Schools historically have little power in TIF decisions

A tiff over TIF?

One of the Truman Hotel's outer buildings is seen in December 2015 with windows boarded up after the Jefferson Street hotel closed its doors. The Jefferson City School Board is opposed to a proposed TIF for the redevelopment of the hotel and conference center.
One of the Truman Hotel's outer buildings is seen in December 2015 with windows boarded up after the Jefferson Street hotel closed its doors. The Jefferson City School Board is opposed to a proposed TIF for the redevelopment of the hotel and conference center.

Even though school districts forfeit the most in new property tax revenue when tax increment financings (TIF) are approved, they also have the least power in the decision-making process.

The Jefferson City School Board met Tuesday to discuss a proposed TIF for the redevelopment of the Truman Hotel & Conference Center owned by the Puri Group of Enterprises.

While the board has expressed its opposition, there is little the district can do to keep the TIF from moving forward.

TIFs were developed in California in the 1950s to assist the funding redevelopment of "blighted" areas, particularly if the project could not move forward without fund assistance from the municipality.

In Missouri, the number of approved TIFs has increased by several hundred in the last couple years, according to the Missouri Department of Revenue. In 2015, 504 projects were reported, and 378 of them were in "blighted" designations.

Some TIFs operate on pay-as-you-go basis, where the value of the property is essentially locked in the year the TIF is approved.

The developer continues to pay the municipality the rising value of the property in property taxes each year, but any amount above the "locked in" value is paid back to the developer for up to 23 years, which is the kind of TIF the Puri Group of Enterprises is seeking for its redevelopment plan for the Truman Hotel & Conference Center.

Jefferson City Public Schools opposes the TIF in its current form because it relies so heavily on property taxes - nearly 50 percent of the district's revenue comes from local property tax. The district would potentially receive $1.69 million in new property tax revenue but could forgo $11.69 million over the 23-year life span of the TIF, if it is approved.

Once the TIF expires, the district could potentially gain $575,439 in new revenue on an annual basis.

Some states provide additional state aid to districts with TIFs to replenish some of the revenue the district would otherwise receive from property taxes.

However, Missouri does not make up for the revenue lost from TIFs, said Department of Elementary and Secondary Education spokesperson Sarah Potter.

Pursuant to Missouri state statute, every district gets two seats on the TIF commission, which brings a recommendation to the city council, and the city council votes to approve or oppose the TIF.

One thing a lot of school officials are asking is: why don't school districts have more representation if they have the most skin in the game in terms of tax revenue?

In 2003, the National Education Association did a study on states that allow TIFs and what role the school plays in the process.

During that time, 48 states permit TIFs, and of those states, 22 allowed diversion of school taxes, just like the case with the hotel redevelopment plan.

Missouri, along with Nevada, Ohio, Wisconsin and Utah, allows a school district representative to sit on the TIF commission.

In 2003, seven states - Colorado, Michigan, Ohio, Oklahoma, Pennsylvania, South Carolina and Texas - gave school districts ultimate TIF veto power.

Only eight states outlawed the diversion of school property tax revenue for a TIF, according to the study.

The Missouri National Education Association has been fighting to give school districts more power when TIFs are proposed in their district, although they haven't tried to file a bill, said Otto Fajen, MNEA legislative director.

"We would like to see equal representation or veto power," he said.

The Missouri School Boards Association agrees.

"We believe school districts should have a greater voice," said MSBA spokesman Brent Ghan. "The majority of the revenue is property tax, and that affects school districts the most. ... We're not necessarily against all TIFs by any means, but we think we (school districts) should be heavily involved."

Ghan said he would like also like to see studies of approved TIFs after their lifespan is expired.

"Sometimes, developers promise more economic development or jobs and sometimes that doesn't happen," he said. "I think there should be more accountability in reporting whether promises were achieved."

Equal representation would offer half of the TIF commission seats to school district representatives, giving the district more power in the decision process.

Currently, if a TIF commission votes the TIF down, the city council would require a two-thirds majority vote to approve the TIF. Equal representation would make it harder for the city council to approve a TIF if the commission opposes it.

Superintendent Larry Linthacum and school district Chief Financial Officer Jason Hoffman will represent the district with nine other representatives from the city and county.

Hoffman said they want to negotiate with the Puri Group for a lower reimbursement percentage. Right now, it's 100 percent. However, if the developer isn't interested in a negotiation, the district only has two of the 11 votes, so they don't have much sway in the situation.

As of 2003, Missouri was one of 10 states that allows municipalities to negotiate the reimbursement percentage.

Columbia has two TIFs currently - the Tiger Hotel and the Broadway Hotel. Neither of those TIFs were renegotiated, but there have been times when Columbia Public Schools wanted a lower reimbursement percentage, said Christine King, a board member for nearly seven years. She currently serves on Columbia's TIF commission.

King said there have been TIFs the district did not support and did not agree with the 100 percent reimbursement to the developer. Ultimately, none of those TIFs were approved by the Columbia City Council, so terms were never renegotiated.

JCPS doesn't have an ideal percentage in mind, Hoffman said. At Tuesday's special session meeting, the board decided it wanted to negotiate but didn't specify how much it would like the reimbursement percentage to come down.

He said the optimal outcome will be a meeting between the district and the Puri Group.

City Attorney Drew Hilpert said the city has been in contact with the Puri Group and they are aware of the district's stance.

"The Puri Group has to agree (the project) is possible (with a lower reimbursement rate)," Hilpert said. "I certainly know their intent is they need all the property tax to make this project feasible. I don't know if there's been a definite decision."

The Puri Group will be at the TIF commission meeting on Monday.

Truman Hotel and Conference Center Redevelopment Plan

The Puri Group of Enterprises purchased the Jefferson Street hotel and conference center in July 2013 and recently submitted an application to the city for about $8.89 million in tax increment financing (TIF) assistance for redevelopment of the 8.51-acre property.

The project is broken up into two phases and would replace the Truman Hotel with two new ones - a Holiday Inn & Suites and Courtyard by Marriott - and renovate the existing 24,000-square-foot meeting space. A Cheerleader Pub and Grill would be located inside the Holiday Inn & Suites.

Vivek Puri, of the Puri Group, previously told the News Tribune in an interview that the project would not continue without TIF assistance.

TIFs were permitted in California starting in the 1950s and spread to most states in the nation. The main purpose of a TIF is to help a developer pay for rehabilitation of a blighted property.

Over a maximum lifetime of 23 years, the TIF would reimburse the Puri Group approximately $8.89 million in project costs, plus financing and interest. If the TIF is approved in its current form, taxing districts will redirect roughly $16.94 million to the developer over 23 years. However, the net present value of that figure is $8.89 million, said Jefferson City Public Schools Chief Financial Officer Jason Hoffman.

The $8.89 million accounts for about 15 percent of the projected $56.78 million for the total redevelopment.

As the property's values rise as a result of redevelopment, the Puri Group would pay the increased property tax; but any property tax revenue collected over what was collected in property taxes before the TIF began would be paid back to the Puri Group on a pay-as-you-go basis for up to 23 years or until the reimbursable amount was reached.

The TIF as proposed would also reimburse the developer with 50 percent of new sales tax revenue produced on the property, but that amount would be negligible compared to the property tax benefit because sales tax charged on lodging costs legally cannot be attached to a TIF - meaning the amount of sales tax that would be collected on the property would be primarily from the restaurant.

Over 23 years, $11.69 million in property tax revenue will be redirected from the school district to the Puri Group. Roughly $2.72 million in projected tax revenue will be redirected from the city, and roughly $2.52 million in projected tax revenue will be redirected from the county.