Tax Increment Financing is good for Cape Girardeau

Tax Increment Financing (TIF) is a redeveopment tool governmental entities can use to encourage investment in either a "blighted" or "conservation" area as defined under Missouri Law. TIF provides an incentive to developers to invest in areas they otherwise would not have pursued and requires the developer to sign an affidavit legally guaranteeing the project would not occur "but for" TIF assistance. When used properly, TIF can be the impetus to bringing old and tired areas of a community back to life increasing both property and sales taxes.

Unfortunately, TIF has been used in the past in certain areas of Missouri in a way that pushes the limits of its original design. This has resulted in a tarnished image. However, when used properly, it is an excellent redevelopment tool.

Explaining Tax Increment Financing is not simple, but let's examine how this actually works. TIF can be used for a single development project (benefitting one developer and one location) or can be implemented in a redevelopment area (potentially benefitting multiple developers and a larger area). When TIF is enacted and a project begins, the property taxes from that base year are frozen and guaranteed to continue at the same level for 23 years to all taxing entities (i.e. school district, library, etc.). This insures the taxing entities don't lose any revenue they are currently receiving at the time the TIF project begins. Keep in mind, often times TIF is enacted in a location experiencing stagnant or declining property values.

Next, let's look at where the revenue comes from to help in financing. When the project is complete, the property is reassessed, and a new property tax is determined. The increment between the original property tax (which continues to be collected and dispersed to the taxing entities) and the new property tax is available for help in financing the project.

Here is a simple example for explanation purposes. Property A is currently being taxed at $10,000 per year. After it is redeveloped, the new assessment brings in $25,000 per year. The $15,000 incremental increase per year is the money available for use in financing over a 23-year period. The developer provides a detailed proforma to the governmental entity overseeing the TIF showing the "gap" in the project requiring TIF assistance and signs an affidavit guaranteeing TIF assistance is necessary to complete the project. The developer then enters into a development agreement outlining the details of the project, completion dates, and the percentage of the increment created that will go back to the developer until a maximum agreed upon assistance amount is reached. Keep in mind, the developer is paying the extra property tax, so it is the increased property tax the developer is paying created by the redevelopment that is available for use on the project and the developer receives an agreed upon percentage.

In addition, if the project creates additional economic activity taxes (sales taxes) over and above the base year of implementation, 50 percent of the increase (increment) can also be available for use on the project.

Revenue created by the increment in property taxes and additional activity taxes NOT pledged to the project goes to a TIF fund used by the governmental entity overseeing the TIF and must be used in the TIF area for public benefit projects and/or returned to the taxing entities.

The City of Cape Girardeau chose to use TIF in the appropriate way. It has resulted in tremendous improvements already and we can expect more to come.

John Mehner is the president and CEO of the Cape Chamber.