MORE BUSINESS NEWS: Ohio manufacturer to expand, add more than 20 new jobs in Urbana
“The whole thing that is troublesome to me is the funding mechanism and the can of worms this could open up,” Foley said.
The project calls for a 53-acre housing development on 37 acres of property south of the Tuttle Road Walmart, along with an additional 15-acre tract to the east of the Walmart. The project would include more than 230 new houses built in four separate phases.
City officials and staff from Dayton-based DDC Management, the project’s developer, said that the TIF is necessary to make the project attractive to investors.
TIF programs are a tool local governments can use to fund public infrastructure projects and encourage new investment, said Greg Davis, a professor and assistant director for community development with OSU Extension. He said he’s more familiar with the financing model being used for infrastructure for commercial projects, typically on the edges of a city. But it’s not uncommon for disputes to arise because taxes are typically part of the equation.
“Because it impacts the local jurisdictions, typically there’s going to be some concern expressed,” Davis said.
Lance Oakes, a manager for DDC Management, said he understands the township’s concern but argued the project will have a long-term payoff by attracting new residents who will shop and buy services from area businesses. He said the tool is becoming increasingly popular as it’s become more expensive to develop new subdivisions.
“You’ve got to get creative these days if you want to get residential land deals moving forward,” Oakes said.
TIF becoming more common
TIF financing itself isn’t new, but it is becoming more common for residential developments as local governments look for tools to attract new investment, said Scott Ziance, a partner with the Columbus-based law firm Vorys, Sater, Seymour and Pease LLP.
RELATED: Board raises concerns about proposed Springfield housing development
Information from the Tax Increment Finance Coalition shows 49 states allow local governments to designate TIF districts to finance public infrastructure. The financing model allows local governments to redirect financing from new property taxes created by development to cover the costs of developing public infrastructure.
In this case, developers have said the financing model makes it less risky for investors willing to take a chance that the development will be successful. Springfield hasn’t had a new major housing development in about two decades, so it’s tough to prove to potential investors the development will draw interest, Oakes said. The TIF makes the project less costly for potential investors. Oakes said he’s confident homes in the new subdivision will sell well but investors are still taking a risk.
“There’s no recent market data to prove that,” Oakes said of whether the new homes will be attractive to buyers.
DETAILS: Urbana close to development deal on long-vacant historic hotel
The deal would include two separate TIF requests. The city can approve a proposal with 75 percent of residential property taxes for new homes in the development going to the project and the remaining 25 percent going to the district for up to 10 years. Anything longer would need approval from Clark-Shawnee’s school board.
The township would be under a separate TIF proposal for 100-percent for 30 years. Foley said the township doesn’t have a voice on whether to approve the TIF, but could miss out on as much as $2 million in revenue over 30 years under the proposal.
Foley said he only learned about the financing issue because he attended local zoning meetings on his own time.
“I guess it’s easy to promote TIFs when the money is coming out of someone else’s pocket such as Springfield Twp.,” Foley said.
The city and township reached an agreement in the late 1990s establishing agreements to cover land annexed by the city. That agreement provides the township with a portion of the city income tax paid when new business operate in the area covered under that agreement, Heck said. While it may be decades before the township sees the full revenue from higher property taxes in the new development, they do receive additional revenue from businesses that operate in the area, Heck said.
He said the township and residents will benefit as the development makes the area more attractive for other investments.
“The funding that the township does receive from existing businesses and new businesses created in the (Cooperative Economic Development Agreement) will help offset their costs,” Heck said.
At Clark-Shawnee, school board members didn’t take any action last week and are continuing to research what the proposal will mean for the district, said Superintendent Brian Kuhn. It’s also not clear the district has any recourse because the TIF is structured so it did not require approval from the school board.
He said the district now collects about $3,100 in property taxes for the undeveloped property, and anticipates collecting about $115,000 annually for the first 10 years when the project is being developed based on information from the developers, Kuhn said. But once the district’s TIF ends after a decade, the district would collect about $470,000 annually based on all units in the development being built.
District officials previously told the News-Sun Clark-Shawnee could potentially miss out on revenue because it could attract fewer students through open enrollment. But Kuhn said this week it’s tough to say exactly how that would impact the district because open enrollment figures are difficult to accurately project.
“Any revenue we can generate helps and we would look at any students in the development and we would educate them,” Kuhn said.
Kuhn said the district will meet on Tuesday, Nov. 20 to determine what steps if any to take next.
“Our board has said they believe in development in the city,” Kuhn said. “We just have to make sure we are being good stewards of the tax dollars that are entrusted to us.”
Oakes said his firm has worked with cities like Riverside and used TIF financing to develop successful subdivisions. Ideally, similar financing wouldn’t be necessary for future projects if investors see this development is a success. But he said every development is different so it’s hard to rule out TIFs for any future projects entirely.
“Ultimately, the goal of the city is to attract development to the location to attract new residents,” Oakes said.
TIF projects are becoming more popular for a number of reasons, Davis, of OSU Extension said. The use of the financing has evolved and become more common over time as municipalities become more sophisticated at using existing economic development tools to fund infrastructure and other projects.
The challenge is finding the right balance between incentives to attract investment while making sure they have enough revenue to provide adequate services, said Ziance, of Vorys, Sater, Seymour and Pease LLP..
“It’s up to each jurisdiction to figure out the balancing act between how much growth they want and how they’re ultimately going to pay for services,” Ziance said.
The Springfield News-Sun has provided extensive coverage of real estate and residential development issues in Clark and Champaign Counties throughout the year. For this story, the paper spoke to city staff, developers and township officials about how a proposed housing development could impact the community.