TIF Districts

[Teo9969]

The burden of proof is on the group seeking to divert hundreds of millions (approaching a billion) from schools to private developers, not the other way around.

THIS right here is all that's being asked by Pete and others. If the city wants to divert tax dollars, fine. If the city wants to divert hundreds of millions of tax dollars, fine. Simply prove that it is the best use of public funds, do it in an open, transparent manner that the average citizen can understand and make sure that the ability to benefit from the program is easily understood and approachable for the average citizen.

We are now in the 17th year of the program and we are only now talking about TIF. Admittedly, the program started out with a budget of <$50M, which is hardly a number that merits major oversight and scrutiny. But in all the expansion that has taken place or is being planned, at some point, the numbers get large enough that it does merit major oversight and scrutiny, and to be perfectly fair, it merits those charged with administering the program to proactively approach the public which they are finally doing with this Chamber event. To be honest, they probably should have held this panel in 2008 BEFORE signing off on the Devon TIF for $177M.

And correct me if I'm wrong, Pete, but the whole reason you started digging into OKC TIF in the first place was because of the disaster that Project 180 ended up being in terms of delivering what was promised and realizing that the whole funding mechanism for the project was a TIF project.

Seriously, asking for transparency and scrutiny should not be anything other than WELCOMED by anyone, especially anybody working for a municipality and their constituents. Had they been forthright from the beginning, it would have never looked so bad in the first place.

[Pete]

I'm not trying to go off information fed by the City any more than you're trying to be skeptical. I've read your information, information on TIF from other sources (including Mr. LeRoy's organization), and the information provided by the City. I've also worked as a city planner (not in OK, and not dealing with TIF [or "TIRZ" in TX]). I want to learn where the City's information is "incomplete, biased, and intentionally misleading,

If you are going to raise your own credentials while attempting to present yourself as objective, you should at least disclose who you work for and how your employer makes a lot of money from TIF.

[TexanOkie]

Doesn't make it any less manipulative or wrong.

Actually, it does, legally speaking.

The burden of proof is on the group seeking to divert hundreds of millions (approaching a billion) from schools to private developers, not the other way around.

And the City staff seems to have met that burden by securing approvals for their actions from the City Council and by obtaining the other approvals the legislature requires through the Local Development Act. The standard here isn't "but/for," it's "difficult but possible with." That's a huge distinction.

That money simply comes from other public school districts, hence it IS being diverted from public schools.

The money is not being diverted from public schools if the entire scheme was designed to work this way. Both the Local Development Act and the state school aid statutes explicitly lay out that increment values are not counted against school districts in calculating the amount of aid a district receives. I've addressed previously why this makes sense, logically. The scheme addresses limits on increment values allowed, too, to prevent overuse of TIFs in an attempt to get more state aid than a district may be otherwise entitled to.

[Teo9969]

Actually, it does, legally speaking.

And the City staff seems to have met that burden by securing approvals for their actions from the City Council and by obtaining the other approvals the legislature requires through the Local Development Act. The standard here isn't "but/for," it's "difficult but possible with." That's a huge distinction.

This is never the start of a good defense against scrutiny. It simply doesn't matter that what they're doing is legal. Right and Wrong are not beholden to legality and law is not ethics. Impropriety can and often is legal. Of course nobody has even arrived to the point of accusing city officials of impropriety in regards to TIF, so that's a moot point…but your argument is a TERRIBLE defense for the lack of transparency throughout the history of TIF.

The money is not being diverted from public schools if the entire scheme was designed to work this way. Both the Local Development Act and the state school aid statutes explicitly lay out that increment values are not counted against school districts in calculating the amount of aid a district receives. I've addressed previously why this makes sense, logically. The scheme addresses limits on increment values allowed, too, to prevent overuse of TIFs in an attempt to get more state aid than a district may be otherwise entitled to.

That's all well and good, but it doesn't address the heart of what some of us are concerned about:

Tax money that is earmarked for schools is not going to schools, regardless of whether or not the schools are getting money that they need to operate. This isn't in and of itself problematic. Public money is being turned into an incentive and distributed to the private sector. This isn't in and of itself problematic.

The problem is that it's not a very transparent process, and there has been very little attempt on the part of city officials to explain and defend their actions. Hopefully this Panel will be a good first step in the process.

[TexanOkie]

This is never the start of a good defense against scrutiny. It simply doesn't matter that what they're doing is legal. Right and Wrong are not beholden to legality and law is not ethics. Impropriety can and often is legal. Of course nobody has even arrived to the point of accusing city officials of impropriety in regards to TIF, so that's a moot point…but your argument is a TERRIBLE defense for the lack of transparency throughout the history of TIF.

