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Freeport mayor: TIF can work when not used politically
Posted By Staff On May 26, 2010 @ 1:24 am In Stateline News | 1 Comment
By Stuart R. Wahlin
After reading “Rockford’s TIF report card: Negative balances will drain public funds” in the May 19-25 issue, which outlined how a number of Rockford’s failing tax increment financing (TIF) districts will likely deplete dollars from the city’s general and/or redevelopment funds, Freeport Mayor George Gaulrapp (D) contacted The Rock River Times to illustrate how TIF has been a success in his community—and without posing a threat to city operating funds.
TIF is a financing mechanism intended to redevelop blighted areas. When a TIF district is established, property values within the district are essentially frozen for taxing bodies, meaning that even if property values rise, they will only receive tax revenues based on the assessed values at the time the TIF was created. TIF districts typically have a life of 23 years. If property values rise during that time, the additional tax revenue from the increased assessments, or the increment, is diverted into a fund intended for public improvements, or for financial assistance made available to private developments within the district.
Gaulrapp, who is also running against incumbent U.S. Congressman Don Manzullo (R-16) in the November election, noted that, despite the woes Rockford is experiencing, TIF districts can be successful when used properly.
“Our TIF program’s a little bit different,” Gaulrapp asserted. “We don’t keep all the increments. We give back 25 percent of the TIF back to the taxing bodies. This makes it a little bit easier when a school district is voting whether or not to support a TIF. They will get what they currently get, plus 25 percent of what comes in.”
Freeport, about one-sixth the size of Rockford, has four TIF districts, which Gaulrapp said he considers “a lot.” Rockford, by comparison, has 30.
Many TIF districts are established with the issuance of bonds to finance developments within a district. Although starting with debt, the idea is that enough increment will eventually be generated to cover debt service, and to offer incentives for development. Other TIF districts operate on a pay-as-you-go basis, whereby no debt is issued, and only increment that has been generated becomes available for use.
In the case of Freeport’s first TIF, a longstanding district in its downtown area, bonds were issued many years ago for the redevelopment of the Raleigh office building.
Gaulrapp indicated the project “worked out OK,” but noted the TIF has put no strain on the city’s General Fund.
“It helped bring a company downtown, helps to pay part of their building costs until they get up to generate a little bit more,” he added. “The rest of the TIF dollars are used for, to take an example, when we have to build the train platform for the Amtrak train coming through, it’ll pay for that. It helps pay for some of the matches for our environmental grant that we get. We got two $200,000 grants that we had to match partially, so we can use part of the TIF there. It also pays for the façade-improvement program, which has been a great asset to the downtown, and also for the sidewalk program downtown, where we put the sidewalks in so the merchants don’t have to pay the cost of it.”
Freeport’s Lamm Road TIF District, which Gaulrapp said generates “a great deal of increment,” helped the city land several large companies.
“It paid for Seaga Manufacturing to move into Freeport and help with their improvements,” he noted, adding the TIF also helped lure Wal-Mart and Menards. “They get paid back a portion of it, but it generates about a quarter-million dollars, which will help us with our problems with our landfills.”
Although two of the city’s landfills require environmental remediation, the costs can be covered by TIF funds, rather than depleting the General Fund, or raising property taxes for residents.
About a year ago, the Freeport City Council created the retail-oriented West Avenue TIF, which Gaulrapp also calls a success.
“We knew that Kohl’s was looking at the time, and we wanted to make sure that we were a viable prospect for them,” he explained. “Because of our population loss, some of the job losses, we wanted to do everything we could to try to be attractive to organizations like Kohl’s, Target, down the line like that. They really make Freeport a retail shopping destination.”
Not all of Freeport’s TIF districts are meant to lure new businesses, however.
“We did do a more, I’d say, ‘charitable’ TIF for Freeport Health Networks [FHN] to build their new building, but it employs about 200 people,” he noted. “So, here’s a TIF that we weren’t going to lose anything on at all, but we’re going to gain employment and a brand-new, state-of-the-art, probably $11 million, complex for the health industry.”
Developers must pay to play
Not only does Freeport’s policy make TIF less painful for affected taxing bodies, but it makes sure developers don’t get a free ride to TIF subsidies.
In the case of Freeport’s Southgate Plaza shopping center, Gaulrapp cited as an example, Rubloff Development Group had sought about $5 million in incentives, but only received about one-fifth of that in the end. Additionally, the developer was charged for the city’s time and effort.
“We expense a lot of resources on these TIFS—my time, corporation counsel’s time, our finance director, community development, down the line,” Gaulrapp explained. “When we were all said and done with Rubloff Corporation, we said: ‘Good. Now, the deal’s almost done. There’s one other point. We want you to write us a check for $175,000 for our use of resources.’ They didn’t even balk at it. We got $175,000 three, maybe four, years ago. We put that into an economic development line item. We also got $100,000 from FHN for our time and resources. So, we had $275,000 that we have used for comprehensive land-use plans, economic development, payment for Northern Illinois Development Alliance, which is our public-private partnership we’re a member of—things like that that no other administration collected.”
As a result, for about the last three years, the City of Freeport has not expended any general funds for economic development, Gaulrapp reported. Instead, the city leverages its new Economic Development Fund, made possible by charging developers for city resources, for such endeavors.
“When we did the comprehensive land-use plan, it was about $94,000, but we were able to get a $30,000 grant from DCEO Illinois Department of Commerce and Economic Opportunity], and then match that with the $64,000 payment of the Economic Development Fund,” he explained. “We try to use a business application with city government. It doesn’t always work, because of the mandates and things like that, but if we’re going to use our resources, then developers should pay for that resource.”
To TIF, or not to TIF
In many communities, TIF has been viewed as a means to compete with other municipalities to offer the best deal to potential developers, but landing a project at any cost can cease to be a good deal for a city.
“You have to have some people that know how money works,” Gaulrapp stressed. “That’s the key—people who know that if you’re going to make this investment, that you have a great chance of recouping it, not just doing a project for political reasons. That’s why so many communities get in trouble.
“We want developers to come in,” he acknowledged. “We want them to make money, because if they’re gonna make money, they’re gonna do projects. But we don’t want to get handcuffed. We don’t want to be extorted, or taken advantage of, either. We want to make sure that the projects coming to Freeport are viable projects that will enhance the quality of life in Freeport.”
So, how many TIF districts are too many?
“It all depends on what the TIF’s gonna bring to you,” Gaulrapp responded. “Will it benefit the community? Will it be a break-even, make the city a lot of money, or is it gonna cost the city money? If it costs the city a lot of money, it just doesn’t make sense.
“You have to look at every point in the venture,” he concluded. “I mean, what will that TIF do? Would a developer come to the community without the TIF? A lot of times, they will, so that’s where you have to decide whether or not you’re going to create a TIF, and why you create a TIF.”
From the May 26-June 1, 2010 issue
Article printed from The Rock River Times: http://rockrivertimes.com
URL to article: http://rockrivertimes.com/2010/05/26/freeport-mayor-tif-can-work-when-not-used-politically/
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