Traverse City’s tax increment financing districts (TIFs) will divert over $2.6 million from City finances this fiscal year. This amount increases every year. The money diverted gets spent on the downtown. It does not contribute to common City expenses. The rest of us have to make up the shortfall. And if TIF97 is extended, more than $121 million more will be diverted over the next 32 years.
This has to stop!
☑ Vote YES on City Prop 1
☑ Vote YES on City Prop 2
Prop 1 makes the City’s adoption, approval or extension of tax increment financing plans (TIFs) subject to voter approval.
Prop 2 voids any extension of the tax increment finance plan TIF97 done without voter approval.
VOTE NOVEMBER 5
If you have questions or want to assist with this campaign, click CONTACT US, above.
Local leaders who are in support of Props 1&2 in their own words
The Downtown Development Authority (DDA) says tax increment financing districts (TIFs) do not increase your taxes but here is how they do just that from Fred Bimber in 9 minutes.
The City’s district TIFs divert $2.6 million (and growing) from City tax revenue each year
The City’s brownfield TIFs divert an additional $1.0 million (and growing) from City tax revenue each year. The combined total of $3.6 million is almost as much as the City spends on the Fire Department.
Leaves less money to pay for basic City services. As a result, City services will decrease or property taxes will increase or both.
The City’s district TIFs divert $2.2 million from the City General Fund and $0.4 million from the police and fireman’s pension fund (the Act 345 tax on our summer tax bills). The brownfield TIFs divert $0.8 million from the City General Fund and $0.2 million from the police and fireman’s pension fund. The diverted taxes leave less money to pay for basic city services, like police, fire, streets and parks. As a result, property taxes must be increased, city services must be reduced or both.
TIFs increase our property taxes
TIFs divert tax revenue from the General Fund, putting a hole in the budget that City taxpayers fill through higher property tax rates. Last year’s budget required $13.9 million net property tax revenue for the General Fund. Last year the city’s district TIFs diverted $2.2 million from the General Fund and brownfield TIFs diverted another $0.8 million. City property tax rates had to raise $16.9 million in total taxes to produce a net $13.9 million for the General Fund. City property tax rates were 21.5% higher to do this. Without the TIFs, a lower property tax rate would produce $13.9 million for the General Fund.
Without the TIFs we would not have had to increase property taxes to pay for ambulance service.
Last November we voted on a property tax increase to raise about $1.3 million per year to fund ambulance service. Without the TIFs taking $3.0 million each year from the City’s General Fund, we could have funded ambulance service without a tax increase.
The TIF districts do not pay their fair share toward common City expenses.
The TIF districts contribute very little to basic City services (police, fire, streets, etc.). Circuit Court Judge Rogers recognized this in an opinion issued in 2016. Read the highlighted text (attached below).
The City’s TIF districts divert $2.6 million (and growing) from City finances each year. As a result, the TIF districts do not pay their fair share toward common city expenses. For every mil of City tax rates, City taxpayers outside the TIF districts pay $1.1 million in property taxes toward common City expenses and taxpayers in the TIF districts pay $78,000 to common City expenses and over $180,000 in diverted property taxes to the district TIF funds.
TIFs are not free money for the City
TIFs do not produce free money. All TIFs operate by diverting property tax revenue from its original purpose to a TIF fund (in TIF district plans) or to an individual developer (in brownfield TIFs). The diverted taxes do not go to the City General Fund. Taxes diverted by district TIFs go to the district TIF funds and are spent on the TIF districts. Taxes diverted by brownfield TIFs go to subsidies for individual developers.
And the DDA wants to extend TIF97
In TC we have two district TIFs (TIF97 and Old Town TIF). TIF97 was established in 1997 and scheduled to run for 30 years. Over the course of that time there were a number of promises by the DDA that TIF 97 would not be extended. And in 2007 a citizens advisory committee was formed called the Citizens Operational and Financial Analysis Committee (“COFAC”). COFAC reviewed the TIF programs in the City and recommended they be terminated early, that all City debt incurred for TIF activity be paid as soon as possible and that the tax savings to the City be split between tax reduction and the funding of basic infrastructure. In response to the COFAC recommendations, the DDA said it had no intention of extending the TIFs. But time has passed and DDA directors have changed. The siren call of lots of money to spend is strong and now the DDA wants to extend TIF 97.
Promises Made. Promises Kept.
TIF97 diverts tax revenue from the library. TIF97 and Old Town TIF divert tax revenue from NMC, BATA, Commission on Aging, Recreation Authority, Veterans, Animal Control, Conservation District and Grand Traverse County. The DDA argues that the money received from other taxing authorities is reason to extend TIF97. But this is not free money. It comes from taxes established (often voted) for particular purposes. The taxes should go to the intended purposes.
For 26 years the City and other taxing authorities put up with diversion of their normal tax revenue on the promise that it would end in 30 years. It is wrong to breach that promise.
