The Exponent Telegram
Sunday, November 11, 2007
by Jim Fisher
CLARKSBURG – Clarksburg – Although one of the latest states to jump on the tax increment financing bandwagon, West Virginia officials seem to have taken to heart the lessons learned by other states over the past quarter century.
West Virginia’s handful of TIF districts and related projects “are not inconsistent with what other states are doing, especially Pennsylvania, Virginia and some other states in the area,” said Toby Rittner, executive director of the council of Development Finance Agencies in Cleveland.
One part of the council is the Tax Increment Financing Coalition, which is designed to be a national forum for TIF users, service providers and industry experts. The coalition has developed a strategic plan to help those involved with TIF through planning, research, education and advocacy.
The most important thing that a TIF project can do, Rittner said, is provide public infrastructure that encourages and spurs future growth.
TIF also should be used fairly sparingly, which given the relatively few districts in West Virginia, seems to be what development officials are doing, Rittner said.
“You don’t want it to be something that everybody has, and then it gets abused,” he said.
Tax increment financing districts are relatively hard to compare accurately, because each one is so unique. They vary in size, location and overall purpose, although the state limits TIF funding to only pay for public water, sewerage and roads.
Each year, the Development Office submits to the governor and Legislature a report about the status of every TIF district and project in the state. The 2007 report is still being compiled and should be available in the coming months.
For the purposes of finding some common ground for comparison, The Exponent Telegram looked at the projected increase to the appraised property value in the districts, and divided that by the total possible amount of bonds approved.
For instance, a Mineral County water and sewerage upgrade is projected to increase property values in the eastern third of the county from $468 million in 2006, when the district was created and property values frozen, to $1.22 billion in the ensuing 27 years, according to the report.
The inadequacy of the infrastructure is aggravating a housing shortage in the county, causing many workers to find housing in nearby Maryland, according to the report.
The projected property value increase of $752 million, divided by the maximum TIF bond obligation of $6.39 million, gives a potential $117.68 in additional property taxes for every $1 of TIF.
The Charles Pointe TIF district, with a maximum of $97 million in TIF bonds, is one of the better projects in the state in terms of rate of return, with a projected $20.50 in additional property taxes for every $1 in TIF bonds. The property value at Charles Pointe is forecasted to increase from $11.2 million to $2 billion over the life of the TIF district.
There are nine other districts in the state with active projects that filed annual reports in 2006. The rates of return varied from $42.44 in additional property taxes for every $1 of TIF bonds for renovations in downtown Wheeling, to a low of $5.95 at the Cabela’s development in northern Ohio County.
White Oaks, a planned business park across Interstate 79 from Charles Pointe, has not yet had to file an annual report. There also are a number of other TIF districts with no projects attached.
The projected increases in appraised land value are generated by the bond underwriter or financial consultant, and are based on a number of things, including any expected new development, the yearly inflation rate and estimated taxable property values, said Joe Nassif, vice president with Ferris Baker Watts in Charleston.
Another important factor when putting together TIF applications is the so-called “but for” test, which basically says that without TIF financing, the project won’t happen at all, or at least won’t happen as designed, Nassif said.
The state looks at TIF as “stopgap” financing, according to Todd Hooker, the manager of business retention and expansion with the Development Office.
That means the developer may have most of the money needed for the project, but the extra few million from the TIF ensures that things move forward as planned.
The forecasted property values are just one thing the state Development Office looks at when deciding whether a project will create enough additional property taxes to pay back any bonds sold to install infrastructure.
Typically, the Development Office works with a 10-1 ratio of total project cost to potential TIF bonds, although that is not a hard and fast rule, Hooker said.
Hooker also is on the committee that decides whether to approve tax increment financing districts.
Basically, Hooker said, if a project is expected to cost $50 million, it should be able to generate enough additional property value to pay back $5 million in bonds.
But just because a project is approved for a certain amount of bonds, that doesn’t mean the developer will need to sell the full amount, he said.
Under certain circumstances, TIF districts may be created even if there isn’t a specific project associated with them at the time. Of the 18 districts in the state, 13 have received state approval for a project, including Charles Pointe and White Oaks in Harrison County.
Charles Pointe is the largest TIF district in the state, both in terms of sheer size, and the maximum amount of bonds allowed to be sold. It’s also projected to create the largest increase in property values.
And, Charles Pointe helped provide the state with some valuable lessons in how tax increment financing should work. It was among the first applications submitted, Hooker said, although a number of other districts and projects actually were approved before Charles Pointe.
“The committee kind of picked through it and learned some things along the way,” he said.
While 30 years is the maximum life for a TIF district, Hooker said the state encourages developers to shoot for a goal of 20 years or less on the bonds. That gets the increased property taxes into the hands of the counties much quicker.
