Many citizens are unhappy with the proposed TIF district in Sedalia, and local officials are sharing their sides of the argument.
The proposed TIF district in Sedalia includes two parcels of “blighted” land, both on U.S. Highway 50: land in front of the Econo Lodge and behind the Galaxy Theater, a total of about 5.1 acres. The Tax Increment Financing (TIF) Commission voted 9-2 against the proposal in late October, but the final decision is up to the Sedalia City Council, which will vote during tonight’s special meeting at 6:30 p.m.
TIF districts are becoming more common in Missouri cities. According to the Economic Development Corporation of Kansas City, “Tax Increment Financing (TIF) is a financing and development tool that allows future real property taxes and other taxes generated by new development to pay for costs of construction of public infrastructure and other improvements. TIF encourages development of blighted, substandard and economically underutilized areas that would not be developed without public assistance.”
Star Acquisitions Inc., of Liberty, is proposing to spend about $11.1 million to develop the property for retail, restaurant and other commercial uses, with estimated completion in December 2016. Star will contribute about $7.8 million, with $3.3 million coming from third party investments, and is seeking about $2.6 million plus interest in TIF and Community Improvement District (CID) sales tax reimbursement.
Is the land really blighted?
Local TIF opponents question whether or not the land is blighted. Some have said Star Acquisitions hired the firm Springsted Inc. to complete the blight study of the land in question, but that isn’t true; the City of Sedalia hired Springsted, which City Administrator Gary Edwards said only works with municipalities, not developers.
“For me, it’s hard to see that a property on the west side of Sedalia is blighted when there is developed property all around those properties,” said Sedalia School District 200 Superintendent Brad Pollitt, who voted no as a member of the TIF commission. “It doesn’t pass the eye test. Maybe it passes the state definition.”
Dick Hutchison, president of La Monte Community Bank and Pettis County R-XII’s representative on the TIF Commission, also voted no. He said he doesn’t think developers should get tax breaks on land just because it is blighted, but rather they should have to pay for the development costs themselves.
“I think it ought to be a level playing field for everybody; I don’t think we should do some things for some and not for others,” said Pettis County R-XII board member Toby Brown. “We’ve worked to keep tax rates low in Dresdsen, driving business to come to the area. They already get a good benefit tax-wise without getting any kind of special TIF.”
Edwards said the land does meet the Missouri state legislature’s definition of “blighted,” and Springsted agrees.
“If you go by Webster’s Dictionary’s definition of ‘blight,’ it doesn’t add up. It’s in the middle of an area that doesn’t have falling down buildings, things you would generally consider blighted. That’s not what the legislature gave us as the definition of ‘blight,’” he said. “It’s much wider and will consider things such as economic viability — if the area is not contributing economically to the community, then that can be considered blight also. These areas are not contributing economically to the community.”
A response analysis was prepared by Polsinelli PC at the request of Jim Mathewson, Gary Noland, Dr. Jeffrey Sharp and Jeri Uptegrove, and it refuted the claims of Springsted’s blight study, stating the land is not blighted and could be easily developed.
How will this TIF affect taxes?
Opponents have said they are against the proposal because it will affect tax revenues for the affected taxing entities, including Pettis County Ambulance District, Sedalia School District 200, Pettis County R-XII in Dresden, Pettis County and the City of Sedalia.
Dianne Simon, Vice President of Property Management for Thompson Hills Investment Corp., questioned if school districts would increase property taxes to compensate for the TIF district, which she was concerned would affect Thompson’s real estate holdings.
“My board members here are concerned about possible increases in real estate taxes for us and all other property owners,” Simon wrote via email. “Our real estate tax bills total over $228,000. Many of our leases provide that those taxes are passed on to the tenants. We don’t want to see those costs increase for our tenants. ”
Pollitt said the district is also concerned about the effects of a TIF district, but that the Board of Education hasn’t even looked into raising property taxes in response to a TIF.
“The main reasoning (for voting no) is if the TIF district passes on that particular piece, we will not receive any additional tax revenue from that property,” Pollitt explained. “If it doesn’t pass and someone comes in and builds something on there we would see the immediate increase in the tax base and with that thought process in mind, then you have to look at, do you personally believe that is a blighted piece of property?”
If the TIF is passed, the taxing entities wouldn’t lose any money, but they would have to wait to see those increased taxes.
If the Sedalia School District currently receives $100 a year (for example) in taxes from the land behind Galaxy Theater, it will continue to receive that annual $100 if the TIF district is approved. Development of the land would inevitably increase the value of the land, which would in turn increase assessed property taxes received by taxing entities. However, those entities would not receive the increased taxes until the TIF is paid off — in this case, the TIF is expected to take 23 years to pay off, but Edwards said they are hopeful it will be a much shorter time frame.
Here’s where the point of a TIF comes in: that increase will go to the developer to reimburse them for the cost it took to develop on blighted land. Once the TIF is paid off, all taxing entities would begin to see that increase in taxes from that piece of land. According to the report from Springsted, Star has requested a statutory TIF which is “revenues in the form of available ad valorem property tax revenues, Payment in Lieu of Taxes, (PILOTS) along with Economic Activity Taxes (EATS) where it is anticipated 50 percent of the growth in sales tax revenues will be captured and redirected.”
If taxing entities are looking for a developer to come in within the next few years and develop the land without a TIF, they may be waiting for awhile — Edwards said six contracts have started and failed over the last two decades at the Econo Lodge site due to the high cost of development.
“Say the TIF doesn’t go through and the land sells to developer X. X doesn’t ask for a TIF, then we get all of that revenue, but we’ve got to to look at the history,” Edwards said. “Remember we’re talking about two scrap pieces of property that have been sitting there. It’s because it’s very difficult to develop.
“These taxing entities are depending on that history will reverse itself and miraculously someone is going to come out of the woodwork and purchase those. I understand that is hoped for and that would be wonderful, but we’ve looked at it — history is not there to support that it is going to be sold, it’s not going to someone without incentives to go through. Those six contracts fell through because they could not do it financially alone.
“… We’re offering a path for that to happen,” Edwards continued. “They’re not going to lose anything from what they’re getting right now. Eventually they will get everything once it is paid off, hopefully it will be paid off earlier. We’re offering a route for that to happen; they’re hoping for it to happen without anything.”
Is the interest rate too high?
Simon said she thinks the TIF’s 6 percent interest rate is too high: “The city can borrow less than 6 percent, so why are they paying 6 percent to this developer?” she asked. “And who knows what the interest rate is going to do for the next 23 years; it’s going to go up.”
Edwards said a council member has brought up the same concern.
“This is an issue we have looked into, and I have no final answer,” Edwards said. “Remember with the property we’re talking about, that’s why it hasn’t sold up to this point is because the amount of money it takes to develop that. It needed that percentage rate for this project to go. That’s the case for anything like that — for that developer to make his money so they can get paid off, an interest rate such as that I believe may be necessary.”
Won’t this cost the city a lot of money?
This particular TIF district is considered “pay-as-you-go,” meaning the city does not invest any money up front; Star would invest all the money and the TIF pays back the developer. Edwards said this type of TIF offers no risk for the city, and Star holds all the risk. If the future retail ventures fail, only the developer will be out any money.
Nicole Cooke can be reached at 660-826-1000 ext. 1482 or @NicoleRCooke.