Information Sheet regarding the renewal of Tax Increment Finance Authority District II
What is a TIFA or Tax Increment Finance Authority
TIF is a means by which the City of Sault Ste. Marie can redistribute tax revenue to an area of special need, for the purpose of revitalizing it. In 1986, the City of Sault Ste. Marie established TIFA II to help finance the revitalization of the downtown. The most important part of the TIFA is that it can capture taxes from other taxing entities such as the County and Schools to help finance revitalization. The current TIFA II plan is set to expire on November 17th, 2006. TIFAs can be renewed on a one year up to a 20 year basis.
How does a TIFA collect revenue?
A specific area within the DDA boundaries is selected for development. A development plan is written which outlines the projects that the DDA recommends should be constructed. When a TIF plan is used to raise money for downtown projects, the Authority measures the total assessed value of all the real and personal property within the development area boundaries. This total is the initial assess value (baseline assessment) of the development area. Each year, thereafter, the assessed value of the development area is re-totaled. If the new total is larger than the initial assessed value (first year of the plan), the difference between the two is called the captured assessed value of the downtown area. The captured assessed value is very important, because when it is multiplied by the local tax rate, the resulting tax revenues are transmitted to the DDA for its development plan. These tax revenues are called the tax increment for that year.
Example, When the TIFA II plan was created in 1986, the total assessed value of all properties in the development area was $1,000,000 then the initial assessed value (baseline) is $1,000,000. Let us assume that in 1987, the owners of properties within the boundaries construct several improvements, which brings the total assessed value of the area to $1,500,000. In this year, then, the captured assessed value is ($1,500,000 - $1,000,000) = $500,000. Now if we apply the local tax rate of 59 (2006) mills, then the tax increment revenue for that year will be ($500,000 x .059) = $29,500. This $29,500 is transmitted to the DDA, which then uses the funds for the public projects it has outlined in its development plan. Tax increment revenues are dependent upon growth in the development area. Growth must come first, but once it has occurred, the property owners will be rewarded by seeing their tax dollars go to improving their surroundings, helping them to grow.
It’s important to note that the procedure does not increase taxes in any way. Also, no taxing body ever loses tax revenue. It simply does not get the increase in tax revenue that the improvements generated. There are three taxing jurisdictions that are affected by this procedure – The City of Sault Ste. Marie, the schools (local, ISD, State), and Chippewa County. Since, the downtown development area is itself within the City; the City is merely seeing its tax revenues more sharply focused on an important district. The schools are largely unaffected by the plan because the state’s formula for financial aid to school districts assures that schools receive a minimum amount of funds per student per mill levied. The tax increment plan will not change the number of students nor the school mileage, so the state will compensate the school system for the tax revenues it does not receive. The current ’06 school millage rate is 27 mills. Starting in 2007, TIFA plans are no longer allowed to capture any school taxes. Therefore, the renewal of the TIFA II District will have no effect on the local schools.
The county is not compensated in any way, so its tax revenues from the development area will remain constant for the duration of the plan. However, the county’s share of the tax millage is about 10 mills. So, the county will not be heavily affected by the plan.
How much funds are available in TIFA II
As of June 30th, 2005, The balance of the TIFA II district is $612,933.13. There is now a significant amount of TIFA II funds available to complete Phase 3 and 4 of the TIFA II development plan.
If the TIFA II district is disbanded, based on the City’s levy of 20mills the City would receive around $220,000 and the remaining funds would goto the State of Michigan and other entities.
How much funds does the TIFA generate a year?
In FY 2005-6, the TIFA Value is $4,819,439 x .056 mills which is estimated to generate $269,888. However, $138,495 is being used to pay off bonds and school over collections. Therefore, after bond and school over collections, the actual revenue to finance other downtown projects and permitted activities is $131,393.
