a year and the other entities a proportional amount, equivalent to an increase in the land's market value from about $100,000 to roughly $6.8 million. That's double the city's initial offer, but the school district says that's still not enough.
Development has bypassed the land in question.
It has remained a hay field, despite high-end residential development to the south and the presence of the aquarium and the Creek Turnpike to the north. The area is in the Polecat Creek flood plain, and a great deal of earth work will be needed so that any buildings would be above the 1986 flood level.
A more troubling objection is that the TIF would create a publicly-subsidized competitor to Riverwalk Crossing, a mile to the north, which was built and is being expanded without any financial help from the city.
Despite the TIF tiff, Tulsa could learn a few things from the way Jenks does business.
Jenks has moved forward swiftly. The River District concept emerged about a year ago, but it wasn't until this summer that developers had a concrete proposal to take to the city. Within a couple of months, in September, the city council launched the state-mandated TIF evaluation process, and it's likely that the TIF district will be created by the end of the year.
Meanwhile, the administration of Tulsa Mayor Kathy Taylor has been dilatory, to say the least, in responding to interest from HCW, the developer of Branson Landing seeking to build a similar half-billion dollar development on the west bank.
Don Himelfarb, Taylor's economic development director, has tacked on an internal review by a "Qualifications Committee" as a prelude to the state-mandated TIF-creation process. The committee, made up of himself, mayoral aide Susan Neal, and city finance director Mike Kier, is firmly in the mayor's control.
HCW first made overtures to the city a year ago, but so far Taylor has not moved forward in any substantive way. Instead, Taylor seems intent on pushing any west bank development even farther into the future.
Taylor is commissioning a Chicago-based real estate consulting firm to develop a plan for developing the west bank and a number of city-owned parcels around downtown, including the soon-to-be-vacated City Hall. This would delay the start of west bank development for another year, at least. There's a real danger of studying this thing to death.
Happily, the City Council isn't legally bound to wait on Taylor and can bypass the extra hurdles set up by Himelfarb. They could set up their own committee to work with the developer on a west bank plan, then vote to start the TIF process by setting up an LDARC.
There are risks associated with a TIF district. If a city borrows money against future TIF revenues to pay for infrastructure, the city would be on the hook if increased revenues don't materialize.
Jenks once again provides Tulsa with an example to follow: The developer will pay for the infrastructure up front and will seek reimbursement for eligible costs once the project starts generating incremental revenue. If the project doesn't bring in new money, the developer doesn't get reimbursed, and the city is out nothing on the deal.
What It Means For Us
There are some significant differences between the situation in Jenks and Tulsa. Jenks's River District land is already owned by the developer. Most of the land for Tulsa's west bank development is owned by the city, but the key parcel is owned by a concrete company.
Since most of the west bank land is currently tax-exempt, Tulsa Public Schools and other property tax recipients shouldn't object to a TIF district. Without the TIF district, there's almost no chance that the area's taxable value would increase.
Because city land is involved, the city has an obligation to its taxpayers to have a fair competition for the right to develop it. That means issuing a Request for Proposals (RFP), setting out the criteria for evaluating the proposals submitted by developers. A good RFP, modeled after the many other RFPs issued by the Tulsa Development Authority and after similar developments elsewhere, could be pulled together in a month or so, if the political will is there.
How the key parcel--the concrete plant--is acquired would be a matter for competing developers to address in their proposals. Would developers ask the city to borrow against future TIF revenues to buy the land and lease it long-term, or would they propose to acquire the land themselves? State law does allow TIF money to be used for land acquisition.
As part of the proposal competition, each developer would also have to specify the amount of TIF money he would need for site preparation and infrastructure, and whether the developer proposes to front the money himself, as the River District Development Group is doing in Jenks, or whether the developer expects the city to take that risk.
We have a great deal of public interest in west bank development, we have an interested developer, and the dispute in Jenks may give Tulsa a window of opportunity to beat our suburban neighbor to the punch. We just need city officials willing to move forward.
I hope that Mayor Taylor will make a public commitment to expedite west bank development. It would help to hear her say that her real estate consultant will provide a recommendation on the west bank site within a month or two, rather than stretching it out for the full year. The Staubach Group was able to move quickly enough on her pet project, the acquisition of One Technology Center as a new City Hall.
If Taylor doesn't make a move, the City Council should forge forward without her.
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