A recent Sun article identified that there have been questions from around the county about the use of tax increment financing (TIFs) as a viable economic development tool and therefore, the need for further clarification and discussion. The Clermont Sun featured an article the week of June 20, 2019 titled, “Geis: Union Twp. A big little community, thanks to TIFs.” It was a great article and outlined the benefits of tax increment financing to advance the economic growth within municipalities, cities, townships, and counties. In light of the recent article referenced, I don’t want to do away with TIFs (when and if to use TIFs is a local decision), but I do believe that there are advantages and disadvantages to tax increment financing that citizens need to understand. Let’s talk about where we are as a state.
Based on 2011 data, the magnitude of TIFs in Ohio is $5.1 billion (yes, with a B). Tax increment financing has become the number one form of tax abatement (tax re-direction) in Ohio (reference: County Commissioners Association of Ohio Handbook). Due to the magnitude of TIF usage in our state, it is worth having a conversation about TIFs. Local economic development is big business and TIFs are a viable tool if used properly to help businesses and municipalities succeed. Here is how it works.
The basic concept of a TIF is actually quite simple and best illustrated by an example. If you take a piece of undeveloped land worth $10,000 and create a TIF district on the parcel, the value of the land at that time is frozen and becomes the “base value.” Then a new building is constructed on a property that is worth $1 million. The new property taxes from that new real property value are called “the incremental value” and are re-directed to a fund that is controlled by the government that created the TIF. Whatever property taxes are generated from that $100,000 “base value” keep going to the normal recipients, such as the local school district, township or city. Quite a few entities that provide service in your community or throughout the county also receive property tax revenue through levies approved by voters, such as senior services, children’s services, the library, services for the developmentally disabled and mental health services. So, the government entity has local control of these new funds that can be used to provide services by that government, but at the same time, many other entities are not getting their share of the growth in our property tax base. Most TIFs are in existence for 30 years, but recent changes in Ohio law allow TIF districts to be renewed by the local government for an additional 30 years. Advantages and disadvantages; I think you get the point.
So, what can the local government that created a TIF do with the new funds that come from a TIF? The basic things you normally expect a local government to do, such as improving existing roads or building new roads, or extending water and sewer lines. In recent years, changes to Ohio law have provided quite a bit more flexibility to how those TIF dollars can be spent, including things such as acquisition of land by the government for new development or equipment and ongoing operations of safety services (fire, EMS, and police).
TIF revenue can now essentially finance most of the daily operations of local governments, but does so to the detriment of all those levy-recipient agencies that I mentioned above. Over time, if enough new development is placed in TIF districts, the dollars can really add up. Thus, taxpayers may realize an indirect tax rate increase at a later date when agencies that depend on levy funds need to ask voters for increased levies because their slice of the pie is being eaten by local governments through the use of TIFs.
The use of TIF districts in Clermont County is increasing dramatically, similar to throughout Ohio. In 2005, the total revenue being re-directed into TIF funds by local governments in Clermont County was about $3.1 million. In 2017, that amount was about $18 million and in 2018, it increased to $19 million. The total TIF revenue collected by the local governments in our county from 2005-2018 is about $163 million, which is reduced to about $111 million when you factor in compensation payments made to local school districts. This is serious money, and the total amount being re-directed is growing every year. One specific example is in 2018: about $800,000 should have gone to the Clermont County Board of Developmental Disabilities, but was re-directed to various TIF districts, which equals about 6 percent of their local sources of funding. If enough local governments decide that funding local operations through placing a TIF on all new development is easier than asking voters to approve a levy, the property tax structure that many entities rely on could cease to work like it was intended.
My point with all of this information isn’t to sway you in one direction or the other. It’s simply to educate you on the use of TIFs in our state and municipalities. Now, I am not implying that all of this tax money being re-directed and under local control for investment hasn’t resulted in economic growth. Quite the contrary, Clermont County is doing very well. But, was it necessary to re-direct this tax money or would the business growth have occurred due to the competitive market and geography? That’ sa tough call. There are always questions surrounding the use of TIFs. Let’s explore some of them.
Don’t hesitate to ask questions from your township, city, village or county officials. Questions like: how much TIF revenue do you collect annually? How much of the re-directed revenue is reimbursed to the local school district or others? What, exactly, have you spent the money on? What have been the results of, or return of, that investment? I don’t think that wanting to do away with TIFs is a reasonable approach, but I do think that evaluating the need and limiting their use is good project planning. I think that understanding the process, identifying the risks, putting measures in place to mitigate the risks, engaging the stakeholders, properly planning the project, executing the plan, and measuring the outcome is the way to execute a successful TIF project.
Making the county a safer, better place to live and work – that’s the goal.