Right and wrong are not synonymous with legal wrongdoing, no. However, in defense of the legal system, liability (in tort) or culpability (in criminal law) for the most part does try to take into account the mental state a person is in when they commit some act. By "mental state" here, I am not talking about what's colloquially known as the "insanity" defense, but the state of mind someone is in and the awareness of what they are doing (whether it's the knowledge that a fact is wrong, the failure to realize what they are doing is wrong when they should be able to do so, or the just the knowledge that they are doing what they are doing). Anywho, that's kind of off topic. Apologies.

That's all well and good, but it doesn't address the heart of what some of us are concerned about:

Tax money that is earmarked for schools is not going to schools, regardless of whether or not the schools are getting money that they need to operate. This isn't in and of itself problematic. Public money is being turned into an incentive and distributed to the private sector. This isn't in and of itself problematic.

The problem is that it's not a very transparent process, and there has been very little attempt on the part of city officials to explain and defend their actions. Hopefully this Panel will be a good first step in the process.

Transparency can certainly always be better. No doubt about it, in just about anything dealing with public funds. However, my main point from the section you quoted was that the public money you claim is being "diverted" was never earmarked for schools. The state funding, ad valorem taxation, and TIF statutory schemes specifically provide as such. A small distinction, if you only consider where the levies come from that produce the increment, but that small distinction plays a huge role in the entire scheme for TIF and school funding and should frame the policy arguments surrounding TIF's use.

[Pete]

^

Speaking of transparency, perhaps you didn't see my post calling for you to disclose that you work for a company which makes a ton of money from OKC's TIF programs.

[TexanOkie]

^

Speaking of transparency, perhaps you didn't see my post calling for you to disclose that you work for a company which makes a ton of money from OKC's TIF programs.

The amount of money my employer makes from consulting with the City of Oklahoma City is public record. It's not a "ton."

[David]

Might as well disclose the company too so everyone watching can judge for themselves.

[Pete]

The amount of money my employer makes from consulting with the City of Oklahoma City is public record. It's not a "ton."

Isn't the City of OKC your biggest client?

Wouldn't the billings over the years -- including the Alliance -- be in the millions?

[TexanOkie]

Isn't the City of OKC your biggest client?

Wouldn't the billings over the years -- including the Alliance -- be in the millions?

Frankly, I don't know. I'm just an associate. For those of you wondering, I work for the Center for Economic Development Law, a small, boutique public interest law firm specializing in representing public entities in economic development and public-private partnership projects. For the record, the Alliance is not one our clients. The City is only a minor client. We do serve as general counsel for OCURA and OCRA (again, matters of public record). But we also serve communities across the state on any manner of issues ranging from simple land use issues to federal grant and state redevelopment programs to, yes, local use of TIF and other state incentives.

While in most cases my professional experience would give me some extra credibility on issues like TIF, I anticipate here it is going to do the opposite. Hence the whole call for "disclosure," to begin with. Don't hold it against me. I joined OKC Talk before I entered this professional field, and enjoy participating these forums (as much as my professional responsibility will allow, anyway), and I genuinely want to see Oklahoma communities realize their development goals (and not just my clients, either).

Anyway, there it is. For whatever it's worth to this online community, I can guaranty 80% of the attorneys I work with would easily be considered "experts" in TIF, and certain of my employers probably are more knowledgeable on its ins and outs than anyone else in this state.

[Pete]

^

It's not that small. 6 attorneys on staff, all specializing in helping municipalities develop economic programs, and a lot of that is TIF. Your annual payroll alone has to be over a million a year.

Also, just this year OCURA has $450,000 budgeted for legal work. Are they using anyone other than your firm?


There is a lot more business for you if TIF's are first considered, then passed, then administered especially since here in OKC, as all of them last the maximum of 25 years. OCURA, for those who don't know, administers TIF's and this law firm performs all the legal work around that.


If OKC is not your biggest client, who is? Are you saying a practice located in downtown OKC, founded by a former member of OCURA, in a city with far more TIF and other economic development incentive programs than anywhere else in the state, somehow does less business with your firm than Norman or Guymon or Guthrie?


If you'd like, I can find out exactly how much you are paid by the City and happen to know it's no small sum. Your firm has had a relationship with the City for decades.


And the only reason I bring any of this up is because 1) you characterized my position as 'skeptical' which is a nice way of saying biased; 2) I did my best to explain I have absolutely no financial interest in this issue; 3) you claim you have equally considered all sides thereby lay claim to the objectivity high ground; and 4) all the while failed to mention at all that your employer receives great financial benefit from TIF programs.


