How much is too much

September 5, 2009
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GRAND RAPIDS — The Downtown Development Authority expects to capture nearly $8.7 million in revenue this fiscal year from the taxes that property owners in the district will pay, and that capture will account for more than half of the board’s $15.6 million budget.

Those dollars go into an account known as the local tax increment fund and represent the higher taxable value and tax rate from all properties in the district. The DDA mostly spends that revenue on upgrades to streets, sidewalks and building facades in the district, but also has spent some of it on marketing efforts to draw businesses and visitors to downtown.

When properties district wide are improved, the tax rate prior to the improvements is “frozen” and revenue from the frozen tax goes to Kent County, the city of Grand Rapids, Grand Rapids Community College and the Interurban Transit Partnership.

The tax above the frozen amount that was generated by improvements goes to the DDA and is known as tax-increment financing because the board can capture the increment, or increase, from the district’s old tax rate and its new one. The board can also collect revenue from dedicated millages that are funded by downtown property taxes.

So Kent County and the other tax-collecting jurisdictions in the district have not gotten any of the higher tax revenue that has been generated by improvements made in the district. 

Kent County Fiscal Services Director Robert White said the county would have received an additional $1.35 million in property-tax revenue last year if the city didn’t capture taxes for the DDA, the Monroe North Tax-Increment Financing Authority, the SmartZone and the Brownfield Redevelopment Authority.

Slightly more than $1 million of that capture would have gone into the county’s general operating budget, which funds most of the services Kent offers. Another $197,000 would have gone to the county’s corrections fund, and $81,000 would have gone to the account that supports services for the county’s senior citizens. Those two revenues come from millages.

Kent County Administrator and Controller Daryl Delabbio said the county loses about $6 million in property-tax revenue each year to tax-increment financing authorities countywide and to abatements that municipalities award to businesses.

Property taxes represent 54.2 percent of the total revenue the county expects to receive this fiscal year for its general fund, and this year’s fund is expected to have a deficit of $2.5 million at year’s end.

Kent could collect more revenue from downtown properties if commissioners decide not to opt out of the DDA’s plan to expand its boundary and capture more taxes in some of the expansion areas. (The preliminary plan has sectors the DDA would add to its district but not capture taxes from, like on Michigan Street where medical developments are going up, but the board would still be able to invest public dollars in those sectors.)

Choosing to opt out would mean the DDA couldn’t capture the county’s portion of the property taxes in the expansion areas. The board, however, would still collect the county’s share within its pre-expansion, or current, boundary, if commissioners vote to opt out.

In an effort to persuade the tax-collecting units to go along with the expansion, the DDA has proposed to waive 5 percent of its district-wide taxes for five multi-year periods. Starting next year the DDA would collect 95 percent, instead of the 100 percent allowed by state law. The board would end up dropping its capture to 75 percent of the tax beginning in 2031, voluntarily waving 25 percent over 23 years.

Last year, however, the DDA told supporters of the Senior Millage that it couldn’t waive its capture of that tax because all tax-increment revenues had been legally pledged as security to the bondholders who bought the Van Andel Arena bonds more than a decade ago. The DDA is in the process of refunding those bonds.

Delabbio told the Business Journal that the county would collect an additional $72,000 in property-tax revenue from the district beginning in 2009 from the first 5-percent reduction if it goes along with the expansion. But he also said the county hasn’t made up its mind yet on whether to support the expansion.

“We’re digesting it, and we will make a recommendation to the board of commissioners,” said Delabbio.

County commissioners chose to opt out of the Byron Township DDA expansion plan in February and did the same for the Plainfield Avenue Corridor Improvement Authority in March. But on both occasions, county officials said they were willing to negotiate a portion of the proposed tax captures with the townships. Commission Chairman Roger Morgan said he was more concerned about losing revenue from the two millages than the property tax.

The DDA and the City Commission both have to approve the expansion plan for it to become official. But before those votes take place, both have to hold public hearings on the plan. Once the hearings are held, the county has 60 days to decide whether it wants to take part in the expansion or opt out of it. If the county doesn’t vote within that timeframe, it automatically becomes a participant.

Chances are that city commissioners will approve the DDA’s expansion because the city collects income taxes from developments that either retain jobs or bring new ones to the central business district. The county doesn’t.

“If I had an income tax, I wouldn’t be near as concerned about tax abatements or tax captures in these special districts because I’d still get something out of it,” said Delabbio.

A 1994 state law gives the county and the other jurisdictions the right to opt out of new or expanding tax-increment financing authorities like the DDA.

“The whole point of the DDA is to spur economic development. There is a lot of economic development that is taking place. I think that the DDA has done an exceptional job of spurring economic development in the downtown area,” said Delabbio. “But the question becomes how much of a county contribution is too much?”

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