The Rockport City Council, at its regular meeting Tuesday, Feb. 28, heard a presentation by TXP’s Travis James about Tax Increment Reinvestment Zones (TIRZ) and Tax Increment Financing (TIF).
(Note: There has been a lot of misunderstanding about TIRZs/TIFs. James was asked by City Manager Vanessa Shrauner to make the presentation in order the explain the tax incentive program.)
A TIRZ/TIF is a tool local governments use to finance public improvements and infrastructure within a defined area.
The additional tax revenue that is received from properties (through new development) if referred to as the tax increment.
A taxing unit can choose to dedicate all, a portion of, or none of the tax increment to such improvements.
The following are characteristics of a TIRZ/TIF:
• No increase in tax rate – dedication of the incremental tax revenues
• Creation initiated by governing body or property owner petitions
• Cities can allocate sales tax increment
• Provide additional funds for identified projects
• Aligns benefits and resources
• Keeps pace with rising construction costs
• Reduce need for other tax borrowings
• Off-balance sheet funding
There are many eligible capital costs that can be funded through a TIRZ/TIF, from acquisition and construction of public works, public improvements new buildings, structures, fixtures, and parking, to acquisition, demolition, alteration, remodeling, repair or reconstruction of existing buildings, structures, and fixtures, and acquisition of land and equipment, and the clearing and grading on land.
Other eligible project costs include financing, interest before and during construction, and for one year after completion of construction (whether or not capitalized), and cost of operating the reinvestment zone and project facilities.
Examples of TIRZs include new master planned developments, such as Las Colinas in Irving, which has significant acreage, multiple landowners, requiring complex infrastructure needs, with more than one taxing entity participating.
Another example is corridor development/redevelopment such as the Broadway Corridor in San Antonio. It also has multiple landowners, but focuses on redevelopment and underutilized parcels of property. Typically, just the city or county participates.
There are also site specific TIRZs where land is owned by one developer, with a large catalytic tenant (i.e. – destination big box retailer), with heavy retail focus to fill gaps.
TIRZ’s are often used in downtown areas where there is older and inadequate infrastructure, multiple landowners, and focused on redevelopment and underutilized parcels of property.
(Note: This most closely aligns with a TIRZ-TIF in downtown Rockport.)
Two key TIRZ rules
A TIRZ for TIF may not be created if:
• More than 30% of the property in the proposed TIRZ (excluding publically-owned property) is used for residential purposes
• The total appraised value of the taxable real property in the proposed TIRZ and in the existing TIRZs exceed either:
- For cities with populations of 100,000 or more, 25% of the total appraised value of taxable real property within the city and its industrial district, or
- For cities with population less than 100,000, 50% of the total appraised value of taxable real property within the city and its industrial district
James said a lot of growth is needed to generate additional funds with a TIRZ/TIF.
“They don’t typically work if there’s not enough (projected growth),” he said.
“It takes times (to accumulate funds through a TIRZ). It doesn’t generate money overnight.”
He noted the downtown Rockport area could be a good site for a TIRZ.
James noted there are many steps required when creating a TIRZ/TIF, allowing for public input.
He said the most important step is the first one – determining if a TIRZ/TIF is worth it.
Steps to creating a TIRZ/TIF
• Prepare a preliminary TIRZ financing plan
• Publish the hearing notice at least seven days before hearing
• Hold a public hearing
• Governing body designates zone by ordinance or order. Create board of directors (minimum five, and maximum 15). Participating taxing entities represented on board
• Prepare project plan and financing plan
• Collect the tax increment
• Board of directors makes recommendations to the governing body
After James finished his presentation, Councilman Brad Brundrett noted downtown Rockport has a lot of art and small shops.
“Would this (a TIRZ) increase taxes?” asked Brundrett.
James said whenever there are improvements then property values go up.
Prior to James’ presentation, Kristie Rutledge said she has studied TIRZ/TIF policies and noted it can have a negative impact on rents.
She said the City has taken on a lot of debt recently, adding, “We need to know how much this is going to cost taxpayers.”
She asked for complete transparency.
“We may be for it,” said Rutledge. “Give us a chance.”
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