The list of the projects in which the City of Knoxville is participating through Tax Increment Financing (TIFs) is now available. It can be accessed through the “City Tax Increment Financing Projects” link (PDF) in the “Development” section of the City’s Policy and Communications web page. Information is provided on the yearly city taxes before the TIF, yearly taxes collected during the TIF period, and yearly taxes that will be collected following the end of the TIF period. There is a lot of new information on the page, by the way, including links to the energy and sustainability project. Thanks for the suggestion that we include this.

(link...)

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R. Neal's picture

Thanks, Bill!

Good report. Thanks for posting it and letting us know.

Michael's picture

Hmm...

One project on the list that sticks out to me is the Commerce Building TIF for $735K. Since that project ended in foreclosure, with the buildings purchased by a bank and no further progress forthcoming, that projection seems a little doubtful. And as I recall, that project made its way into the Jackson/Depot redevelopment area by way of a very narrow exception. The city went out of its way to provide that one. I hope it learned a lesson.
~m.

Bill Lyons's picture

Commerce Building TIF - example of the apportionment of risk

The foreclosure is unfortunate, but is really attributable to factors unique to the developer's situation. Certainly the timing of the production of any new taxes is affected. On the other had this makes a good case study of where the risk falls in the TIF arrangement - on the developer and his/her bank and not with the city. The city's investment is captured in future increases in tax revenues for the project, not in any outlay from present dollars or dollars that would be forthcoming without the development.

In this case the project will certainly come on line as condos sometime in the not too distant future. There is too much already invested already for the bank to let it sit without finishing it off, even if they take a loss overall. Again, the City is not at risk for anything. The developer - through the bank - is on the line for the loan that the TIF revenue was to service. All the city might suffer on this is less post development revenue increase than would have otherwise been the case had the project worked as planned. Regardless the structure is in much better shape and much less likely to be a drain on public resources - even 90% developed - than it would have otherwise been if left to deteriorate.

We spend a lot of time making sure that the project would not happen "but for" the TIF because we would be at risk for taxes that were unnecessarily reduced for a period of time. As we explained to council in a long discussion - that is the best way to conceptualize the city's risk profile in this process. The flip side, or the risk of not doing the project is that the project, in fact does not happen, and the buildings sit vacant and deteriorating with the risk to public safety, draw on city resources, producing minimal taxes. A good example of that is the project at 912 N. Central. That building was producing KPD calls at a great rate, posed a fire danger, produced very little taxation, and was clearly not ever going to be developed without city participation to close the gap. Another obvious recent example is Brownlow School.

Along with the "but for" and the "so what" - does this project produce real public benefit; is it really in the public interest aside from tax revenues that the city participate? - we also examine the viability of the project, but we always keep in mind that no city tax dollars are "at risk" in the endeavor. Thus it is hard to second guess property owners and bankers who have judged the project to be a good investment of their resources with the TIF gap-closing support.

Sorry to provide more information that was necessary to address the comment; and the Commerce situation is troubling. This is very valuable tool, one of the few the city has available, and there are lots of nuances to this and lots of opportunities for misunderstanding, especially when framed relative to what these "cost" the taxpayer. It is a local - project based - extension of the concept of using tax policy to encourage socially desirable outcomes, a notion that Randy used in the "Fair Tax" thread.

reform4's picture

Nothing At Risk question

I'm not sure what you mean by "no city tax dollars are at risk." Does the City have some security to ensure the development is completed or else the investment is repaid some other way?

Thanks in advance for chiming in with details- you make an excellent point about the other costs of the 'but for' projects! I think the City has done a great job with the downtown development TIFs... I'm just a little worried the County is going down the road of using a hammer to drive a screw, as they say.

Bill Lyons's picture

Response to Reform4's question

Thanks for asking. This is a tricky concept to get one's arms around. It sure took me a while. We have no way to ensure that the development is completed. All the pressure is on the developer. This came up relative to the Brownlow TIF. The situation provides the pressure to finish. If the development is not completed the city merely keeps receiving the lesser tax amount it was getting before and life goes on with a partially completed or uncompleted project.

