The Joplin Globe, Joplin, MO

Local News

December 1, 2012

Challenges, rewards of TIF district nothing new for Joplin

JOPLIN, Mo. — Shoppers hustling in and out of Kohl’s on Range Line Road this Christmas season, or those waiting it out while sipping a latte at the nearby Starbucks, might not realize that underlying those two businesses is a form of development known as tax increment financing.

The same goes for shoppers farther south on Range Line, buying blaze orange hunting gear or new basketball shoes this fall at Academy Sports and Outdoors.

Now Joplin has proposed a third TIF district. Although it will operate in the same way, there are two differences. The latest TIF plan will cover more than 6,000 parcels of land and more than 3,000 acres in the city, dwarfing any other TIF in the area or even in the state.

It also will focus on residential as well as commercial development, while the previous TIF plans were limited to retail shopping centers.

David Wallace, CEO of Wallace Bajjali Development Partners of Sugar Land, Texas, the city’s master developer, has said that what happened on May 22, 2011, is so large-scale that it requires an equally large-scale development and an equally large-scale tax increment financing district.

But putting more than 3,000 acres in a TIF district — 100 times larger than the 31-acre Kohl’s TIF district or the 38-acre Academy TIF district — also ups the impact for the school district and other taxing agencies involved.

TIF districts are an economic development tool that have been around for decades, and most operate in similar fashion.

Once an area is defined geographically, a base for the property values within that area is established. Then as the properties within that area develop, additional property taxes are generated above that base value as a result of the improvements. Those additional tax dollars, which normally would flow to school districts, road districts, counties and others, stay within the TIF district for a designated period of time, paying for the development and reimbursing developers for their upfront costs. In the case of the three Joplin TIFs, that time period is 23 years. Afterward, the new revenue flows back to the schools and counties.

Advocates of TIF districts point out that they stimulate or accelerate growth in blighted or underdeveloped areas without raising new taxes. They also argue that TIF districts do not reduce the tax dollars being collected by a school district, county or other government entity, but freeze it for a period of years, after which the district receives additional money because of the enhanced value of the properties within the district.

According to the Missouri Department of Economic Development, there are 438 TIF districts in 90 Missouri communities, and they have generated an estimated 162,000 new jobs.

Critics, however, argue that schools stand to lose the most money in TIF districts but aren’t given a large enough voice in the decision, that sometimes the TIF district is not needed to bring about development, and that the rules governing TIF districts are so loose-ended that they are being abused.

Those criticisms surfaced with an earlier Joplin TIF plan.

Currently, the Missouri School Boards’ Association is calling for broad reform of Missouri TIF laws, and their counterparts in other states are waging similar battles. An official with the Missouri Chamber of Commerce and Industry, however, believes TIF districts have been an effective tool for economic development.

NORTH PARK

Joplin’s first TIF district — North Park Crossing — was approved in 2004. It covers an area on the east side of Range Line Road, generally from Third to Seventh streets. Besides Kohl’s and Starbucks, it includes more than a dozen other stores and restaurants.

Before the TIF district, the area included the KoKo Motel, Gran Fortuna restaurant, and a number of rental and owner-occupied homes. Nearly every building within the defined TIF boundary was more than 35 years old and more than half the homes in the area were rentals, according to TIF records.

Jim Ungerer, managing partner with MRV Inc., which developed North Park Crossing, said last week that the TIF designation was a mechanism to pay for needed infrastructure such as sewer as well as drainage improvements that were holding the area back. The developers were going to recoup nearly $16 million (including financing costs) in future property and sales tax revenue to cover their costs for the $60 million shopping center.

“We couldn’t have done that project without the TIF,” Ungerer said, noting that today the stores and restaurants in the TIF area employ hundreds of people and generate new sales tax revenue for the city.

He said he considers North Park Crossing a success, in that the site is largely filled and it is generating revenue for the investors and jobs and income for the community.

According to TIF documents filed with the city, the school district would have received a projected $1.36 million in real-estate taxes over a 25-year period if no development ever occurred with the boundaries of the TIF district, but will get $2.97 million over 25 years now that stores and restaurants have opened there.

