A showdown is looming in Helena that pits the backers of a key economic development tool for governments, against legislators seeking school funding in a tight budget.
Talk concerning tax increment financing, or TIF, “makes people’s eyes glaze over,” Tim Goodridge admits. "But, the problem is that people can be influenced when their eyes glaze over.”
That’s why Goodridge and other TIF proponents say they’re concerned about how the Montana Legislature will reform the laws governing Billings’ three tax increment finance districts during the current legislative session, which began Monday. The first of up to 10 TIF reform bills that have been filed, SB 34, will get a hearing Friday in the Senate Local Government Committee.
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Both Goodridge and a legislator seeking to reform the current system, Rep. Jeff Essmann, R-Billings, say that explaining tax increment financing in terms that people can understand is key to retaining or reforming the current system.
As part of its legislative agenda, the Billings City Council is supporting the current TIF program.
“This is the only tool that municipalities like Billings (have) to redevelop itself, to reinvest in itself, with the current tax structure,” said Greg Krueger, the development director for the Downtown Billings Alliance, which administers the downtown TIF district for the city.
TIF 101
Tax increment financing is a technique that allows a local government or redevelopment authority to generate money for a group of blighted properties targeted for improvement, known as a TIF district.
As improvements are made within the district, and as property values increase, the incremental increases in property tax revenue are used for more improvements within the district.
TIF expenditures are subject to restrictions and must be spent within the district. The funds generated from a new TIF district can be used to finance projects such as street and parking improvements, tree planting, installation of new bike racks, trash containers and benches, and other streetscape beautification projects within the designated area.
In Montana, TIF districts were authorized in 1974 and are assessed through property tax. Financing options include private activity revenue bonds, pay as you go, loans, special assessments and tax increment bonds.
“We are not taking money,” said Goodridge, coordinator for the Billings Industrial Redevelopment District in East Billings. “We are generating it through growth to regenerate our area.”
In areas designated as blighted and slated for renewal, “the natural growth in that area won’t occur as fast as it will in other areas,” Goodridge said.
Within the East Billings Urban Renewal District, the project that Goodridge calls “our linchpin of growth” is the First Interstate Bank Operations Center.
“It was a decrepit trailer court there with a lot of police calls, and now we have a brand new building that contributes to the (city’s) tax base,” he said.
But Essmann, speaking as he traveled to the Capitol Monday to begin the Montana Legislature’s 65th session, said the state should place a tighter rein on TIF money.
In Billings, projects must be approved by appointed TIF boards, who represent property owners, and the Billings City Council. That’s the case for small projects and large.
“The Montana property tax system is a really complex machine. A lot of moving parts fit together and interact in ways that aren’t very apparent or intuitive,” Essmann said. That’s why he’s introduced House Bill 30, which would remove certain levies, such as school levies voted on after the adoption of tax increment financing, from the state’s TIF provision.
Under the current system, he said, “sometimes the money is not going to the purpose for which the public votes.” Citing the examples of Billings’ $122 million school levy and the city’s $20 million library, Essmann notes that the incremental value within the TIF districts did not contribute to those public improvements.
In testimony before legislators, Kevin Nelson of Billings has long made that point — that money provided for specific uses, such as constructing a library or providing meals to seniors in their homes — "should go where voters said it should go."
Essmann complimented a number of infrastructure projects — water, sewer and streets — completed in East Billings and on the city’s South Side.
“That’s what urban renewal is all about,” he said. “I got an email saying to keep local money local, and I agree with that. But the fact is that the way levies are being assessed after the creation of the district creates higher taxes for people both inside and outside the district, and that needs to be fixed.”
The fix that concerns TIF advocates the most is House Bill 134, a school buildings funding bill that came out of the Education Funding Interim Commission on which Essmann served.
A portion of the law would carve out a chunk of local tax increment financing and divert it to a separate, state-controlled fund for construction of school buildings and facilities.
If approved as written, the bill would cut funding to the South Billings Urban Renewal District by 14 percent, potentially hampering future projects, said Steve Zeier, TIF district administrator. TIF districts across Montana would suffer, he said.
“What that equates to is a haircut to every TIF district,” Zeier said.
Original intent
Essmann said one legislator involved in the TIF's formation in the 1970s told him the financing should only be used on projects that wouldn’t otherwise happen.
“That’s always a difficult question to define — would this happen anyway?” Essmann said. “Or would it happen only if we agree to build a parking garage downtown? Some communities have a high vetting process before TIF money is given to the developer, and some don’t.”
Essmann said he prefers “incremental change” to current TIF law.
“Let’s try greater transparency first, and if other people want to tighten it up more, they can,” he said.
Goodridge and the other TIF administrators also defend the transparency of their approval process.
Committee, TIF board, planning and city council review “gives us four levels of accountability” on the local level, Goodridge said. “That is serious transparency.”
People who want to find out where TIF expenditures went can contact the city’s Finance Department, Goodridge said.
During the 90-day legislative session, Goodridge will be the point lobbyist for the Billings TIF districts, and Zeier and Krueger will offer support. Nelson said he also plans to testify, but in favor of TIF reform.
Too successful?
As they’ve chipped away at blight and prepared the way for increased private investment, TIF districts “have become victims of their own success,” Goodridge said.
“You can always cherry pick projects that are questionable,” he said. “Just because you disagree with the way (the money) is being spent doesn’t mean it’s being spent in a wrong way.”
What Goodridge calls “the real dollars under discussion” — what the districts can lose under the various bills — “aren’t that much, and that is discouraging,” he said. In the EBURD, it’s about $90,000.
“It’s death by 1,000 cuts,” he said.
Essmann counters that the bills came from interim sessions and enjoy bipartisan support. Rural legislators, he said, would like to divert TIF money to pay for much-needed school repairs.
“We are headed into a tight budget cycle,” he said Monday. “What I learned from (the interim education funding commission) is that we have a cultural problem in Montana. We can raise money for new buildings every once in a while, but we are unwilling or unable to raise money to take care of buildings over time … We need to change the culture so we have good planning for taking care of those assets around the state.”