When a TIF is granted the developer goes to a bank for a loan whose payback is through the incremental increase in taxes produced by the project. If Josephine Jones gets a TIF approved she goes to Mr. Bailey's Savings and Loan (that time of year) and applies for a loan. The city and county agree to direct a portion (non debt related) increase in taxes the project should produce to repay that loan. The idea is that when Josephine finishes the new development and sells the properties that the assessor comes in and appraises the properties to their new higher level. More taxes are generated, usually a whole lot more. The tax stream pays back the loan and the bank and everyone else is happy. The city and county get to keep a portion of these new taxes right away. The rest come at the end of the TIF.

If the project falls flat, or stops in the middle, or whatever, and the property reappraisal does not produce the tax stream that was estimated then the banks is not paid off and the bank is out the money. However, most banks would have demanded that the developer sign to back up the loan so they burden would fall on the developer to make the payments. The city and county are out nothing relative to what they would have gotten in taxes had this whole thing never happened, and, depending on the worth in the project when halted, may well get some increased tax revenue. Of course a bank also issued a construction loan apart from the TIF loan. The TIF is less than 20% of the entire cost.. see our table. There is obvious pressure on banks and developers to have a sound business plan. Many of these never get off the ground because no bank will grant the developer a TIF loan. The risk is too great.

That is why I make the statement that the bank and the developer incur all the risk. The city or county never write a check in these situations. The tax assessor, trustee, and KCDC do the work to direct the increased taxes to pay off the TIF loan. So if the project fails the city and county have not "invested" dollars that could have gone elsewhere or been saved. The bank and the developer have made the choice to put the dollars at risk.

reform4's picture

Thanks. I had read another

Thanks. I had read another document regarding TIFs that defined the debt as being carried by a bond issue. So, the debt entirely is carried by the developer, apparently. I was wondering why Paul Pinkston was so concerned that the TIF be repaid if the city annexed the Halls development (that fits what I had read earlier, now I'm perplexed!). I assume, with your scenario, annexation wouldn't affect the agreement to divert the County taxes to the TIF loan. So why the concern over repayment, I wonder.

Thanks again. Perhaps there are some TIFs structured where the government entity would carry the loan

reform4's picture

I've found a few

I've found a few examples of TIFs where the government agency issued the bonds, so I guess we need to find out how the Willow Creek project debt is going to be done. Again, Mr. Pinkston's question implies to me that the County will be issuing the debt. Time to make a few calls...

Rachel's picture

Bill, It's great to see this

Bill,

It's great to see this posted; thanks for being so responsive.

And everyone, this is an excellent thread. I read it all today in one go when I got back from Christmas travels and really found it informative.

"The difficulty lies not so much in developing new ideas as in escaping from old ones." - John Maynard Keynes

reform4's picture

TIF Paybacks don't seem to work out.......

I'm a little confused by some of the numbers and the 'payback'. Take the Fire St. Lofts. The delta between the post-TIF taxes and the predevelopment taxes x 15 years is $990K, which doesn't cover the TIF principal, much less the financing costs. Brownlow School delta x 15 years = $626K, less than 90% of the investment principal.

Since the money has some cost (a bond that has to be issued, lost opportunity cost in an investment, etc), the paybacks for some of these seem to be a lot longer than the "term" so what does the "term" mean?

If these computations don't include the cost of money, the County's move to eventually give developers up to $150M in TIFs could mean a 10% property tax hike to cover the cost of bonds, back of the napkin.

Am I missing something?
-----------------------------------------
Fighting for Reform and Representation, Fourth District
Steve Drevik, Commission Seat 4-B
(link...)

Bill Lyons's picture

Response to question

The missing piece may be that we presented only the city tax portion in this spreadsheet. All the data for the projects and private investment, including the TIF loan amount, take both city and county taxes into account. One could take these as county projects and generate a similar table with similar increases in tax revenues during and after the TIF period for county government.

I may not understand your point, but as I hoped to communicate, any figuring of a "cost" to the governmental entity has to assume that any project would have occurred without the TIF. The logic is always that the payback is from taxes that would otherwise not have occurred.. hence our use of the "but for" as a defining evaluative criterion. I have to stress again. There is no money that is allocated from the governmental entity's budget. There are no bonds involved and no opportunity costs except for the bank and developer of the property.

jbr's picture

Bill Thanks for info

Bill

Thanks for info

bill young's picture

tax expenditure

I understand the need for limited tax expenditure on consumer projects in the retail & residential sector.However,I prefer concentrating tax monies on creating high wages & sustainable wages.

One may argue that 1.revenue(wages & all monies gained in the process both private & public)is created in the building of residential & retail projects.2.a piece of blighted property becomes revenue positive.3.retail jobs are created.