That TIF plan sailed through with little controversy, even receiving the endorsement of the two representatives of the Joplin School District who sat on the TIF Commission at the time.

Leslie Jones, Joplin finance director, said $4.8 million has been paid back to the developers so far, and the North Park Crossing TIF district is on track to be paid off seven to eight years early, meaning the school and other taxing districts will begin to collect the additional revenue much sooner.

1717 MARKETPLACE

The North Park Crossing TIF district was followed by another approved the next year, 1717 Marketplace, to bring improvements to the empty Kmart building and adjacent property near 17th Street and Range Line Road, which included a motel and an empty theater building.

Unlike the first TIF district, which was defined as a “conservation TIF” district under Missouri law, the second proposal required Joplin’s TIF Commission to declare the area “blighted.”

That deal, according to TIF documents, would return about $12 million (including financing costs) in future revenue out of a $51 million investment to developers.

Without the TIF district, real-estate taxes would actually decline and there would be no personal-property taxes from the site, the developers argued at the time of their proposal. But with the 38-acre TIF district, the school district stood to collect more than $5 million over the next 25 years; compared to $1.2 million without it, according to their projections.

Like the North Park Crossing TIF district, the project generated jobs and sales tax revenue for the community, but it generated something else, too: controversy and opposition.

Declaring part of Range Line blighted didn’t sit well with some school officials and parents, who argued that some existing school buildings were in worse shape than the targeted area on Joplin’s priciest strip of real estate.

Academy Sports and Outdoors, the anchor of the proposed 1717 Marketplace TIF district, also made it clear in a statement that it issued at the time that it did not ask for or even need the TIF designation, and that it was planning to come to Joplin regardless of whether the developer got a TIF designation.

When the issue came to a vote before the TIF Commission, the school’s two representatives on that board voted “no,” but the other eight members at that meeting endorsed it, and ultimately, so did the Joplin City Council.

Jones said about $3.3 million has been repaid so far in that TIF district, and it is on track to be paid off four to five years early.

“Both TIFs are doing very well,” Jones said.

NEW CHALLENGES

Joplin’s third TIF plan, now under discussion, faces different challenges and raises new questions.

Wallace Bajjali has outlined 18 proposed projects for the TIF district, which will include not only the area hit by the tornado but also part of downtown Joplin. The list includes $162.5 million for single-family homes to be sold at market rates; $40 million for reduced-price housing; $25 million for a senior assisted living center; and $74 million for a medical office building. The 18 projects — including a proposed $12 million payment to the Joplin school district to compensate it for lost revenue — add up to $806 million. About $60 million of that would come from future tax growth that would otherwise go to the school and the county, according to Wallace.

Wallace said that on May 21, 2011, the appraised value of the property within the proposed TIF district came to $112 million. As of Aug. 15, it was $73 million because of the destruction of homes and other property in the tornado. That translates into a loss of more than $1 million in annual tax revenue for the school district, according to Wallace.

Wallace acknowledges growth will come to the area that was hit by the tornado even without a TIF district, and that houses and businesses will continue to return. He projects growth at about 1.5 percent per year without a TIF district. But by putting future tax revenue back into the area, some of those projects not only become possible, but they also push the area to develop faster and will generate more revenue for the schools and the county in the long term.

By 2036 — the end of the 23-year TIF plan — Wallace projects the school district will be receiving nearly $7 million in taxes from the TIF district, compared with about $4 million annually if development proceeds more slowly without the TIF district.

“Without the TIF, many of the projects we have articulated will not happen,” he told the TIF Commission at a meeting last week.

But school officials remain concerned, and in school board and TIF Commission meetings they have outlined what they see as two challenges. First, they worry about the loss of future tax revenue over such a large area and for such a long time.

“We have got to have an open debate on an issue that is going to be a 23-year commitment,” C.J. Huff, superintendent of schools, told the TIF Commission this past week. The district on Friday countered Wallace Bajjali’s $12 million offer, asking for $16 million.

