From: Thomas Heller
Received: Feb. 15
I write to bring attention to the results of research I’ve recently completed on the Redevelopment Commission’s TIF districts.
There has been a 43 percent erosion in TIF base assessed value (AV) since 2006. This significant erosion — indeed any erosion — is at odds with the fundamental concept of TIF, and I believe inconsistent with the expectations of the other taxing districts (schools, etc.) when assent was given to formation of your TIFs.
This erosion now amounts, approximately, to a $3.5 million annual impact. That’s the amount of annual revenue the commission now receives from the erosion of TIF base AV for schools, city, county, library and townships. In 2013, the erosion of TIF base AV will produce more than half the CRC’s anticipated revenue.
While that erosion can be made up by bumping up the levy rates for schools, city, county, library and township (thus affecting taxpayers outside the boundaries of the TIF district), I don’t believe those higher levy rates were understood by those other tax districts as part of the deal. (These bump-ups, ironically, further enrich CRC’s treasury.)
These findings came as a great surprise to me. While I had never previously plumbed the inner workings of tax increment financing, I’d long known of the concept. I was astonished to learn that our local TIFs have functioned at such great variance from the concept of TIF, whereby taxes resulting from growth are captured, while the base AV remains frozen. In sharp contrast to that concept, your TIFs have actually also been capturing revenues from erosion of the base!
My research indicates that the annual TIF neutralization process lies at the heart of this erosion. It imposes three tests, from which the lowest base AV (and highest increment AV) emerges. While these neutralizations appear to comport with state law, I must admit that the law on neutralization is rather vague. (For instance, the term “neutralize” is nowhere defined. Instead, the relevant statute directs the Department of Local Government Finance (DLGF) to “make the rules and prescribe the forms of procedures that they consider expedient” for TIF neutralization.)
I believe there’s another factor that has contributed to this situation: insufficient forward-looking visibility of the commission’s revenue and expenditure stream. This lack of visibility quite understandably can lead to reluctance to yield back AV to schools, the city, the county, the library and the townships.
Because the effect of the erosion of TIF base AV has now become quite substantial, I believe the commission should strive to improve the visibility of its finances. I would strongly encourage this.
This erosion of TIF base AV will continue and will not be reversed — except by your deliberate action to yield back the excess AV that has accumulated in your coffers. Given the extent of erosion that has occurred to date, I expect that it will take multiple years of deliberate action by the commission to restore the TIF base AV.