As many know, Detroit Lewis isn’t a fan of TIF’s, but I am not exactly opposed to ALL TIF’s. A TIF to build a luxury hotel or condos just doesn’t make sense to me, but to clean up neighborhoods and offer affordable housing, now that makes sense. It seems the SPECIALS in town have got a corner on city hall and totally backwards when it comes to TIFs. My new favorite reporter Atyeo at the AL did a fine story of how the city is helping out the ‘little guy’ for cleaning up affordable housing;
He learned about the city’s rehab program through a mailer. Property owners can loan up to $25,000 over five years with 3 percent interest. The first six months of the loan are interest-free, and no payments are required.
This is a wonderful program and similar to a program I took advantage of after purchasing my home, community development. I believe my interest rate was either 2 or 3% to fix my windows and rain gutters. While the program has it’s merits I have often wondered if TIF’s would be a better way to clean up neighborhoods and affordable housing. NOW don’t quote me on this, but I kind of remember Darrin Smith mentioning there would have to be a change in State Law to make TIF’s available to private property owners. But what makes an individual who owns several rental properties different then a large scale developer? If this person is willing to take a risk to fix up existing properties to make them better why not offer them a property tax break (TIF) and pass that savings on to the renter?
TIF’s are good, if used properly, and I believe this would be a great way of using them, but hey we don’t need any more affordable housing, just more condos and luxury hotels 🙁
The main question comes down to this – at a time when development in Sioux Falls is at an all-time high ($500M+ in building permits), why do developers need extra incentives (i.e. subsidies) for building?
DL, I like your points here – target small-scale TIFs towards improving existing neighborhoods, and use large-scale TIFs to steer development towards parcels of public significance (not to improve the bottom lines of developments that were already going to happen).
At the end of the day, TIFs should serve as small corrections to a well-functioning free market, not as general stimulus for an apparently healthy industry.
“(not to improve the bottom lines of developments that were already going to happen).”
COSTCO was on track way before Don Dunham asked for a TIF. It’s like these guys show up and say, “Hey, free tax breaks, let’s ask!” While the rest of us slugs have to fill out hours of paperwork to get a low interest loan on replacing rain gutters. Silly.
“COSTCO was on track way before Don Dunham asked for a TIF.”
Once again… NOT at the property they decided to build upon. Yes Costco would have likely built in Sioux Falls, but it would have been at Dawley Farm or on the outskirts somewhere rather than in the core of the city. This would increase urban sprawl, increase those pesky infrastructure costs you guys always seem to bitch about, and spur significant development around them which only increases the issue.
Instead, by building in the core of the city they have increased property values in that area, and as a result there are at least three other projects directly tied to Costco. Property taxes in that area are now on the rise which adds revenue to Minnehaha County and the Sioux Falls School District – whereas had Costco built on the South side of town those tax dollars would have went to Lincoln County and the Harrisburg School District.
There is a reason that Costco property sat empty for decades and without an incentive to attract development it would likely still be an empty field. This is no different than run down housing in central Sioux Falls… you have a lot of property which would end up being razed if it were not for low interest community development loans and city sponsored rebate programs for everything from washing machines to toilets.
If you really want TIFs to apply to private property owners and homeowners, then are you ok with developers collecting low interest (or sometimes even no interest) loans to improve rental homes that they purchase as investment properties? If you want a level playing field then all of these incentive programs need to be allowed for all right?
There is a reason we have different programs for different situations. The simple reality is we don’t need TIFs for single homes primarily because single homes aren’t about to spur economic development in the area nor will they create jobs. You can hate on the big guys all day long, but ask yourself what percentage of the growth in the area is directly tied to some of these programs. If you think all of this development would happen even without incentives you are partially correct… it would happen, but it would not happen on property in the core of the city that is much more expensive to build upon and where the infrastructure already exists. If you are ok with the city paying millions to extend roads and sewer and water and install stoplights then great – but at the end of they day ask yourself which is more expensive in the long run.
First off, Don Dunham admitted he had already signed a purchase agreement with COSTCO before asking for the TIF in a CC meeting. Maybe I misunderstood him, but I am pretty sure that it what he said.
Secondly, this was more about rental properties and affordable housing and not single family homes. But if you want to talk about ‘economic development’ bring it on. If a single family homeowner has the opportunity to take his $2500 a year he normally would pay towards property taxes and spend it on remodeling or fixing up his home where do you think that $2500 would go? You have to pay someone for the materials, you have to pay someone to check you out while buying the materials, you may have a salesperson involved, heck you might even have to hire a couple of contractors to help you out. Now take that times 100 homes! Wow, amazing! Economic development. Get out of here!
Craig said…
“…they have increased property values in that area, and as a result there are at least three other projects directly tied to Costco. Property taxes in that area are now on the rise…”
Are those other projects also included in the TIF district? (I’m asking honestly – I’m not sure.) If so, then property taxes are definitely not on the rise (by the definition of a TIF).
BTW, DL – what you’re talking about is often referred to as ‘economic gardening’, but it’s usually applied to businesses, rather than citizens.
“First off, Don Dunham admitted he had already signed a purchase agreement with COSTCO before asking for the TIF in a CC meeting. Maybe I misunderstood him, but I am pretty sure that it what he said.”