School officials also are concerned because of the growth that could come to the district if the residential housing projects develop as proposed while at the same time foregoing revenue that might be needed to accommodate that student growth. Wallace on Wednesday proposed that the TIF plan also include an annual payment to the school district of $2,500 per student, to be given to the district for an increase in students in the TIF area above its baseline enrollment before the tornado. The school has countered, asking for $3,925, to cover both operating expenses per student and the possibility that a new school might be needed depending on the growth, with part of that money to be put into escrow in the event a new school is needed.

Huff said the challenge is not only making sure the school district is covered, but at the same time making sure any money that is not needed for future school growth goes back into redevelopment of the tornado-stricken area. Huff and Paul Barr, the district’s chief financial officer, hold the district’s two seats on the current TIF Commission, and they continue to negotiate with Wallace and report back to the school board for directions.

A proposed vote on the TIF plan that had been set for Nov. 30 was postponed until at least Thursday while the two sides look for solutions that would allow the TIF plan to proceed, but also protect the schools.

MSBA

Brent Ghan, spokesman for the Missouri School Boards’ Association, isn’t surprised by some of the discussion in Joplin. Some of the challenges the city faces now are the same ones other schools are wrestling with, and the MSBA has passed a resolution calling for changes to TIF districts in Missouri.

“We definitely support some reform,” he said.

Among other things, the MSBA wants greater representation for schools on TIF boards, arguing that school districts give up the most money, but have few votes. The Joplin School District has two of 11 votes, or less than 20 percent of the total, but in the case of the proposed TIF plan, about 75 percent of the revenue that would be frozen by the TIF district would otherwise go to the district.

“The impact of potential revenue loss is greater for school districts than any other entity,” he said. “We think there ought to be proportional representation.”

Huff and others, including TIF Commission chairman Doug Doll, said it’s important to keep in mind that everyone who serves on the commission, even if they don’t represent the school explicitly, wants education to thrive.

“I want the school district to support the TIF,” Doll said last week. “It is hard to vote against your local school district.”

“Many of them are parents or grandparents .... they have a stake in this, too,” Huff said.

The MSBA also wants school districts to have some leverage to reach an agreement with TIF developers. Right now, the $12 million payment from the TIF district and the proposal to pay $2,500 per student are agreements being worked out with the developer, but there is nothing in TIF law compelling those agreements.

“There needs to be some form of assurance that school districts won’t see a drop in revenue,” Ghan said. “We would go so far as to support giving school boards veto authority over their portion of the tax abatement.”

Huff said the goal is to achieve consensus among developers, members of the TIF Commission and the City Council and school officials, and if everyone is working toward that, veto power is something districts shouldn’t need.

The MSBA also opposes TIF districts for residential areas.

“The rationale on that is that residential development typically means new families and kids the district has to educate,” but at the same time the district is foregoing revenue to pay for those new students, Ghan said.

Ghan said there is another concern with Missouri TIF law. The definition of what is “blighted” is so vague that TIF districts can be used in expensive areas, as happened with the 1717 Marketplace TIF plan several years ago in Joplin. Everyone agrees that definition is not a concern in Joplin since the tornado.

Tracy King, vice president of government affairs for the Missouri Chamber of Commerce and Industry, said many steps have been taken already to reform TIF districts, and she doesn’t think more are needed. One of the strengths of TIF districts is that they leave control in local hands, including the definition of “blight.” She believes they have been a useful tool and that 99 percent of TIF districts statewide have been successful, creating jobs, generating new tax revenue for communities and prompting new development and additional tax revenue.

“It is very effective when used correctly,” she said. “Once the TIF is over, they (schools, cities and counties) have a lot to gain. They do work and they do create jobs.

“The redevelopment in Joplin needs to happen,” she added, “and if you don’t have this plan, what other plan do you have? Somebody has got to come up with a solution.”

Anchor jobs

ACADEMY SPORTS AND OUTDOORS, the anchor for the 1717 Marketplace tax increment financing district, employs 150 people, according to store officials. Kohl’s, the anchor for the North Park Crossing TIF, employs 120 people, according to store officials.

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