That is all true but if wages do not sustain those projects..what happens?

Other than some nicer looking empty buildings & the short term revenue created by the build we are back where we started.

The fact is,consumer jobs follow sustainable,high wages.

Futhermore,sustainable high wages create more consumer/sales tax & the ability to buy homes which enhances long term property taxes.

My position is,we should search the world over & spend short term revenue for companies that want to invest long term in our city & provide sustainable high wages for our citizens.

This is a simple proposition but is not easly done.The competion is fierce & it takes a concentrated effort.

I would love to see the Mayor & a corp of Knoxville diplomates leaving monthly..flying to the far corners of the globe..recruiting sustainable high paying jobs to our city.

Bill Lyons's picture

Urban revitalizatoin helps in other ways

Bill, I agree wholeheartedly with the notion that residential and retail development are not solutions for the long term health of a city, or a region. But they sure help, and without a healthy core city recruitment of quality jobs to the region would be a lot more difficult.

Not to get into a protracted discussion of Richard Florida, etc. but it is much easier to recruit the companies that pay the higher wages and to recruit and retain the people who will create knowledge and start companies that pay the wages of which you speak to cities that have healthy, vibrant downtowns with cultural amenities, healthy neighborhoods in the core of the city, etc.

Scripps is such a company, and the mayor worked very hard to see that they expanded their business here. Soon thereafter I had the opportunity to speak to one of the new folks who moved here. He lives downtown in one of the buildings that recently was improved, and he was drawn to downtown Knoxville. The state of our central city caused this man and his family to want to move here. It was an easy sell within the company. Many bright folks who UT is trying to recruit find the core of the city to be a real drawing card.

I might close with the notion that there is more than economics at work here. How do you put a value in the sense of place that we all can feel when downtown "works" as our social and cultural hub, with people who live near where they work and who are out and about on weekends and in the evenings? All the better if this can be done without creating a drain on city resources, but rather by adding to them.

Tamara Shepherd's picture

A couple more questions...

Bill, am I to understand from your spreadsheet (and from Sandra Clark's comment in the other thread) that the Northshore Town Center TIF was the first one extended by either the city or the county for a project NOT related to redevelopment? And that Graham's Lowe's may become just the second?

Also, I note that the first column on the spreadsheet combines the amounts of the city's and county's TIFs. To determine the amount of just the county's support, can I subtract the amount of the "City Tax During TIF Period" from the "Estimated Post-TIF period Tax" (to determine the city's annual support), multiply that amount by the term, then subtract the product from that first column?

(Don't mean to make you sorry you shared this with us, just quickly checking my understanding of how to read it! Thanks.)

Bill Lyons's picture

City and County TIF participation

Bill, am I to understand from your spreadsheet (and from Sandra Clark's comment in the other thread) that the Northshore Town Center TIF was the first one extended by either the city or the county for a project NOT related to redevelopment? And that Graham's Lowe's may become just the second?....Also, I note that the first column on the spreadsheet combines the amounts of the city's and county's TIFs. To determine the amount of just the county's support, can I subtract the amount of the "City Tax During TIF Period" from the "Estimated Post-TIF period Tax" (to determine the city's annual support), multiply that amount by the term, then subtract the product from that first column?

Tamara.. Q1..The Northshore Town Center TIF for Northshore improvements is the only TIF of its kind within the city limits. I believe Knox County also had another non-redevelopment-area-TIF related to South Grove.

Q2. Of course the properties within the city generate both city and county taxes. The county tax figures relative to the project are very close to those of the city, but a bit higher during the TIF period based on the difference in tax rates and the amount dedicated for the repayment of debt.

Even though the KCDC TIFs in redevelopment areas are within the city limits, and must be run through the city's redevelopment authority - KCDC - the properties, obviously, are in Knox County too. Of course development of the Sentinel Towers was initiated through Knox County Government through the RFP for the sale of county-owned property. County staff (in particular John Troyer, Finance Director) participate fully in the evaluation and discussion. In addition Knox County Commission must vote for these, along with City Council and the KCDC board. We have had good, hard questions from members of all three bodies on individual projects as well as the overall approach. A core part of our presentation is that Knoxville and Knox County taxpayers throughout either jurisdiction enjoy short and long term economic and other benefits from participation in the reinvigoration of these properties.

bill young's picture

Prioritys

Bill Haslem is a great mayor.I like the guy & the folks around him.

