The power of TIF districts

When Geneva created a tax increment finance district in 2000 to encourage redevelopment on its east side, the city got several boosts in that part of town.

These include the CVS pharmacy, Aldi's grocery, Valley Animal Hospital, Munchie P's restaurant, Dairy Queen and the environmental clean-up of a former gas station, all the result of tax increment finance – also known as TIF. Used by local governments to encourage development or redevelopment in blighted areas, municipalities sell bonds that are then paid back in increments – hence the name – through increased taxes from higher property value.

TIFs are appropriate, officials say, when private dollars are not enough to develop or redevelop an area.

Geneva's and Batavia's TIF districts are self-sustaining, officials say. That means they create enough in new taxes to pay off the loans for the improvements. None of St. Charles' five TIF districts produces enough to pay off the loans and requires the city to subsidize them, officials said.

But all the cities' officials say their residents have benefited from the development and improvements the TIF districts created.


Geneva

In Geneva, each project within its east side TIF paid for itself, Economic Development Director Ellen Divita said.

"Each project has created an increment which has exceeded the redevelopment assistance provided for the project," Divita said. "That's why we have a healthy cash flow. We've created more increment than we have extended out in assistance."

For example, Dairy Queen estimated a $71,000 increase in its equalized assessed value. The city's TIF helped with $40,000 toward improvements. Dairy Queen's EAV went up to $560,000 from $117,000, Divita said. The difference between the starting property value and the current value is what generates money to pay down the TIF loan.


Batavia

The City of Batavia has three active TIF districts covering about a third of the city's downtown, according to its Web site map. According to its current budget, the city's TIFs have no debt.

City Administrator William McGrath said most TIF loans are backed by a municipality's general obligation authority – that is, the taxpayers. Doing it that way allows borrowing at a lower rate because it assumes the TIF will perform enough to make payments on the bonds, he said.

"We have never done that," McGrath said. "We're pretty conservative. We never issue bonds until the project is earning enough money."

McGrath described the city's policy as "pay as you go," putting money into the deal as increment cash is produced.

One of the city's TIFs facilitated the development of 35 townhouses along the Fox River, replacing two industrial buildings.

"The developer fronted the money for sewer, water, electricity and a road," McGrath said. "And when the increment was produced to make payments on the bonds, the city borrowed money and gave the proceeds to them to reimburse them for the public improvements."


St. Charles

St. Charles is subsidizing the debt for all five TIF districts at $250,000 to $300,000 a year said Christopher Minick, the city's finance director. According to the city's budget, it owes nearly $40 million in TIF bonds.

"We have bond issues with all of the TIFs and there is active development on all of them generating increment that is paying the debt service," Minick said. "The increment the city receives on an annual basis not enough to cover all the debt service."

The money to pick up the TIF deficit comes from the city's general funds, he said.

But, Minik said, the TIF bonds St. Charles issued helped pay for public improvements that benefit the public and business. So creating the districts was still a good decision, financially, he said.

"In the case of the Foundry Business Park, that area of Dean Street was flooded out constantly," Minick said. "We undertook improvements beforehand to alleviate some concerns. We reduced the amount of general taxation to accomplish those improvements."

Even with a reduction in flooding, the Dean Street and Randall Road TIF has had slower than anticipated redevelopment, Minick said.

Also, the Blue Goose grocery store's relocation and construction was also facilitated within the TIF, Minick said.

Another TIF, by Tyler Road and Route 64, also involved stormwater and infrastructure improvements, raising the grade of the intersection 30 feet to get the land in that area useable for development, Minick said.

As a result, the Al Piemonte Cadillac Dealership and a commercial office building were established there, he said.

The former St. Charles Mall was a similar situation, he said. Once the mall at Randall and Route 38 was shuttered in 1995, it required demolition just for safety reasons, he said. The TIF was created to facilitate the demolition.

Still, the ability of a TIF to pay off a loan is based on increasing property values. If the current real estate market reduces the TIF area's values, they would produce less money, officials said.

"We have not seen that," Geneva Finance Director Don Weis said. "It's coming, we assume, because of the anticipated reduction of assessed values. But we do not know if or when it could have an effect."

McGrath said the fact that a property is a TIF does not make a bad deal into a good deal.

"In a real cynical way, if a community ends up with a street, sewer and water – and the [TIF] building fails ... the taxpayers have still gotten something," McGrath said.

How a tax increment finance district works:

• State law requires a TIF redevelopment meet criteria such as blight and conditions that lead to blight, among others.

• Once a municipality or village creates a TIF, its property assessment is frozen. New or increased taxes generated by improvements are used to pay for the improvements or other development incentives. These include buying land, razing buildings, relocating a business, rebuilding streets, sidewalks and utilities, among others.

• State law allows a TIF to exist for 23 years while its diverted taxes pay for the improvements.

OUTBOX:

Tax increment finance districts:

Batavia:
1.  1989 – no debt
2.  1994 – no debt
3.  2004 – no debt

Geneva:
1. 2000 – East Side – $800,000 to be paid off by 2016

St. Charles:
1. 1997 – Hotel Baker – $2.4 million to be paid off in 2016
2. 1998 – Foundry Business Park – $2.6 million to be paid off in 2018
3. 2000 – St. Charles Mall – $2.3 million to be paid off in 2022
4. 2002 – First Street – $29 million to be paid off 2026 (Payments to begin in 2012)
5. 2003 – St. Charles manufacturing district – $3.9 million to be paid off in 2023

Source: Batavia, Geneva, St. Charles