Capping The Tax Capture

March 27, 2006
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GRAND RAPIDSKentCounty officials are a bit concerned that what has already happened in OaklandCounty could happen here, and public officials there have pointed to special taxing districts as a source of their problem.

Last year, Oakland County Executive L. Brooks Patterson cut funds to nine departments because the county was facing an $18 million budget deficit. Last summer, Oakland County Deputy Executive Robert Daddow told the Detroit News that the 29 special taxing districts in the county collect about $7.2 million each year in property tax revenue that would have gone to the county.

Daddow said that instead of having those dollars go toward basic services such as trash pickup and law enforcement, the money was being spent by district authorities on "fancy wastebaskets and benches."

"As a practical matter, once they get a life, people just come up with new things for them to do," said Daddow of the special taxing districts.

These districts are also known as tax-increment financing authorities, or TIFAs. The most well known are downtown development authorities, but others also exist in sectors that have commercial blocks.

A TIFA is state chartered and can capture the rising portion from the frozen property-tax level within its boundary and then spend those dollars on improvements within the district. Some, like the Grand Rapids DDA, have been hugely successful at making those upgrades and boosting economic development in the district.

"This is the most successful DDA in the state. It has captured the most money and done the most good," said Dick Wendt, counsel to the DDA, at the board's planning session last month.

DDA Executive Director Jay Fowler said since the board was founded in 1980, panel members have invested more than $120 million in a variety of projects that have helped leverage over $1.9 billion in private and institutional investment downtown.

"We have a billion dollars worth of construction projects going on now," said Fowler at the same session.

"We are the county's economic development engine," added Mayor George Heartwell, who has a seat on the board.

While that may be true, county officials also see the DDA and the 17 other TIFAs, SmartZones and brownfields in the county as capturing too many tax dollars, and then spending some of those dollars on efforts not directly related to economic development.

So Kent officials are looking for help from state lawmakers who are willing to make some adjustments to the charters that give these boards their tax-capturing power. In fact, the county has designated this matter as one of its top legislative issues for this year.

"The county should endorse and support any legislative effort to provide for 'opt out' provisions for tax jurisdictions similar to the DDA statute," said Commissioner Dean Agee, who chairs the Legislative Committee.

One provision the county would like to see state legislators address is the amount of time a special taxing district, like a DDA, can remain in existence. Right now, state law allows a district's board members to make that decision, and they have the power to extend that time to whatever they want it to be.

"The city of Grand Rapids, for example, adopted their first tax-increment development plan in 1980, which had a 30-year life, which was then to have expired by 2010. But they've amended it some 14 or 15 times and it now has a life that runs through at least 2035. And based on future amendments, it will run forever," said County Fiscal Services Director Robert White, who once held the same position with the city.

"The county is saying there is a good, useful purpose for downtown development, and there is a good, useful purpose for tax-increment finance plans. But there should be some kind of cap on them. Almost all other tax-finance plans have caps on them, generally based on time — like Renaissance Zones, like SmartZones, like brownfields," added White of those plans that normally fade away after a dozen years.

State law also lets these districts capture less than 100 percent of the increment, but few do. The DDA had budgeted $2.85 million in local property-tax increment revenue for the fiscal year, but had collected nearly $3.04 million from property owners in the district by the end of February. Topping the projected revenue amount with four months left in the fiscal year reveals the growth that has occurred downtown, regardless of the nearly tax-exempt zones within the sector.

"You've already exceeded your budgets for the year," said Jana Wallace of the city's fiscal services department to the DDA last month. The Monroe North TIFA surpassed its budget in February, too.

White said when the growth in local property tax revenue exceeds the frozen figure by 2.5 times, then the county would like to see everything above the 100 percent capture mark go back to the original taxing entities. That list wouldn't just include the county either, as the city, Grand RapidsCommunity College, and ITP would also see more tax revenue from capping the capture.

But the DDA has a way to go before it hits that mark, as White said the board would hit that ceiling when its local tax-increment revenue reaches $3.5 million.

"So they will have room to grow, even before they get to that cap. The county doesn't want to constrain anything which presently exists, but wants to look at a point when they can start sharing it back with other local taxing entities," said White.

"At the end of the last fiscal year, on June 30, 2005, the DDA had a fund balance in excess of $16 million — five times their annual revenue," he added.

The county also questions some of the projects the DDA has funded. The most recent involved the board's $2 million property purchase for a new DASH parking lot on Winter Avenue NW, less than a block south of busy

Bridge Street

The parcel sits directly behind the Bridge Street Fire Station and part of the project has the DDA paying for a new access drive from Winter Avenue to the rear of the firehouse so trucks and emergency vehicles can re-enter the building without blocking traffic on

Bridge Street
. The board agreed to undertake that project as a community service.

"That sounds like a governmental unit that is building up public infrastructure because the community needs the public infrastructure. The basic, original purpose of downtown development is to halt property value deterioration and increase property valuation where possible in a business district," said White.

"How does putting in a driveway to a fire station assist with that?" he asked.

A state law allows counties to opt out of having a portion of its property tax revenue captured by a special taxing district if it was formed after 1994. County commissioners unanimously did that in December and exempted its revenue from being captured by the proposed Byron Township DDA.

No one from the township publicly addressed the commission to request the tax prior to the vote. Nor did Harold Voorhees, the county commissioner who represents the township, make a public plea for it.

"This is undermining county government and we need to opt out of it," said County Vice Chairman Dan Koorndyk before the vote that denied Byron the tax revenue.

This is an issue of time and money for the county. Roughly $4 million of property tax revenue that would be headed to the county is captured each year by all the special taxing districts and other exemptions and abatements offered throughout the county.

The county's general operating fund had a deficit of $3.48 million last year.

White made the DDA aware of the county's feelings when he spoke with board members last year. And Fowler acknowledged that situation at the DDA planning session last month when he said, "Now is not the time to approach the city and the county with a request to capture more taxes."    

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