But I believe the number one priority of government is it's citizens & nothing is more important to our citizens than sustainable high wages.

I dont think the intrinsic value of downtown/ retail/residential/core neighborhoods projects are talked about much around the kitchen tables but the paycheck sure is.

I'm not talking about higher government mandated minimum wages or living wages.

I'm talking about the recruitment of companies that pay good & not just a few but a ton.Companies that employ 100-150 folks & are going to stay for the long haul.Plus I would not go regional because folks in the region dont pay our light bill.

My model would be Jack Fishman's,up in Morristown.

Lisa Starbuck's picture

Higher Wages, Sustainable Jobs

Bill & Bill,

I'd agree with some of both of your points. Bill Y. that economic development money is better spent on things other than retail and/or structural development, and Bill L. that place and quality of lifestyle have a lot to do with economic health.

I disagree with both of you that our primary economic development strategy should be to lure other companies to leave where they are now and to come here. That is old school economic development that doesn't work very well, and isn't really a good deal for taxpayers anyway because of the high cost of incentives relative to the value of what actual jobs are created.

Recruited companies usually bring their own people with them for the best paying jobs. And what stops a company that would pull up roots and go somewhere else for incentives from doing it again in 10 years or so when the incentives run out, or when another city offers something better?

Our best shot at economic development would be to concentrate on helping small businesses grow that are already located here, and to start up new ones. We have the wonderful advantage of a research university and the largest national lab in the country, ORNL, located in our backyard - and the technologies that are invented there create a tremendous opportunity for economic development.

What is missing from the equation is cash - it takes money to start or grow companies, and there is a dire lack of investment capital here in East Tennessee. Most small companies or startups just aren't ready for venture capital - not that there is much of that here either, maybe one or two small funds - but venture capital funds aren't interested in the small companies anyway.

What is really needed here is angel capital - the first few hundred thousand dollars that can get something off the ground so it can grow to the point of attracting venture capital.

That's what I'd like to see happen with my economic development dollars. If it were done properly, with good, independent oversight and mentoring, and with enough money to actually make a difference, it would be astounding what we could become -- maybe a Silicon valley, a Raleigh-Durham, a true place of home-grown economic prosperity.

Lisa

Michael's picture

Bill:

Bill:
By and large, I support the city's TIF program, and generally understand how risk is assigned. The Commerce, so far as I know, has been an exception in the program's success. But I'll stick by my comment that I hope lessons were learned. The city bent over backward to provide this one.

On another but related note, TIFs are but one tool the city has to ensure buildings don't "sit vacant and deteriorating with the risk to public safety, draw on city resources, producing minimal taxes." Simply walking by the McClung warehouses (even before the fire) or the Cal Johnson building (as it continues to fall apart) suggests that the city's codes department is turning a blind eye. Either could serve as poster child for the demolition by neglect ordinance, a tool I look forward to seeing the city deploy. I had hoped that the McClung fire would have been a wake-up call. As it stands, I think owners of deteriorating buildings see it as a hollow threat. I hope we're not waiting for the snooze alarm.
~m.

bill young's picture

Mr. Fish's model

One does not recruit companies that close in one location & open in yours.

You recruit companies interested in expanding markets to the US.

Morristown targeted companies interested in US expansion in England,(West)Germany,Canada & Japan.

Futhermore,& Morristown learned this the hard way,you diversify the industry that is recruited.

Thirty years ago,there was no thought as to what the companies produced..only that the company wanted to expand in Morristown.

This approach produced concentrated auto industry related companies & when the auto industry slumped so did the Morristown economy.

Another thing Mr.Fish told me was the first thing a prospective company did was look at newspaper stories for the last 2 yrs or so.

They were looking for the culture of the city.

For example,it was very important to Japanse companies that there were no reports of racial profiling by the local police.

That was a deal breaker.

Lisa Starbuck's picture

Newspaper Stories

Another thing Mr.Fish told me was the first thing a prospective company did was look at newspaper stories for the last 2 yrs or so.

They were looking for the culture of the city.

Well there you go. We're screwed unless a company is just looking to locate somewhere where the local government is consumed with factional infighting and backroom deals.

