TIFs common in Washington

    The Washington City Council has spent the last few months debating the issue of establishing a TIF district for the Mills Seed Building that was moved a week ago. Many residents in town are scratching their heads over what a TIF district is and how it affects the taxes they pay and the amount of money the City spends.

    A TIF district is essentially a way for the City to promote economic development by promising a developer to reduce his future property taxes. Sometimes the City may even provide money to the developer upfront before the project has been completed. However, a TIF district is more complicated than a simple tax cut or government subsidy. In fact, at the completion of a TIF district?s life, the City will collect more tax revenue than it had been collecting before the development occurred.

    How is this possible? It is possible because the economic development the TIF encourages will increase the value of the property being taxed. What establishing a TIF district does is to share this additional value between the City and the developer. To put it metaphorically, the developer ?grows the pie? which in turn allows the City to take a larger slice

    The TIF district promotes development not by promising to eliminate all taxes on the property in question but rather by promising a reduction in the taxes only on the improved portion. It is only this increment that receives special treatment, hence the name ?Tax Increment Financing,? which is what TIF stands for. When the developer improves the property and increases its assessed value, he increases the amount of tax that can be levied upon it. The City takes this additional property tax ? the tax increment ? and refunds part of it to the developer. The part of the additional tax that is not refunded to the developer is kept by the City and is used for public improvement projects such as streets and sewer lines. 

    To better understand how this works in practice, consider the most recent TIF district approved by the City Council, which was the renovation of the Bryson Block building on West Main Street. An organization known as Washington Preservation LLC remodeled the building?s offices, apartments and retail space over a year ago. The council reached an agreement with Washington Preservation LLC last fall which stated that the organization will receive a full refund of the property taxes it pays on the improved portion of the building for the first five years. For five years after that, the company will be refunded 75 perfect of the property tax increment.

    For the final 10 years of the agreement, the rebate will be reduced further to 60 percent of the tax increment. After 20 years, the City will keep all of the proceeds from the taxes on the improved portion, and will have received more tax revenue than if the development had never occurred. When the TIF district expires, it will also increase the taxable revenue for other local governmental bodies such as the county and the school district.

    The most recent incarnation of the proposed development agreement with Patterson is different from the Bryson Block development agreement in that it would provide Patterson with $40,000 in an upfront grant. The $40,000, which City Administrator Dave Plyman said could come in the form of a forgivable loan, would be paid off later through taxes levied on the improvements to the Mills Building. The proposed agreement with Patterson was created using the same tax rebate schedule as the Bryson Block agreement. The proposed TIF district for the Mills Building has not yet been approved by the council and is subject to change.

For the full story, see the March 5 edition of The Washington Evening Journal