I appreciate your insight and participation but you can see why I have become 'skeptical' of this program and the information that continues to come from the people involved in it.

[TexanOkie]

If you look at any of our fee schedules, I think you'll be hopefully pleasantly surprised at how low our rates are. We're not in this business for the sake of profit, believe it or not. While I can't speak directly for my colleagues, I do think it is a safe statement to say that we consider our work more in the manner of public interest law, but very specialized.

A couple of things for clarification--OCURA thus far does not administer TIFs. That falls on the OCEDT except for TIF 1/7, which is OCRA. OCEDT is not a client of ours. OCURA is a "public body corporate" independent of the City created by state law to implement and manage the City's urban renewal program. Most OCURA involvement with TIF has been when projects in a TIF are built on OCURA-owned land. We have worked with the City for the Dell TIF and recently in a consulting relationship only on the Downtown amendments and the Core to Shore TIF. These things should all be reflected in the public record.

Finally, while our firm might benefit from TIF's existence, that's really only because that seems to be the primary game in the state at the moment. The firm has been around far longer than TIF has been around in OK, and we are involved in many other areas of practice. Our goal isn't to make money off TIF, but to assist communities reach their development potential.

[Pete]

^

I really do appreciate your participation in this discussion and the perspective you provide.

Thanks for keeping things civil.


I truly am not anti-TIF, just have felt compelled to research and make some points which are obviously not going to be made by the group making the pitch and our local press has been completely out to lunch on this.

[Teo9969]

The disappointing thing, to me, about not talking about this more openly, debating some of the drawbacks, is that there are many things we could do to improve the process.

If we would actually address the drawbacks, we could more easily arrive at 10/15-year TIF instead of immediately going with a 25-year TIF. What if instead of going right for the 25 year because that's what we can do, we look at shorter terms. Maybe we tell Wheeler, we'll do a TIF for your entire development area (inclusive of some space around the development as well), but we're capping it at 15 years. The motivation then is for Wheeler to move quickly to capture as many future gains as is possible…instead of building out in 8-12 years, they build out in 6-9 years…and why? Because it's better for them economically. (I'm aware there're caps and all that and it's more complicated than I'm laying out but you get the point). And I would happily support giving the Humphreys tens of millions of tax dollars simply for finishing such an ambitious project in a rapid manner. It's a game changer for our city. But for goodness sake, use OUR leverage to get what WE want. The point isn't to incentivize developers to create projects that make them money, the goal is to incentives developers to create projects that make US money.

[TexanOkie]

The disappointing thing, to me, about not talking about this more openly, debating some of the drawbacks, is that there are many things we could do to improve the process.

If we would actually address the drawbacks, we could more easily arrive at 10/15-year TIF instead of immediately going with a 25-year TIF. What if instead of going right for the 25 year because that's what we can do, we look at shorter terms. Maybe we tell Wheeler, we'll do a TIF for your entire development area (inclusive of some space around the development as well), but we're capping it at 15 years. The motivation then is for Wheeler to move quickly to capture as many future gains as is possible…instead of building out in 8-12 years, they build out in 6-9 years…and why? Because it's better for them economically. (I'm aware there're caps and all that and it's more complicated than I'm laying out but you get the point). And I would happily support giving the Humphreys tens of millions of tax dollars simply for finishing such an ambitious project in a rapid manner. It's a game changer for our city. But for goodness sake, use OUR leverage to get what WE want. The point isn't to incentivize developers to create projects that make them money, the goal is to incentives developers to create projects that make US money.

I think that would work in certain contexts--especially where TIF is used as development financing assistance that is expressed as a percentage of new revenues a developer creates. However, in other circumstances it would not work as well. Particularly if the TIF is used for specific public projects like TIF 8, which has gone primarily into Project 180. At that point, you want to make sure you capture the amount of money needed to complete the projects, and would rely on project cost caps in the TIF plan instead of the shorter time period to act as the eventual cutoff.

As to your last statement, I can't speak for OKC, since they do their TIF agreements in house, but in my work in other communities, the point of using TIF as incentives usually isn't either of the things mentioned. Sure, you want to incentivize projects good for the community, but most of the time the incentives--and a specific amount at that, even if percentage-based using realistic projections--is necessary to get the private financier to agree to fund the project at all.

