Highland City Council extend two TIF districts, create a third. Why?

The Highland City Council approved a contract last week with Moran Economic Development to work on extensions to Tax Increment Finance districts No. 1 and No. 2, in addition to establishing a third TIF district.

“Extending the existing TIF districts and establishing a TIF No. 3 district will allow the city to continue our economic development objectives and provide a key funding tool for critical infrastructure projects,” wrote economic development coordinator Mallord Hubbard in his proposal to the city council.

Tax increment financing districts fund infrastructure improvements and incentives for development in areas considered blighted for reasons like environmental, economic or other causes. As the property values in the TIF district increase, the extra property taxes are set aside to continue funding the projects.

Highland’s TIF No. 1 was established in 2008 and set to expire in 2031. TIF No. 2 was established in 2012 and set to expire in 2035.

“Most TIF agreements are for 10 years, so once you get less than that, it’s hard to make the numbers work for developers,” said City Manager Chris Conrad. “We still have some properties that could be developed.”

In addition, Conrad said, the federal flood maps have changed, and that means more stormwater remediation projects for Highland. “TIF funds are a good way to fund those kinds of infrastructure projects,” he said.

TIF No. 1 has already been used to fund several drainage improvements that should help keep flood insurance rates from rising for residents and business owners, Hubbard said. But he said it has also been a crucial development tool.

“It has been used to support a number of developments, including most recently, Korte Meat Processing purchasing and eventually moving their operations to the old Wall Street Journal printing facility,” Hubbard said.

Other projects included Trout Nutrition’s blending innovation center and matching funds for a state grant that funded road improvements on Executive and Matter Drive.

TIF No. 2 was established to fund the infrastructure around the hospital, Hubbard said. Those improvements were funded through bonds that will continue to 2032.

There was also a $300,000 culvert project to drain a large portion of Highland’s business district, Conrad said. “It’s a choke point for a couple of large creeks that take stormwater out of the north part, and we had to expand that culvert to take on more capacity,” he said. “The biggest concerns we’re looking at are stormwater projects. I can’t disagree with FEMA and how they’re determining the flood elevations …. If you had told me when I took this job that I would be dealing with stormwater as much as we do, I would have called you a liar.”

Under the statute, an existing TIF can only be extended once.

But in the meantime, TIF No. 3 has been proposed for the area between the two existing districts. It covers property recently annexed into the city, which Conrad called “ripe for development.”

“We are hopeful to attract additional retail and commercial developments, along with the attraction of a new hotel,” Hubbard said. “These developments will require extensive site improvements and infrastructure, of which the TIF will be a key mechanism to assist in the funding of said improvements.”

Hubbard said it will also be crucial in assisting with the hospital bonds.

“The city is anticipating the medical office building operated by the hotel to be granted nonprofit status in the near future,” he said. That will hinder TIF No. 2’s ability to pay off the hospital bonds, as the office building’s new tax-exempt status will result in a 60% revenue reduction for the TIF.

Under the law, any new or changed TIF districts require a joint review board of the impacted taxing bodies that also collect the property taxes from the area. The most impacted is Highland District 5 school district, but Conrad said the school leaders have been fully supportive. Key for that is that TIF projects shouldn’t include housing that would add more students to the schools without additional funding, he said.

“We work with the school district pretty closely on projects and what we do with the funds, and we don’t use TIF funds for projects that would increase demands on the school districts,” Conrad said. “We don’t want to impact the schools negatively, tend toward infrastructure and commercial development.”

Conrad said they have submitted their application to extend the TIFs to their state legislators, as legislative approval is required. There will be at least six to nine months of procedural steps before TIF No. 3 is in place, he said.