The Unified Government has adjusted its TIF policy after a staff analysis requested by commissioners.
Left with a number of nonperforming residential TIFs after the economic downturn of 2008, the UG has changed the way it handles the financial instruments in the future. The policy was changed at the April 24 UG meeting.
TIF stands for tax-increment financing, a method of government financing of developments. After the recession, Wyandotte County was left with some housing subdivisions that were started and not completed.
In general, the UG staff analysis found the UG’s commercial TIFs were doing better than its residential TIFs.
The staff noticed a trend that some of the older TIFs weren’t performing as well, and commission members had questions why the newer ones were better, said George Brajkovic, director of economic development for the Unified Government. This study of TIFs was initiated at the request of Commissioner Jim Walters. In the past, other commissioners, including Commissioner Ann Murguia, have addressed the subject of nonperforming TIFs.
A comparison showed that residential TIF debt in 2013 was $504,879, and residential TIF revenue in 2013 was $663,483, according to the UG staff report. There are some nonperforming residential TIFs, according to the study, while there also were some that have been successful and were paid off early.
Commercial TIF debt in 2013 was $3,773,879, while commercial TIF revenue in 2013 was $5,356,929, according to the report. The Village West and Kansas Speedway area was excluded from the study.
There are currently no recourse options on the current underperforming TIFs, according to the policy report. But on larger commercial TIF projects, some of the newer policy directives are being used and there are options to address any future downturn, according to the report.
Lew Levin, UG chief financial officer, described some “lessons learned” through the years with TIF projects. These lessons, now being used on TIF projects, have now been put into writing as guidelines for future use. For example, one is to do feasibility studies that would account for market fluctuations that might negatively affect revenue generation. Another is to prefer pay-as-you-go as opposed to general obligation bonds.
Also suggested by the policy directives is to require a guaranteed level of payment to insure the performance of the TIF. Another “lesson learned” is that before issuing financing, the property acquisition should be in place or there should be a clear letter of commitment from a bank before reimbursement, and the developer has to build a certain number of units first.
Also, project investment from property and sales tax payments would be minimized, and a sunset provision would be added between district approval and plan approval. In the future, the UG plans to look more closely at developers who were involved with failed TIFs and are proposing a new TIF project.
Among other guidelines are that there would be specific language on noncompliance included, such as options for the local government to take the property if there is nonperformance, according to Levin.
A UG official said a downturn in the market was a reason some of the earlier residential TIFs did not perform.
UG Administrator Doug Bach noted that the UG hasn’t done a single-family TIF development in a number of years, although he would not want to write a policy that says the UG will not do one in the future. He talked about one residential TIF development that was very successful and has paid off its TIF after about 20 years.
Commissioner Ann Murguia said that while she agrees the UG has had significant issues with the residential TIFS, she also agrees that they should not totally be eliminated, as that does not resolve anything and penalizes residential TIF developers who are successful. As a committee, the commissioners thought it was better to come up with other ways to review if a TIF project was a good investment, she said.
Flexibility is the key to being very successful at development, she said. Having the TIF development tool is good, it just needs to be scrutinized to make sure it will perform.
Mayor Mark Holland said the TIF report separated fact from fiction on what caused some TIF projects to fail. He said single-family home projects struggled the most, while multi-family development projects did better and commercial projects did well.
He noted there were two kinds of single-family TIFS – those before and those after the recession. The ones that went through the recession took a beating and the UG did not have the tools built-in at the time, so the UG ended up also taking a beating, he added.
He said the UG needs to make sure it is specific about where things went bad and where the policy can be adapted to be better, if a single-family project comes forward again.