Tax Abatement vs. Tax Increment Financing (TIF)
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When the Cozad development proposal was originally broached at the October 9 meeting, many (myself included) were confused about the difference between tax abatement and tax increment financing. The latter has gotten a pretty bad rap as it has been overused and abused by areas that are obviously non-blighted.
Class today we will cover the differences between these two types of economic development tools. In addition, we will have a discussion on the merits of such tools.
Tax Abatement
A Tax Abatement is basically a reduction of a tax assessment. In Missouri, a "Chapter 353 Tax Abatement" is an incentive that can be utilized by cities to encourage the redevelopment of blighted areas by providing real property tax abatement and eminent domain.
Tax abatement is available for a period of 25 years, which period begins to run when the Urban Redevelopment Corporation takes title to the property. During the first 10 years, the property is not subject to real property taxes except in the amount of real property taxes assessed on the land, exclusive of improvements, during the calendar year prior to the calendar year during which the Urban Redevelopment Corporation acquired title to the real property (353.110.1 RSMo). During the next 15 years, the real property may be assessed up to 50% of its true value (353.110.2 RSMo). This means that the city may approve a development plan, which provides full tax abatement for 25 years
Tax Increment Financing (TIF)
Tax Increment Financing (TIF) is a popular and potentially powerful tool for places that need economic development the most, yet have the least to spend. By allowing jurisdictions to use portions of their tax base to secure public-sector bonds, the mechanism allows fiscally strapped localities to finance site improvements or other investments so as to "level the playing field" in economic development.
Under a TIF, property taxes within the TIF District are frozen for up to 23 years. The property owners then make Payments In Lieu of Taxes (PILOTS) to a "special allocation fund".
Additionally, 50% of any new local Economic Activity Taxes (EATS) (e.g. local sales taxes, earnings taxes, utility taxes) generated from the project are also paid to the fund while the District is in effect.
The proceeds of the fund are then used to reimburse the developer for eligible project costs or to retire indebtedness incurred to cover those costs.
Sources: The RCGA and The Brookings Institute
Class Discussion
Is this the best or only way for Overland to get development?
Did we use this for Home Depot or Office Depot?
Is this just a form of corporate welfare?
Most importantly, while it brings development to Overland, does the lack of property tax revenue hurt the school district?
Please post your replies.
When the Cozad development proposal was originally broached at the October 9 meeting, many (myself included) were confused about the difference between tax abatement and tax increment financing. The latter has gotten a pretty bad rap as it has been overused and abused by areas that are obviously non-blighted.
Class today we will cover the differences between these two types of economic development tools. In addition, we will have a discussion on the merits of such tools.
Tax Abatement
A Tax Abatement is basically a reduction of a tax assessment. In Missouri, a "Chapter 353 Tax Abatement" is an incentive that can be utilized by cities to encourage the redevelopment of blighted areas by providing real property tax abatement and eminent domain.
Tax abatement is available for a period of 25 years, which period begins to run when the Urban Redevelopment Corporation takes title to the property. During the first 10 years, the property is not subject to real property taxes except in the amount of real property taxes assessed on the land, exclusive of improvements, during the calendar year prior to the calendar year during which the Urban Redevelopment Corporation acquired title to the real property (353.110.1 RSMo). During the next 15 years, the real property may be assessed up to 50% of its true value (353.110.2 RSMo). This means that the city may approve a development plan, which provides full tax abatement for 25 years
Tax Increment Financing (TIF)
Tax Increment Financing (TIF) is a popular and potentially powerful tool for places that need economic development the most, yet have the least to spend. By allowing jurisdictions to use portions of their tax base to secure public-sector bonds, the mechanism allows fiscally strapped localities to finance site improvements or other investments so as to "level the playing field" in economic development.
Under a TIF, property taxes within the TIF District are frozen for up to 23 years. The property owners then make Payments In Lieu of Taxes (PILOTS) to a "special allocation fund".
Additionally, 50% of any new local Economic Activity Taxes (EATS) (e.g. local sales taxes, earnings taxes, utility taxes) generated from the project are also paid to the fund while the District is in effect.
The proceeds of the fund are then used to reimburse the developer for eligible project costs or to retire indebtedness incurred to cover those costs.
Sources: The RCGA and The Brookings Institute
Class Discussion
Is this the best or only way for Overland to get development?
Did we use this for Home Depot or Office Depot?
Is this just a form of corporate welfare?
Most importantly, while it brings development to Overland, does the lack of property tax revenue hurt the school district?
Please post your replies.
posted by suzyjax at 4:21 PM
20 Comments:
This was posted by Edgar Casey:
Quote: "No tax abatement was ever requested by or given to Home Depot and the revenue boost to Overland from Home Depot dwarfs any potential tax income from a hotel." End of quote.
Awarding a Tax Abatement or TIF, to the development of a hotel and restaurant would be a kick in the ass to Home Depot. I am highly suspect of the developer who pays for the study; conflict of interest shall we say?
