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Thread: TIF bonds: How can you project the increment?

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    Cyburbian Hawkeye66's avatar
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    TIF bonds: How can you project the increment?

    For most bonds, you need a definitive source of revenue. With a TIF bond, the increment would be variable. How would those be done for a bond?

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    Cyburbian Emeritus Chet's avatar
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    If I understand your question correctly:

    Typically in our area, the initial first few years of TIF life and debt repayment, the increment isnt enough to cover the payment. Therefore, the borrowing includes sufficient extra cash to cover the payment.

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    Corn Burning Fool giff57's avatar
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    Quote Originally posted by Hawkeye66
    For most bonds, you need a definitive source of revenue. With a TIF bond, the increment would be variable. How would those be done for a bond?

    Usually you tax the difference between your increment and the bond payment under debt service. If you have the cash you can borrow from your cash and pay yourself back when the increment becomes larger than the bond payment, but most cities are not that lucky.
    “As soon as public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the State is not far from its fall”
    Jean-Jacques Rousseau

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    Cyburbian
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    We typically have financial advisors do the projecting of incremenet for us (based upon future tax revenues expected).

    In Michigan, we have the option of paying interest only on bonds for up to two years and the cost difference is negligable. Paying interest only allows a project to get off the ground and start paying taxes (and thus, increment) so that you aren't paying for a huge bond while nothing is in the ground and generating tax revenue.

    We've also found that development agreements can help with some of the risk. A developer must commit to a timeline for construction and an agreed upon final taxable value for a project that is receiving any TIF financing. If the construction timelines aren't met, the City can pull its TIF financing. This way, we have guaranteed increment levels to pay back the bonds.

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    Cyburbian Cardinal's avatar
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    You will ulimately need to do a projection of the amount of increment to be generated from a TIF project. In greenfield industrial TIFs I generally translate that to a dollar value per acre, which can also be translated to a ratio of building to lot size. These are useful in determining pricing, land area sales, and incentive goals. In redevelopment areas I typically look at a unit cost to determine likely increment. For example, I might project fifty new condominiums at an average assessed value of $200,000, then back out the loss of increment due to any demolition.

    As others have said, you then need to determine if you will have any repayment costs, interest, or other costs that come off the top, before you come to a final estimate of the amount of increment available to you.

    These techniques work pretty well in speculative TIF projects. I have also set up some where there is a developer in place, in which case I have generally argued for a development agreement wherein the developer provides a guarantee of the increment, within a given time frame. If the project is constructed and produces the increment projected, then everyone is covered. If the project stumbles, or does not meet the increment levels set in the agreement, the developer is required to make up the difference.
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    Cyburbian Hawkeye66's avatar
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    TIF got a major write up in today's Des Moines Register.

    One thing I am not sure of: Does TIF debt count against your General Obligation (GO) capacity?

    http://desmoinesregister.com/apps/pb...01/NEWS&lead=1

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    Cyburbian Cardinal's avatar
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    Quote Originally posted by Hawkeye66
    TIF got a major write up in today's Des Moines Register.

    One thing I am not sure of: Does TIF debt count against your General Obligation (GO) capacity?

    http://desmoinesregister.com/apps/pb...01/NEWS&lead=1
    In Wisconsin, the answer is yes, with some limited qualifiers.
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    You may find this interesting/helpful:

    http://www.chicagoreader.com/feature...eworks/060811/

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    Cyburbian
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    TIF the best way to figure it is not to play the game at all! " How about a nice game of chess"?

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    Cyburbian Cardinal's avatar
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    Quote Originally posted by nemo31
    TIF the best way to figure it is not to play the game at all! " How about a nice game of chess"?
    That seems like a bit of a knee-jerk reaction. Have you had some bad experience? As with any tool of government, there are some poorly executed or unnecessary TIFs, but by and large, it is a valuable technique for government to fund infrastructure, economic development, and similar costs.
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    Cyburbian
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    Quote Originally posted by Cardinal
    That seems like a bit of a knee-jerk reaction. Have you had some bad experience? As with any tool of government, there are some poorly executed or unnecessary TIFs, but by and large, it is a valuable technique for government to fund infrastructure, economic development, and similar costs.
    Extorting money from the general public by politicians and business with assistance from professional planners!

