Tax Increment Financing – An Explanation

“State law in Colorado authorizes urban renewal authorities (URAs) and downtown development authorities (DDAs) to use TIF for projects that improve blighted areas. TIF allows an authority to issue and repay redevelopment bonds by using the “increment” of increased taxes collected within the TIF district after improvements are made (Section 31-25-101 et seq., C.R.S.). Tax increment revenue may be generated from property or sales taxes.  In English – Colorado law allows urban renewal authorities to issue bonds hoping that future increased tax revenues diverted from other taxing entities will pay for the bonds.  The money collected from the bond sales will be used to give to developers to develop property within the urban renewal areas.

For TIF purposes, to determine the increment amount of property tax revenue, the base valuation must first be determined. The base valuation is certified by the county and is equal to the total assessed valuation within the TIF district prior to the approval of the redevelopment plan. As phases of redevelopment are completed, the county reassesses the properties in the TIF district. Over time, improvements add to the property tax base. The revenue that is attributed to the growing tax base becomes the incremental revenue that is used by the authority for debt service on the bonds that are used to finance the redevelopment project.  In English – once a TIF is started the county will determine the present base valuation of the property.  Over the next 25 plus years, as development occurs the difference in the base and the higher valuation is the increment that is siphoned off from the taxing entities and given to urban renewal to give to developers to build their private developments.

All property taxes attributable to the base valuation are paid to each taxing entity in the TIF district. For these taxing jurisdictions, tax revenue remains the same until the incremental revenue pays off the redevelopment bonds. Thus, local taxing jurisdictions are unable to receive any of the additional revenue from improvements until the TIF bonds are paid off. In 1980, state law extended TIF to municipal sales taxes (Section 31-25-807 (3) (a), C.R.S.).”   In English – the properties being redeveloped will continue to pay their taxes at the base rate to the taxing entities until the bonds are paid off.  The taxing entities will not see any of the higher taxes until the TIF clock stops or the bonds are paid off.  In 1980 the law was changed to allow future sales tax to be redirected to urban renewal as well.  The base for sales tax is whatever was collected for the prior 12months.

Interpreting the Impacts of Property Taxes Accruing for TIF

The property taxes accruing for TIF are not always losses to local governments; they represent a maximum potential impact. In instances where a local government is not at its property tax revenue limit, all taxpayers in the jurisdiction will pay higher taxes than they would have if the TIF was not in place, assuming the development would have otherwise occurred. For those districts at their property tax revenue limit, the additional assessed value from the new development would only serve to lower the mill levy, not increase property tax collections. This happens due to the interaction between TIFs and mill levies. If a TIF was not in place and similar development occurred, then mill levies would fall in these districts and taxpayers would pay less. Presence of the TIF causes the mill levies to remain the same or not fall as far as they would have without the TIF to finance the projects.”  (From the Colorado Legislative Council Staff, January 2008)  In English – TIF can increase property taxes for residents of the municipality if we are not collecting more than we are allowed to collect. If TIF was not in place and development happened on its own (like King Soopers and Breckenridge Brewery) our tax rate (mill levy) would be reduced and we would be paying less in property taxes.

How would TIF work in Littleton?

Let’s take the new King Soopers at Broadway and Littleton Blvd.  The urban renewal plan provides for the use of both property and sales tax in the increment formula.  The look back period for sales tax would show that there hasn’t been any collected for the past 12 months so all the sales tax from King Soopers is at risk of being TIF’ed.  The property value will certainly be assessed at a higher value than last year so the difference between the base and the new property taxes will also be a risk of being TIF’ed.  But wait!  What did urban renewal have to do with the redevelopment of King Soopers?  NOTHING, except include it in their urban renewal plan.  This was not a mistake but done by design. The consultant advised that it was necessary to have such properties included because that’s where a lot of revenue would be produced.

Another example, Breckenridge Brewery.  Currently the plan calls for property tax being TIF’ed.  But, the urban renewal authority recently passed a modification to include retail sales tax for TIF purposes.  This modification has to work its way to council for approval. (February 17th)  If  both sales tax and property taxes are TIF’ed on the Breckenridge Brewery the look back period for sales tax would show nothing in the way of taxes collected so all the sales collected in the future would be at risk of being TIF’ed. And, certainly the new commercial endeavor has increased the value of the property providing more revenue for urban renewal.  But wait!  What did urban renewal have to do with the development of this project?  NOTHING!  But, it will produce a lot of tax increment for the urban renewal authority to give to developers.

All the money that is TIF’ed is money that should have gone into the General Fund of Littleton, to LPS, to South Sub Park Dist, Arapahoe County and Urban Drainage.  We have a lot of property that has been blighted and included in the four urban renewal plans – that means there’s a lot of money being diverted away from the intended tax entities.  Don’t you think we should have a say in this diversion of our tax dollars?

Are Tax Dollars Really Lost?

There’s a consequence of having all that money diverted to urban renewal.  Right now it is estimated that over $100 million is being “back-filled” by the State of Colorado to fund schools for the shortfall in their funding due to urban renewal. This back-filling means that you and I get to pay for schools twice.  Once through our property taxes and again when the state legislature has to fund the gap in school funding due to the loss of tax dollars to urban renewal.

Arapahoe County is losing over $5 million a year in tax revenue due to urban renewal projects county wide.  Yet the County is expected to continue to provide the same services for a larger population with less dollars available.

We have already heard our council talk about asking the voters for more money to help repair and maintain the roads in Littleton.  Just think – what if we had all the sales tax revenue from King Soopers and Breckenridge Brewery going to our General Fund and not to urban renewal for the next 25 years?  Now expand your view beyond King Soopers and Breckenridge Brewery to over 400 acres of commercial property in Littleton – why should those tax dollars go to urban renewal and not to the General Fund to help maintain our roads, pay for police and fire, the library, the museum, the Shopping Cart, the Ominibus, and all the other services that make Littleton a wonderful place to live?

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