Expiring TIF district in downtown Urbana raises questions
URBANA — City officials have some philosophical questions to answer as they look toward a new era of economic development in downtown Urbana.
As their premier program for encouraging growth and new business is set to expire in 2016, administrators and elected officials say they want to take a comprehensive look at what has happened in downtown Urbana and its immediate surrounding area during the past 33 years and whether tax increment financing has a future there.
Tax increment financing — or TIF — is a program that captures property-tax money to be used for infrastructure and development incentives throughout a certain defined area — in this case, downtown. The goal is to use that money to encourage new business openings or property investment, raise property values and continue capturing more property-tax revenue to reinvest into the area — a theoretical upward cycle.
But Urbana City Council members this week said they aren't so sure the program has done what it was intended to do. The numbers are paltry: Since 1981, when the program began, the equalized assessed valuation of the district has only grown from $4.5 million to about $8.7 million.
And Alderman Michael Madigan, R-Ward 6, noted this week that those numbers aren't adjusted for inflation: That $4.5 million in 1981 has buying power equal to about $11.5 million today, according to the Bureau of Labor Statistics.
Looking at it that way, the value of downtown Urbana has decreased, even though the city has essentially drawn on property-tax money that otherwise would have been distributed to other taxing bodies like the school and park districts and pumped millions of dollars into infrastructure improvements and business grants.
"I know there are potentially other benefits of TIF," Madigan said. "I'm not trying to narrow it down to EAV (equalized assessed valuation), but that's a big component."
City officials this week finalized a contract with a consultant to examine the downtown district and its immediate surrounding area to devise what to do when the 33-year-old TIF program expires in 2016. They could open a new TIF program, but that also opens a lot of questions. Among them: What properties will be included, and what kind of projects can and should be eligible for subsidies?
"We need some expert help," said Alderman Charlie Smyth, D-Ward 1, in determining why downtown Urbana has not performed as well as some other areas of the city where TIF programs exist.
Delve deeper into the philosophical arguments behind TIF programs, and the waters start getting a bit murkier. Because TIF programs draw on property-tax money that would otherwise have gone to other taxing bodies, the city is handing out business incentives with funds that could have gone toward, say, hiring another teacher in the Urbana school district.
But a lot of the money seems to have been lost, said Alderwoman Carol Ammons, D-Ward 3. Part of the TIF program gives small grants to help new businesses open, and those businesses might not last very long.
"The grants have just kind of gone out the door," Ammons said. "You drive down the street and, oh, that business is gone. Then we get another business in there and they get a grant and they're gone. That, to me, is not appropriate use of the TIF."
The theory is that when the TIF program expires, property values will be higher than if it never existed, so the other taxing bodies recoup their money over time. That will not be the case for downtown Urbana.
But property values cannot be the only measure of a TIF program's success, said Alderman Bill Brown, D-Ward 4. There has been a lot of infill in downtown Urbana since the program began, he noted, and those new businesses generate extra sales tax, which in turns helps the school district and the city.
And improvements like the ongoing beautification of Boneyard Creek, which utilized TIF money, can have positive effects long after the program expires.
"Some of the intangibles, I think you need to consider and you need to look further out," Brown said. "Taking a simplistic view of just how much has the (equalized assessed value) gone up in the past 20 years might not be the best approach to evaluate something."
Brown said all of the city's TIF programs include properties worth about $27 million that are, for all intents and purposes, temporarily wiped off the tax rolls for the other taxing bodies. But that's a very small percentage of the whole — about 5 percent of the city's taxable value and roughly 4 percent of the school district's, Brown said.
"Even if we gave everything in all of our TIFs back to the taxing bodies, the school district would be able to lower their taxes by 25 cents of their $5.76 rate," Brown said. "That would still be a dollar and a quarter higher than Champaign's currently. So there would still be a ways to go. That's not the thing or that's not the solution to fixing the tax equation."
If city council members who commented Monday get their way, a new TIF — if established — would be a bit more discriminatory about who gets money. Ammons said she wants the rules on how TIF money is used to be more clear, and Brown said maybe some more stringent standards should be put in place for businesses that stand to benefit from the program.
"I understand small businesses, the majority of small businesses do fail, but I think we need to be a little more, maybe in the next plan, figure out a little better way to decide whether something really is a capital improvement or maybe it's just remodeling," Brown said.
The difference is that a capital improvement — a substantial renovation of a property or its surrounding area — significantly adds to the property value and stays even if the business goes away. That's not necessarily true for a lighter remodeling.
Those will all be questions for city officials and their consultant during the next two years. In the meantime, Alderwoman Diane Marlin said they need to focus on Urbana and not its neighbor to the west, which has used a TIF program very successfully in its downtown.
"It's very tempting to compare ourselves to our sister city, but we have to remember that this is Urbana and it's not Champaign," Marlin said. "We're half the size of our sister city, and there are a whole lot of different factors affecting Urbana and Champaign. We really have to focus on Urbana and what Urbana can be."