Both the Tax Abatement and TIF hurt my head. Anything with the word "tax" in it does. If we give a Tax Abatement to one Corporation that sets up shop in Overland, then would this set precedence for other Corporations that desire to set up business in Overland? Slippery slope???? Why award one and not the other?
I'm in over my head on this subject anyhoot.........sigh
On the surface, a tax abatement seems better than a TIF. A tax abatement seems to still have the property owner paying property taxes on the land (which is what we are currently getting). That way, the school district wouldn't lose anything--but wouldn't gain anything either. The downside is that tax abatement also includes eminent domain wording. I am not sure if eminent domain would be needed. But, it definitely doesn't seem like the course of action for private development such as this.
TIFs seemed like a good idea but have gotten a bum rap because of their abuse. In addition, the TIF involves all the taxes--sales tax, utility tax, etc. Which would seem to put one in a worse hole than a better hole.
Suzy,
I agree, the Tax Abatement seems to be the lesser of two evils.
However, I am far from an expert on this issue.
This comment has been removed by a blog administrator.
I was just trying to facilitate discussion (and start a new topic since there were so many comments on last post). I didn't know the difference until I looked it up.
However, Ellen, your homework for the weekend is to find the two examples. (I hated when my teachers would do that to me!)
Ellen is the teacher's pet...ha ha ha ha ha!!!
Thank you for the exemption La Maestra ;-)
Great clarifications.
I'd like to know what how "special allocation funds" are defined.
Another curious term I'd like to understand better: "elibigle project costs".
"Reimbursed" catches my attention. What's the difference between funds getting "reimbursed" and "refunded"? What's the difference between "reimbursing" the firm and just "giving them a pile of money"?
Home Depot does indeed dwarf any Holiday Inn Express.
Problem I believe is community attitude. Does Overland promote itself as being easy to exploit?
Rather, Overland could market itself as a prime space willing to consider only top-notch opportunities, not just sitting around waiting for opportunity to traipse along and tap on our doors.
Nobody says Overland needs to agree the maximum pillage allowed by law. I'd like to see how much developers can do for Overland, not how much Overland can pay them.
Negotiating from a begger's position is simply stupid.
Ah, so there's a link between "eligible project costs" and "reimbursements", depending on predetermined conditions. Great job, ellen g. white, of putting it in words I can handle.
Third party ~ that's an easy one.
Suzyjax, I'd like to know how to get my mitts on some "special allocation funds". First, can you use the phrase "special allocation funds" in a sentence?
I'd like to know more.
When a corporation or developer gets "Reimbursed", from whom is that reimbursement recieved?
Let's not confuse reimbursement with retribution
Naz,
Here it is in a sentence:
The developer gets reimbursement from the "special allocation fund."
Has anybody heard anything on the signature count for the recall? I believe it was News 4 that said 2,000 last week.
New Girl,
From what I understand it is still going great. The letters with the fake name & PO box have done wonders.
Oh, this is to good, a photo op is in the making. I just heard that Donna Dills & Wanda trash mouth Knode have been asked to help with the flu shots at the Com. Ctr. Apparently there is someone who acts like she doesn't like Purzner but was the one that asked these two to help. Wonder if they asked Ann to give the shots?
Rumor also has it that Knode has put an article in the Localite that is a hoot. Should be coming out soon.
Wanda Effing Knode is going to help strong arm people whilst they get their flu shots? Lovely....sigh
Now we get to hear Sourpickles praise herself, how she saved the City of Overland residents from getting the flu....oh brother!!
Wino Musical Blue Goat will be afraid to leave her pad man, onna conna St. Louie has been listed as the most dangerous city. No Flu shot for youuuuu !!!
Hey man, ya'll bess go back to the country, ya heeya.
Yes, Overland will be the only city that gives the shot in the ass instead of in the arm. And all to satisfy someone's ass fetish.
After Madame Knode's actions at the budget meeting, I don't think she should be allowed near the public--let alone needles.
Hmmm...that's something to think about. Why do those folks need access to needles?
How DID Mrs. Knode behave during the budget committee meeting? Besides being her usual self, I mean - what exactly did she do?
That gives CPA a whole new meaning. I wonder if she took the exam?
At the budget committee meeting, Wanda picked a fight with another council member's wife. Wanda was so beligerent that the wife filed a report with the police.
No one was arrested. It was just one of those things that you want to document in case Wanda decides to make such behavior a habit.
From what I heard Wanda not only has 1 complaint filed against her but 2, for her behavior at the budget meeting. They have a year to press charges from what I understand.
Localite just came out today.
Does anyone know or have heard of a person living in Overland named R.A. Throndike?
Just when you think these people can not go any lower.
Purzner and her yes men have thought up several fictitious names and publications to do their underhanded dirty work.
Do all ORTarians do this? Take the Goat for instance, she goes from little old lady, to being a blue eyed hunter, then a good ole wino country boyeee.
Will this madness ever end? Stay tuned as Overland Turns.......
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