Costly, Wasteful Spending
One further effect of the huge tax dollars diverted to the TIFs is that the DDA has too much money to spend. Its decisions have become extravagant and wasteful. Witness the three biggest projects planned by the DDA. These are a west end parking deck (latest projected cost $34+ million), a river walk project along the 100 and 200 blocks of Front Street (projected cost $57+ million) and heated sidewalks downtown (projected cost $15 million).
These plans work at cross purposes to each other. The west end parking deck is planned to expand downtown parking while the river walk project would eliminate 120 existing parking spaces. Why do either?
These plans are poorly conceived. The Old Town parking deck is 80% vacant and is just three blocks away. Why build an expensive new parking deck?
These plans have misplaced priorities. The DDA wants heated sidewalks downtown while some streets in the neighborhoods don’t have any sidewalks at all.
How has the district TIF money been spent?
The largest expenses paid by the TIF Funds to date have been for the Hardy parking deck and the Old Town parking deck. Payments on the bonds for the Hardy parking deck are still being made and continue through 2027-2028. $3.5 million+ has been spent on operating costs of the DDA. $400,000 has been spent to facilitate a brownfield subsidy to the developers of the Uptown development. Nearly $200,000 (and growing — until a replacement tenant is found) has been spent on a retail incubator that the DDA then realized it did not have the expertise to operate. Last year the DDA spent $50,000 of diverted TIF taxes with Bright Sparks, a political consulting firm, to oppose the citizen initiative petition proposals (now City Props 1 and 2).
Parking decks are bad investments and bad for Traverse City
Parking decks are the most expensive way to provide parking in the City. Parking decks cost tens of millions of dollars to build. In the City, that cost has so far been paid from TIF diverted tax revenue that is not reimbursed by any parking revenue from the parking decks. The City incurs bond debt for the construction cost. The interest on the bond debt essentially doubles the construction cost in payments over 30 years. The City is still making bond payments of nearly $1 million per year on the Hardy parking deck that are scheduled through 2027-2028. Projected bond payments on the proposed west end parking deck would be nearly $1.9 million per year over 30 years.
In Traverse City our two City owned parking decks do not even cover their operating costs. Parking revenues from on street meters and surface lots subsidize the operating costs of the two existing parking decks.
Parking decks also do not last forever and require expensive repairs and maintenance every few years. An engineering review last year of the City’s two parking decks recommended repairs estimated to cost $2.5 million over the next five years. In five years another cycle of repairs will be necessary. It is expected that at about 50 years of age each parking deck will require a major re-build in order to continue in safe use.
And many people do not want to use parking decks. The Old Town parking deck is 80% vacant most of the time. The pattern of parking revenue also shows much greater use of surface lots and on street meters rather than parking decks.
The DDA has paused its push for a third parking deck only for marketing purposes.
The DDA’s recent “removal” of a third parking deck from the plan to extend TIF97 is only a pause for marketing purposes. At DDA Board meetings board members discussed the removal of the parking deck only because the board recognized the deck was unpopular and might jeopardize the extension of TIF97. This is obvious when we recognize that the “removal” was not accompanied by any reduction in the amount of taxes diverted by the plan to extend TIF97. A $34+ million parking deck was “removed” from the plan, but the DDA still wants TIF97 to divert just as much money as before. The DDA wants to control the money, reduce available parking through some of its other projects and then add the parking deck back in later.
On parking
The City has a number of parking lots throughout the downtown. These are located to serve the downtown businesses well. Parking revenue shows that the public favors these surface lots rather than parking decks. We should not reduce or eliminate these surface lots (or on street parking) unless and until it is clearly established they are not needed. In 2020 downtown merchants circulated a petition for the City to keep the parking lot west of Mode’s. They knew that lot was important to their businesses. See petition attached.
What will happen if TIF97 is extended?
If TIF97 is extended, we would see a TIF subsidy on steroids. Over the last 26 fiscal years, TIF97 has diverted a total of $17 million in City tax revenue. By the DDA’s own projections, an extended TIF97 would divert $121 million in City tax revenue over the next 32 years. (The DDA projection of taxes diverted is net of any money routed to the City through “revenue sharing”.) And the DDA projection is low. The DDA projection assumes that the rate of inflation will be a constant 1.5% per year for the next 32 years. If we apply an average rate of inflation, the City tax revenue diverted would be $139 million over the next 32 years. This would further increase City property tax rates, reduce City services, or both.
An extended TIF97 would also divert unprecedented amounts of property tax revenue from other local tax authorities. The DDA projects this diversion at $94 million over 32 years. This would harm the tax authorities involved. For example, the DDA projects $17 million would be diverted from NMC over 32 years.
The DDA claims that the “revenue sharing” proposed under the plan to extend TIF97 benefits the City and other tax authorities. But the proposed revenue sharing is meager. Even with “revenue sharing”, by 2027 the extended TIF97 will be diverting more tax revenue each year from the City than it does now. For the entire life of the proposed extension of TIF97 the City will receive property tax revenue from the TIF97 district with less real value (purchasing power) than what the City received in 1997 before TIF97 began. It would be better for the City to end TIF97.
What will happen when TIF97 ends?