I can promise you that isn’t what he said. You may have confused a purchase agreement with a non-specific property purchase agreement. This is to say Dunham had an agreement to represent Costco and had a broker / client agreement in place, but they had not committed to a specific piece of property.
If Dunham did say otherwise he misspoke, because I know for a fact Costco did not sign on the line for that specific property until the TIF was part of the package.
“If a single family homeowner has the opportunity to take his $2500 a year he normally would pay towards property taxes and spend it on remodeling or fixing up his home where do you think that $2500 would go?”
Well first if you think this is how TIFs work I’m saddened because we have discussed it at least a dozen times. In reality, if a homeowner was to receive a “TIF”, their taxes would remain at their current value and would not disappear nor would they even go down. So if they are paying $2500 a year, they would continue to pay $2500 a year. Actually that isn’t true, they would pay whatever the current rates are for their specific property value, so if we are talking about a $150,000 property they would be taxed on $150k during the timespan of the TIF, but if the tax rates apply or during school district opt-outs for example – their taxes could potentially go up.
However semantics aside, for this example let’s just pretend they will pay the straight $2,500 a year. Now if they wish to improve their property by adding a new roof, putting a new addition on the back, building a new two stall garage, and remodeling the kitchen maybe their property is now worth $200,000 instead of $150,000. Yet they are still taxed on the $150k level during the lifetime of the TIF, and as such their tax bill remains at $2,500. It is only the portion of the increase they would ‘save’, so your economic development you speak of would equate to a maximum of $625 a year…. not the full $2,500.
As you know I’m not a fan of supply side economics, but if we are honest a larger scale project of the magnitude of a Costco or a Walmart or a new strip mall is going to have a much more significant impact to the local economy than 100 homes being offered their own TIFs. The reason is those projects spur other development. You build a new big box store and soon you have strip malls around it full of other stores. You see vacancies in properties in the area disappear. You see rents increase, you see property taxes increase, you see new jobs created, you see those people with new jobs needing to find places to live so you see new housing built, you see cars sold. The cycle continues.
The problem with individual homeowners is that even if they spend a vast amount of money on their property, in most cases it won’t have any impact outside their own home. Any gains are very short term, but their neighbors aren’t all that more likely to improve their own homes just because a neighbor does an addition or a remodel.
Yes there are times that a few homes that are brought back to life end up spurring a redevelopment of the entire neighborhood, but more times than not that isn’t the case. When a redevelopment does occur, it is often due to tax incentives and redevelopment loans granted by a city, county, or state… so in effect a different type of TIF.
The sad truth is, in most cases if someone improves their home, it has a negligible effect on the property around them and doesn’t spur any secondary investment or development. You need only to drive through the Cathedral district of Sioux Falls to see that for yourself as you will see a very nice home where the owner has obviously invested a great deal to improve their property… and immediately next to it you will see a rundown home that hasn’t been painted since the Reagan administration and next to it a home that uses foggy plastic sheeting as makeshift storm windows… even in the summer.
I know you aren’t a fan of TIFs, but I just find the hypocrisy at work when you complain about incentives to developers and the “big guys” yet brag about your low interest loan to improve your own property. Whether you call it a tax break, an investment, a low interest loan, or a rebate… it all ends up shifting money from one entity to another. Developers have TIFs, homeowners have community reinvestment loans, small businesses have subsidized loans or facade improvement grants. There is something for everyone if you take the time to look, and the playing field isn’t nearly as imbalanced as you seem to think it is.
Could the city do a better job of explaining why each property needs a TIF? You bet. Do they hand out too many? Probably. Should they use them as a matter of last resort? Possibly. Should they pull back from their TIF-happy stance during periods of great economic growth such as we are experiencing right now? Yes.
We just need to keep in mind that in some cases (not all, perhaps not even most… but some) if it wasn’t for a TIF we either would not see development on these existing properties which would push that development to the outskirts, or we would see these properties used but for smaller scale projects which reduce overall density. Imagine a two story apartment complex downtown instead of a six story hotel or a four story condo complex. Each action has a reaction – and you need to think about the longer term consequences of decisions made today.
“Are those other projects also included in the TIF district?”
Valid question Tom – actually one I was thinking about (new apartment complexes) is part of the TIF district so you are right about that. However there are also improvements being made to a couple of strip malls in that area and the sale and future redevelopment of another piece of property there all in direct connection to Costco.
There have also been a few empty spaces in nearby properties which were rented as a direct result of the Costco announcement. The rents and values are increasing over there – and once those apartments are full just think of the money that will be spread throughout that area as people buy groceries at Fareway, pick up some household goods at Shopko, some food at one of the many eateries within walking distance… or some cheap made in China decor from Hobby Lobby.
The city now has more incentive to finish the 49th street connection which will improve that area even more. Thus the secondary development will be very significant and we have only started to see the first signs of it.
Okay, Costco will drive some new development around it, but big-box suburban-sprawl-type development is just about the worst development pattern for this kind of spin-off growth. And, almost always, new infrastructure costs (49th street extension) eats up most or all (or more!) of the new revenues of the city.
Sprawl (whether on the fringe or in the core) is to a city as cancer is to the body. Growth for the sake of growth is, incidentally, pretty much the definition of a cancer.