[warreng88]

Think tank miffed about TIFs

By: Dale Denwalt The Journal Record August 26, 2016

OKLAHOMA CITY – Tax increment finance districts do little for the state’s economy yet benefit well-established corporations, according to a think tank’s analysis of the law.

Byron Schlomach from the right-leaning 1889 Institute said state policies that created TIF districts also let business shuffle from one area to another inside the state.

“Obviously the district itself benefits, but as far as the state’s economic development goes, it doesn’t do much for us,” said Schlomach, director of the institute. “It’s mostly an insider’s game. TIFs are a good way for people who know and understand the political system well to benefit from the system. But it’s not a way to grow the overall economy and benefit everyone in general.”

TIF districts are geographic areas within a city or county where newly generated sales or property taxes can be spent by the district. In some cases, retailers get to keep part of any new sales tax revenue they generate. Other TIF districts keep property taxes low so the company can instead reinvest the savings back into the business.

By letting businesses keep tax revenue, Schlomach said the districts actually hurt economic growth.

“Many TIFs, especially those that tap property taxes, cost everyone in the state of Oklahoma, though TIFs are locally constituted,” he wrote in the policy analysis. “(TIFs) redistribute resources to the wealthy and well-connected. They allow the bypass of taxpayer protection measures. And, TIFs often allow TIF-creating entities to steal away the revenues of other taxing entities.”

Those taxing entities include schools, cities and county governments.

Ponca City’s economic development officer, David Myers, agreed that TIF districts can be used poorly, but said that local governments can also be deliberate when establishing one.

“There is nothing inherently good or bad about a TIF district,” Myers said.

He suggested that officials should use an internal but-for test, asking “but for this TIF district, would the business still come?”

“In most of the times that we (asked), the but-for came back and said we didn’t need the TIF district,” Myers said.

The 1889 Institute recommended several changes to the law, including a restriction to how TIF district money can be used. Schlomach said he thinks infrastructure spending is a legitimate use.

“It is one thing for school tax money to be diverted to fund publicly owned infrastructure like water, sewer, streets and public parks,” he wrote in the analysis. “It is quite another to hand $500,000 over to a restaurant owner.”

He also recommended a limit on which taxes a TIF district can avoid paying, and a limit on the life of a district. Elected state officials should also have oversight to approve or deny a district, Schlomach wrote.

The state could also repeal TIF laws, thereby prohibiting their use.

“It’s really throwing the baby out with the bathwater,” Myers said about a repeal. “It’s a tool for communities to use to address blight when there’s a willing private partner.”

He also criticized Schlomach’s suggestion that top government officials could approve or deny TIFs. Myers said entrepreneurs would get skittish about coming to Oklahoma if the governor or attorney general had to give final approval.

“Any time that the public wants to take a look at a tool like TIF, those are legitimate public conversations,” he said. “But what has to be considered are the consequences.”

[Teo9969]

I don't know about other cities but in OKC the business doesn't get to keep the taxes. They pay the taxes regardless and then instead of the county receiving the increase, the city does and then doles out that money under a more complicated guise.

So nobody downtown is paying less property taxes than they otherwise would be. How you get ahold of TIF money in the first place is a different issue altogether. There are good reasons to be critical of TIF, but at least in OKC's case, a failure to understand the system is not one of those reasons.

[Pete]

^

There are instances where property tax and sales tax are merely refunded directly to the business.

Such as the Skirvin and soon to be FNC and Wheeler District.

[Teo9969]

^

There are instances where property tax and sales tax are merely refunded directly to the business.

Such as the Skirvin and soon to be FNC and Wheeler District.

I understand that is accurate, but especially for the Skirvin and FNC, it should really be viewed differently. Having a TIF "district" for one building goes to show the importance of the building in OKC as a whole, and TIF just happens to be the best mechanism for the city to contribute to the cause. They're also the 2 most "Duh!" instances of when to use TIF.

Wheeler is obviously in a different category because we're not preserving a building and we don't really know what we're going to have with the district. In these instances (which will probably also happen in the CO-OP), I feel like the legitimate complaint is not how it happens (money going back into developers pockets), but the length of time it is in effect. If we limit the Wheeler TIF to 15-20 years, that incentivizes the district coming together a bit quicker in order to capture those gains, and doesn't leave the future area without a large tax-source. And if you want to keep it at 25 years, tie the amounts to building certain public amenities etc.

On a completely different note, do receivers of TIF have to pay Federal/State income taxes on those amounts?

[warreng88]

Cathy O'Connor was on Steve chat today, which pulled in a lot of TIF questions. Full chat here:

http://newsok.com/article/5516329

[Pete]

The basic premise of tax increment financing is the investment would not occur without the assistance from TIF. Therefore, there are no revenues to take away from the school district.