Up Goose Creek's picture

Demolition by neglect

Either could serve as poster child for the demolition by neglect ordinance, a tool I look forward to seeing the city deploy

We haven't heard much about the demolition by neglect ordinance. I suspect because of limited funds. Several years ago I tried to get assistance for the house at 808 N Fourth that sits with a gaping hole in the roof. I think that case was complicated by the existance of unpaid taxes. The McClung buildings were complicated by the sheer size and the attitude of the owner. But I agree that the Cal Johnson Building may be a good candidate for this ordinance.

A little background - this ordinance allows the city to step in and make emergency repairs to historic buildings that are in danger of destruction from the elements. The cost is then attached to the property as a lien.

____________________________________
Less is the new More - Karrie Jacobs

Rachel's picture

The demolition by neglect

The demolition by neglect ordinance only applies in H-1 or NC-1 overlays. If the Cal Johnson has an H-1 overlay, then demolition by neglect would be a great tool. I'm pretty sure it doesn't, tho.

"The difficulty lies not so much in developing new ideas as in escaping from old ones." - John Maynard Keynes

Bill Pittman's picture

808 N. Fourth

The possible Barber house at 808 N. Fourth (3 doors north of Gill Ave.) has recently had a new roof installed---I too was worried about this historic structure.

Michael's picture

Qualified or not, I still

Qualified or not, I still suspect the city has some tools that are not being employed to address the situation. It's just a matter of time before it's too late. There's a lack of will to safeguard the community.
~m.

edens's picture

>Qualified or not, I still

>Qualified or not, I still suspect the city has some tools that are not >being employed to address the situation.

Outside of the demolition by neglect - which, as rachel pointed out, requires an NC1 or H1 (neither of which apply to the McClung or Cal Johnson), "codes enforcement", as Michael called for, essentially allows the city two tools:

Demolition, which I'm pretty sure isn't the solution Michael's looking for.

Or acquiring the property as "blighted," - rather costly in the case of a McClung or Cal Johnson, plus the slightest whiff of which brings every property rights advocate and his uncle out of the woodwork (recall Saroff's talk-radio stardom? Which got to the point that I was rather worried for awhile about the city's "Homemaker" program that has been instrument in addressing numerous problem properties in the neighborhoods around downtown).

Codes enforcement, as the codes are currently written, is a bit of a blunt instrument.

jbr's picture

Knox County implementation of TIF....

This article's perspective seems to apply to Knox County's approach to TIFs.

(link...)

Michael's picture

Frustration

Property rights shouldn't eclipse public safety. If a solution doesn't exist within our current ordinances to address the type of danger presented by the Cal Johnson building to downtown then I would encourage our government to reevaluate the situation as it exists. I would sincerely hate to lose such a historic building worthy of preservation. And I agree that demolition is not my first preference. But as close as downtown came to a more devastating outcome with the McClung Warehouses, I don't know how we can allow such dangerous conditions to continue unaddressed.
~m.

Anonymous's picture

TIF

Found this website and it is very interesting to me.

Here in Rutherford County Tennessee we have a developer that wants to use TIF for a Bible Them Park. The developers have connections with many millionaires and billionaires. We, the residents of Rutherford County are trying to tell our County Commission that the developers do not need TIF on this project and it is falling on deaf ears. Do any of you have any ideas that might help with this situation.

This is the first for Rutherford County and the Industrial Development Board, our Future Development Board, our Regional Board and our Full County Commission to use TIF and they have no earthly idea what they are doing. This is being rushed through too fast and we are trying to tell them to take their time and get it right. Please anyone do you have any suggestions.

On top of this it is a religious park that will be getting support from out county government. Help!

jbr's picture

You might read through these

You might read through these articles regarding experiences over time with TIFs in other cities.

"The True TIF Tally" Chicago's experience from County Clerk
(link...)

Tennessee Advisory Commission Intergovernmental report on TIFs
(link...)

TIF Fact sheet from Chicago councilman
(link...)

Rachel's picture

Umm, your County Commission

Umm, your County Commission killed this thing earlier this month.

R. Neal's picture

Actually, it was the

Actually, it was the Planning Commission that voted not to issue permits or approve rezoning. Developers are taking it to County Commmission anyway on May 15th.

Bible Park backers take fight to county after planners deny rezoning | The Tennessean

Developers of a proposed $200 million religious theme park will continue to push for approval of the project in spite of the Rutherford County Planning Commission's vote Monday against rezoning the 282-acre site of Bible Park USA.

Rachel's picture

Whoops - that's what happens

Whoops - that's what happens when you rely on middle-aged memory and don't take the time to look things up.

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