Individual Tax Entity Estimated FY 05-06 Yearly Contributions to the TIFA District
Yearly City Tax Capture ($4,819,439 x .02038 mills): $98,220
Yearly County Tax Capture ($4,819,439 x .0088726): $42,761
Yearly School Tax Capture ($4,819,439 x .026098mills): $125,778
If the TIFA II District is renewed, there will be a reduction in revenue to the TIFA II district. The reason for this reduction is that TIFA districts can no longer collect School Taxes, because of the Proposal A passage several years ago. Starting in FY 07, The local millage when calculating the yearly TIFA capture will go from .056mills to .029mills (loss of the school Millage .027). Based on the FY 07-08 projected estimate the TIFA II Value will be $4,934,450 x .029 mills (City and County combined millage rate) the TIFA district will see a drop to approximately $148,033 per year starting in 2007.
Why should we keep the TIFA?
It’s important to remember that the TIFA is financed by the properties located within the boundaries. The current end fund balance was achieved by over 20 years of incremental growth. TIFA projects are completely financed from TIFA revenues. Currently, the City’s general fund and City tax payers do not have to bear the financial burden of financing downtown projects. In addition to the incremental tax capture of new development within the downtown boundaries, the TIFA can collect taxes from other taxing entities such as schools (local, ISD, State) and Chippewa County. There are still numerous revitalization projects that must take place downtown such street work, sidewalks, lighting and other downtown improvement projects. The current TIFA II plan still has several projects and permitted activities that have not been completed. These projects were suggested based on information from the community, Hyett Palma, DDA and City Commission. The purpose of the proposed projects is to improve the economic viability of the downtown and to enhance the tourist atmosphere and to improve the quality of life downtown for all of the citizen’s of Sault Ste. Marie
It’s very important to renew the TIFA to maintain the current baseline assessment. If the TIFA is allowed to expire, the City, County and Schools will be reimbursed based on their capture. The city will see an increase to the general fund, but will be obligated to pay off any existing bonds, and the city general fund (tax payers) will have to bear the burden of financing any future downtown development. It just makes fiscal sense to keep the TIFA districts.
Past TIFA II Projects
Attached the Commissioners will find a list of past, current and future projects that fall within the TIFA II district. Since 1986, The TIFA II district has financed over $1,500,000 in downtown improvements. The TIFA district has financed the Ashmun Streetscape from Maple to Portage at a total cost of $345,000. It financed the Moloney Alley Improvements at a cost of $500,000.
It financed the Portage Avenue Streetscape from Ashmun to Osborn at a total cost of $722,000. It financed the Land acquisition of the corner of Ashmun and Portage at a total cost of $110,000. It should be noted that the Portage Avenue Streetscape and Se Corner Lot purchase were financed with existing TIFA funds. Therefore, bonds were not needed to finance the projects. There have also been other uses of the TIFA funds such as snow removal and summer maintenance and other beautification projects.
Current TIFA II Projects and Permitted Activities
There are still many projects that need to be completed in the TIFA II district these particular projects are listed in this agenda packet, but I will outline some of the important ones. For security purposes the lights in Moloney’s Alley need to be replaced, and there are plans to enhance the rear entrances of the businesses along Moloney’s Alley. Another current project is the completion of the SE Corner parking lot of Ashmun Street & Portage Avenue. The most important project that has not been completed in the TIFA II district is the additional side street streetscape work. This includes Osborn: Ridge to Portage, Ridge-Maple: North side, Bingham: Maple to Portage, Water: Osborn to Brady, Portage Street to Brady. There are some additional wayfinding signs that need to be installed.
Future TIFA II Project and Permitted Activities:
There are some key projects that could be pursued if the TIFA II district is renewed. One of the more important projects could include backup funding for the Osborn Parking Structure. Another project could be the construction of a permanent Band Shell for the Music in the Park program. TIFA II could be used to finance a new municipal complex that could provide adequate space for City Hall offices, the Fire Department, and Police Department. Another key component could be the use of TIFA funds to assist downtown properties owners with bringing there buildings up to ADA standards/Barrier free/Fire codes, internal building to building to connections, and façade improvements. The building improvement programs are being used by other communities in the State of Michigan and the results of the program have been very promising. The final possibility would be to finance the construction of in-fill buildings. The TIFA II funds could be used to build new buildings at locations where other buildings were lost due to fire and urban renewal. Of course all of the future TIFA II projects are contingent on the renewal of TIFA II, and results from the community forum could set different priorities for the future TIFA II development plan.