Columbia considers TIFs to stimulate development

Tax increment financing allows otherwise unfeasible project development.

By Ryan Schmitz

Published May 1, 2009

To stimulate economic development in Columbia, the city has considered using tax increment financing, in which developers are issued bonds from the city in place of taxes to help finance qualified projects.

Last year, the City Council formed a Tax Increment Financing Commission to consider proposals for projects in blighted areas that otherwise could not be feasibly redeveloped without the helps of funds. The commission also considers other criteria, such as potential economic impact for the city. They make a recommendation to the council, who makes the final decision regarding the distribution of funding. The program is intended to collect the increased revenue from a redeveloped area to offset developers' costs. The revenue collected by the city would only be the amount that had previously been generated before the development.

In a meeting Tuesday at City Hall, the commission discussed the redevelopment of the Tiger Hotel and property at the intersection of Tenth and Locust streets

"Overall TIFs are a powerful and effective tool," said Mike Downing, executive director of the Missouri CORE Partnership, an economic development organization that serves 12 counties in mid-Missouri. "Everything should work out well in communities like Jefferson City and Columbia and Fulton, as long as developers don't try to set two areas against one another."

Jim Ritter, Columbia Public Schools representative and member of the commission, said the commission should consider the welfare of local schools when making decisions.

"I don't think the school board will oppose this, but we have to remember that they tend to be the sore loser when it comes to property taxes," he said. "Future TIFs may help the school district, and I do not think our board of education will oppose this idea."

According to a 1997 report from the Center for Economic Information at the UM-Kansas City, cities increasingly rely on TIFs to lure businesses into their areas.

St. Louis and Kansas City have long used TIFs for projects, but those cities' TIF regulations permit a higher percentage of tax revenues to be returned to the developer. In Kansas City, 50 percent of the incremental tax revenues generated by a project are redirected to the developer. The city also has TIF projects that redirect 100 percent. In comparison, Columbia's legislation permits the redirection of 20 percent.

Kansas City Mayor Mark Funkhouser, a staunch opponent of TIFs, said that they often move money in unintended directions. He encouraged cities to invest in their local infrastructure before considering TIFs.

"TIFs can be used for virtually anything," Funkhouser said. "All you're really doing with them is redirecting tax revenues away from a project. If you use incentives to do something the market cannot naturally sustain, you end up with wasted space. The way to do economic development is through infrastructure projects."

Funkhouser said communities should only use TIFs if they are sure the revenue will fill a certain need. People often misunderstand TIFs, which leads to the mismanagement of money.

"Use TIFs only when there is a very specific market failure," he said. "For example, if a community greatly needs a grocery store, then it might make sense. TIFs are often developer-driven, and people treat them as free money, when that is absolutely not the case."

Columbia will hold a public hearing June 4 to further discuss the issue and receive more input from developers and interested Columbia residents.