More than 40 people including representatives from the City of Elizabethton, County Commission, City Council, Elizabethton Planning Commission, Carter County Bank and others were present at a meeting Tuesday to learn about tax increment financing (TIF), which is being considered for use as an economic development tool by local officials.
“It sounded like everyone was very receptive,” said City Manager Jerome Kitchens, noting the presentations addressed both the technical and practical application of TIF districts. “The city and county are obviously interested and involved.”
Guests Mark Mamantov, a public financing specialist and attorney with the Bass, Berry and Sims Law Firm addressed how a TIF works, who takes the risk and different ways of utilizing one. Mamantov worked closely with the Pinnacle project in Bristol — in which two TIF districts were used — as well as numerous regional projects and TIFs in Knoxville.
Lynn Tully, Kingsport development services director, told the group that the profits her community has seen from utilizing TIFs have been in the millions. She provided examples of how TIFS have been used in Kingsport since 2001, and told the group how the community has profited by providing incentives for developers and gaining businesses.
As an example, she discussed Riverbend Villas, one of the apartment complexes that has been developed as a result of the TIF.
Without the development, she said, the city and county tax collection would have been $214,587 over 20 years; with the development, minus incentive, the estimated city and county tax collection, based on Verified Assessment Data is expected to bring in $5,860,603 over 20 years. It is projected to create 69 jobs.
Tully also discussed how Kingsport is creating market rate multi-family residential areas using TIF districts, which have not been built in over 20 years.
“The most important information to take away is that these are very low risk and also very flexible,” said Tully.
Tax increment financing is a tool used to create incentive for developers to move into less attractive areas for commercial or residential purposes. By establishing an area or property as a TIF district, the industrial development board or housing authority is able to assist the developer by using TIF funds from property taxes to make the property more appealing.
In effect, the property tax of the site is assessed and subtracted from the post-development property tax, and those incremental funds are pooled and used for improvements as the industrial development board or housing authority allocates them.
Mamantov said the housing authority would be the entity creating the TIF for residential sites, while for commercial sites, an industrial development board or the city and county would organize it.
“You have to have the approval of both the city and county for it to be effective,” he said.
Mamantov gave an example of how the funding breaks down. If the current base tax for a property is $5,000, and the complete tax after it is developed is $50,000, then the tax increment would be $45,000.
He said that once these amounts are determined for a TIF, the IDB or housing authority would select developers and a bank to loan the increment amount for improvements, which is paid off with the increment as it accumulates over the time established term for the TIF.
“It’s very low risk,” Tully explained. “When a developer approaches wanting a TIF, they like the idea because they get the money up front.”
Jon Hartman, Elizabethton director of planning and economic development, said a master plan has already been developed to identify both commercial and residential areas that could benefit from TIF including downtown, a section of W. Elk Ave. and multi-family residential sites as well as independent living facilities like senior living centers. He also noted that Kingsport is not the only nearby city using TIFs; Johnson City and Bristol also have them.
In Kingsport, five TIF districts were used to provide commercial and residential improvements, of which three have seen significant redevelopment, Tully said.
She said most of the money has been used for land development. Since 2001, dozens of businesses have moved into these new sites, and two upscale multi-family residential developments are being established. They will both rent at market value, providing a total of 433 units with access to pool, clubhouse, playground and some garages.
Tully also said that one additional benefit of the districts is that nearby businesses are seeing growth.
“The spinoff of nearby investment has resulted in millions of dollars added to the tax rolls,” said Tully. “Once the TIF was enacted next door, more businesses came in and we’re now seeing much lower vacancy rates.”
In the downtown redevelopment district of Kingsport, she said they annually receive $120,000 in tax increment but only use about $80,000. They have funded over $500,000 in facade grants, and she said that leftover funding can be added to the general fund after a number of years, to be allocated where needed.
When redevelopment takes place residentially, Mamantov said there must be evidence of blight.
He gave an example in which a developer might want to redevelop a blighted lot, but cannot afford the renovations. With a TIF, they can get the incremental difference in assessed and market value of property taxes up front through a bank loan which allows them to develop the property with money given up front.
The housing development agency must first analyze whether the developer needs a TIF to make improvements. After this is decided, the housing authority, county and city approve the plan and development begins.
“Property taxes are a scarce resource that should only be used as an incentive judiciously,” said Mamantov.
Some people have complained that implementing a TIF is facilitating “corporate welfare,” he said, and explained that their argument states that the IDB is using property tax money to make structural or land improvements that big businesses moving in could afford to make themselves.
Kitchens said that lots of developers would not consider these sites, so giving them incentive is necessary and beneficial when it comes at no cost to the city and county.
“This is an opportunity where improvements for the city and county justifies the TIF,” said Kitchens. “Many developers have several areas to develop, so if other areas provide better accommodations, then the less developed site almost always loses out on the opportunity.
Mamantov emphasized that the city, county and housing development agency do not bear any risk with a TIF. The developer takes the risk.
“The crucial thing is that the county, city and housing agency are not on the hook. The bank and developer take the risk, but the developer is willing to do it because it makes sense; it sweetens the deal for them,” Kitchens said.