I challenge this basic premise and many of the assumptions the Alliance uses when marketing and presenting on TIF.

[Midtowner]

^ I agree. The Alliance is great at spending the public's money with no accountability whatsoever to the public. TIF has been a great tool for things like the Skirvin, but for every Skirvin, there are several of these:

http://www.koco.com/news/Blanchard-b...posal/30989666
(TIF being used to help build a Wal Mart store)

TIF has become just one piece of this incentives game used to spawn development. It and other options have been very good to large corporations which every few years can extort the public for free money with the not-so-veiled threat of picking up their toys and going elsewhere.

Project 180 and the OG&E tower really stand out to me as abuses. OG&E is getting what.. $69 million just 'cuz? They weren't going to move out of state and they weren't going to move to Edmond, that tower would have been built without that money. The Devon tower was getting built anyhow. It would have been a far more efficient use of city resources to simply keep up with our infrastructure investments downtown rather than to borrow all of that money, robbing public education and county services for however many years... and the finance charges on those bonds can just be written off as inefficient spending. If it could ever be argued that the city doesn't have enough revenue to address ongoing infrastructure concerns, a discussion needs to be had about revenue and things like the extension of our city's infrastructure in, for example, the Deer Creek area?

The argument that these take no money away from schools is just disingenuous. If these projects went through without TIF, the schools and county services would see significant bumps in revenue. This stuff matters and is part of why Oklahoma's schools are near dead-last in the United States in terms of funding.

[Teo9969]

^ I agree. The Alliance is great at spending the public's money with no accountability whatsoever to the public. TIF has been a great tool for things like the Skirvin, but for every Skirvin, there are several of these:

http://www.koco.com/news/Blanchard-b...posal/30989666
(TIF being used to help build a Wal Mart store)

TIF has become just one piece of this incentives game used to spawn development. It and other options have been very good to large corporations which every few years can extort the public for free money with the not-so-veiled threat of picking up their toys and going elsewhere.

Project 180 and the OG&E tower really stand out to me as abuses. OG&E is getting what.. $69 million just 'cuz? They weren't going to move out of state and they weren't going to move to Edmond, that tower would have been built without that money. The Devon tower was getting built anyhow. It would have been a far more efficient use of city resources to simply keep up with our infrastructure investments downtown rather than to borrow all of that money, robbing public education and county services for however many years... and the finance charges on those bonds can just be written off as inefficient spending. If it could ever be argued that the city doesn't have enough revenue to address ongoing infrastructure concerns, a discussion needs to be had about revenue and things like the extension of our city's infrastructure in, for example, the Deer Creek area?

The argument that these take no money away from schools is just disingenuous. If these projects went through without TIF, the schools and county services would see significant bumps in revenue. This stuff matters and is part of why Oklahoma's schools are near dead-last in the United States in terms of funding.

You know that that project died due in large part to OKC saying absolutely not to that number for TIF, right?

Also, I'm not 100% sure, so please someone correct me if I'm wrong, but the money used from TIF I don't believe is bonded. I think most of the time, developers just use their own money to develop whatever is being TIFed and then they either don't pay an increased tax rate, or they get reimbursement from the city each year for the tax increment, until the initial amount has been reached.

In the case of the TIF that we used for projects like 21c hotel, I believe that money was already in the city's account from the years of improved numbers from when the TIF District actually began like 15 years ago.

[Pete]

Also, I'm not 100% sure, so please someone correct me if I'm wrong, but the money used from TIF I don't believe is bonded. I think most of the time, developers just use their own money to develop whatever is being TIFed and then they either don't pay an increased tax rate, or they get reimbursement from the city each year for the tax increment, until the initial amount has been reached.

The TIF grants are paid in various ways but most often it is just paid as a lump sum.

[Teo9969]

The TIF grants are paid in various ways but most often it is just paid as a lump sum.

This makes sense for most projects that have used TIF#2 Money, because most of the projects came way later than launch date of the TIF in 2000, so the money was ostensibly already in the city's pocket.

But in cases like TIF#8/Devon TIF/Project 180, where did we get the $177.7M ($125M being from the Devon TIF) to do all that work in the present considering the actual capture date won't end until 2033. Did we bond out the $125M or did Devon pay it up front to be reimbursed at a later date?

Same thing with the upcoming Wheeler TIF. The way I understand it, the Wheeler organization is going to front the costs of all the construction in the area and only later receive reimbursement of the increment over the ensuing two decades.