When TIF97 ends, the diversion of tax revenue from the City would end and that tax revenue could be spent for the benefit of the City as a whole. The diversion of tax revenue from the other tax authorities would also end and they would receive the return on investment promised 30 years ago.
The DDA claims that ending the diversion of tax revenue from other tax authorities would constrain City finances. But that claim is false. It assumes that the City would have the same spending priorities as the DDA. The City should not spend money the way the DDA plans to spend the TIF funds. If the City does not pay for a third parking deck, the savings from that will offset most of the money TIF97 diverts from ”regional tax partners”. If the City does not pay for heated sidewalks throughout the downtown and does not spend $7 million on Rotary Square, the cost savings would put us ahead of the game.
How TIFs work.
TIFs take part of the property taxes paid on certain properties and divert those taxes away from the City and other original tax authorities and toward other purposes. Under TIFs the taxable values of the affected properties at the start of the program are totaled to produce an initial taxable value. The original tax authorities (City, County, NMC, Library, etc.) continue to receive property taxes paid on the initial taxable value. But all increases in the taxable value of the affected properties become Captured Taxable Value. All property taxes paid on the Captured Taxable Value are diverted to a district TIF fund or other beneficiary of the TIF program. The property taxes diverted by a TIF grow over time.
The property taxes diverted by TIFs are a subsidy provided to encourage certain activities, such as development within a designated TIF district.
District TIFs in Traverse City
The City currently has two district TIFs: (1) TIF97 established in 1997 and scheduled to terminate in 2027 which covers the main downtown area and (2) Old Town TIF established in 2016 and scheduled to terminate in 2041 which covers the Old Town area south of the Boardman River. In each TIF district the property taxes on the Captured Taxable Value are diverted to a TIF Fund and are used to fund projects in the district. Last year TIF97 diverted over $2.1 million from City tax revenue to the TIF97 Fund and Old Town TIF diverted over $0.4 million from City taxes to the Old Town TIF Fund. Each district TIF diverts tax revenue from the City and from all other local property taxes, except taxes for K-12 education. Last year the tax revenue diverted by the district TIFs came 55% from the City and 45% from all the other local tax authorities (NMC, the Library, Grand Traverse County, etc.). The district TIF Funds are administered by the Downtown Development Authority (DDA).
Brownfield TIFs
Brownfield programs began as a subsidy to encourage the clean up of contaminated property. The taxable value of a brownfield property at the start of a brownfield project would be the initial taxable value and all later increases in the taxable value of the property would become Captured Taxable Value. The City and other original tax authorities would continue to receive property taxes paid on the initial taxable value. But taxes paid on the Captured Taxable Value would be diverted to the project developer as compensation for certain project costs.
But the brownfield program has changed. Brownfield TIFs are no longer just taxpayer subsidies of the cost of cleaning contaminated property. Today brownfield TIFs are mostly taxpayer subsidies of the normal costs of developing property.
The property tax revenue diverted by brownfield TIFs includes the City and all other local property taxes, including those for K-12 education (but not school taxes committed to bond repayment). Last year brownfield TIFs in the City diverted $1.0 million from City taxes, $2.8 million from taxes for K-12 education and $0.7 million from other tax authorities to subsidies for individual developers.
The basic problems with TIFs.
There are two basic problems with TIFs. First, TIFs provide outsized subsidies to accomplish their goals. Second, the tax monies diverted by TIFs are not transparent or voter approved.
The goal of TIFs is to encourage some kind of new construction or property improvement. To do that, TIFs offer subsidies based on increases in the taxable value of affected properties. But the taxable values of properties increase for three reasons. These are inflation, the uncapping of taxable value when properties are sold, and new construction or property improvements. Both inflation and uncapping do not depend on development activity in a TIF district or brownfield project. Inflation depends on national economic conditions. Uncapping depends on the situation of individual property owners, for example when an owner reaches retirement and sells his property. Inflation is a big part of the increase in property values, both compounding on itself and interacting with the other two factors. TIF programs in the City have given the benefit of all increases in taxable value to the TIF subsidy and none to the City or other tax authority. This has provided outsized subsidies to the TIF district fund or individual developer and has left the City and other tax authorities with tax revenue from the affected properties that is declining in real purchasing power.
The TIF diversion of tax revenue is not transparent. Property tax bills issued by the City do not show either the extent of tax revenue diverted by TIFs or the extent that property tax rates have been increased to offset the diverted taxes. The TIF diversion of taxes also does not currently require voter approval. City Proposals 1 and 2 on the November ballot are designed to change that.
The problems with TIFs are especially bad in Traverse City.
TIFs pose a special problem in Traverse City because the City is a small tax jurisdiction to begin with and because about half of the property in the City is exempt from property taxes. The exempt property includes the airport (nearly 20% of the City land area), the Civic Center, NMC, parks, schools, government buildings, City owned parking decks, Munson hospital and streets. Because the City is a small tax jurisdiction with a lot of property exempt from property tax, the money that TIFs divert from City tax revenue has an extreme impact on the City and on City taxpayers.
Vote YES on City Prop 1
Vote YES on City Prop 2