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    Cyburbian Hawkeye66's avatar
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    Quote Originally posted by nemo31
    Extorting money from the general public by politicians and business with assistance from professional planners!
    You mention extortion again, and I'll have your legs broken...


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    Corn Burning Fool giff57's avatar
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    Quote Originally posted by Hawkeye66

    One thing I am not sure of: Does TIF debt count against your General Obligation (GO) capacity?

    Warning: Iowa Specific reply.

    Yes, unless your ordinance has annual appropreation language in it. If that is the case, only the annual payments are included in your debt limit.
    “As soon as public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the State is not far from its fall”
    Jean-Jacques Rousseau

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    Corn Burning Fool giff57's avatar
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    Quote Originally posted by nemo31
    Extorting money from the general public by politicians and business with assistance from professional planners!

    You clearly have no idea how TIF works. Explain in detail how any EXTRA money comes from the general public because of TIF.
    “As soon as public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the State is not far from its fall”
    Jean-Jacques Rousseau

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    Cyburbian
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    I know how it works. Again another thing that started out as a good idea in certain situations that has turned into a way of doing business all the time. Developers and politicians now make it the rule not the exception. Maybe you can expalin it to a senior citizen on a fixed income. Why their taxes went up for public saftey. While the extra revenue from those shiny new buildings goes to pay for the development of those same buildings that are generating a profit for someone.

    Hawkeye, I love the post! LMAO

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    Corn Burning Fool giff57's avatar
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    Quote Originally posted by nemo31
    I know how it works.
    So explain where anyone pays any extra tax then.
    “As soon as public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the State is not far from its fall”
    Jean-Jacques Rousseau

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    Cyburbian
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    Oh the smoke and mirrors.

    You can contact the Department of Economics at the Iowa State Univ. David Swenson and Liesl Eithington did some research on TIFs in Iowa. You can most likly google some combination of their names with TIFs in Iowa and bring something up. Might prove to be interesting reading. This was done in 2002.
    Or here is a # 515-294-6741

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    Corn Burning Fool giff57's avatar
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    I am familiar with that study. It does not say that all TIFs are bad, just that some are being abused as Cardinal said. They also just looked at Iowa, and every State is different. They also do not mention that, before we create a TIF district, we must consult with the other taxing bodies. They also only looked at job creation and not at property valuation increases. Certainly, in some cases the new development may have occured without TIF, but no one, including a couple of economists, can say for sure. The reason the counties and schools approve of the districts is the new valuation helps them in the end.

    We have one example in our town that would be considered "abuse".

    We have been using TIF money to rebuild every street and sidewalk in town. Is that what TIF is intended? No. Is it good for the citizens? I think so. The tax payers would be assessed for the projects if we didn't use TIF.

    By coming across as saying that the entire program is no good, I still think that you do not quite get it.
    “As soon as public service ceases to be the chief business of the citizens, and they would rather serve with their money than with their persons, the State is not far from its fall”
    Jean-Jacques Rousseau

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    Cyburbian Cardinal's avatar
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    I agree with Giff. The Milwaukke paper did a study of economic development incentives a few yearss ago, coming up with some awful-looking statistics on jobs created by various programs. They listed several on which I had worked. One in particluar showed $800,000 in state grants going to create 60 jobs. In reality we used far less than the grant ceiling, and the company now has 800 employees in the city. There is no mention of the less tangible benefits from the infrastructure project the grant funded, like the additional three businesses that are located next door, with another 400 employees. The problem with studies like these is that they rely on data which is often incomlete or inaccurate.
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    Cyburbian
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    Wow -- there must be some really amazing uses of TIF funds/bonds in cities outside Michigan. We have really tough standards as to what can and cannot be paid for by TIF funds AND bonded for and paid through TIF dollars.

    We can only pay for public improvements if we use municipal bonds and pay the bonds back with TIF dollars. Public improvements are VERY closely defined. Roads, sewers, waterlines, landscaping in ROW, parking decks (publicly operated only). Nothing privately owned or operated can be financed through a TIF.

    We get that "I'm in the TIF...I pay extra taxes" all the time from people. It's hard to educate people all the different government finance mechanisms. It's not true, but TIF is difficult to explain to professionals....let alone citizens.

    I haven't seen abuses of TIF in Michigan. That doesn't mean it doesn't exist, but I tend to think that economic development is a vital government interest. Some disagree.

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