A recent story in the Wichita Eagle by Dion Lefler (Tax plan could leave city with TIF debt) illustrates the some of the problems that can happen with complex economic development efforts.
The problem in this case lies in the interaction of Proposition K, an effort to reform property tax appraisals in Kansas, and tax increment financing, or TIF districts.
The idea behind TIF districts is that as property is developed, its value will rise enough that the increased property taxes will pay off bonds that the city issued to benefit the developer.
Proposition K, however, alters the way that appraised values rise. According to the Eagle’s analysis of the TIF district benefiting the Ken-Mar shopping center, under Proposition K this district will generate $4.3 million less than what is needed to pay off the bonds.
So what would the city do if faced with this shortfall? The Eagle article suggests “The city could cut spending elsewhere or raise the mill levy to fill the gap.”
That would be a huge windfall to the developer of this project, which is Wichita school board member and Methodist minister Kevass Harding.
But not so fast. The city requires beneficiaries of TIF financing to make up any difference between tax revenues and what’s needed to pay off the bonds. So it appears that the taxpayers may not be on the hook, after all.
The difference, I believe, is that the debt owed to the city would simply be an obligation of Harding and his ownership team. It’s only as good as their ability and willingness to pay. Without Proposition K, the monies needed to pay the bonds would be in the form of property taxes, and the city could take various measures to collect that wouldn’t be available otherwise.
Isn’t this a fine mess? Last summer when this TIF district was being considered, I wondered out loud to the city council “Why don’t we strip away all the confusion and obfuscation surrounding TIF districts and just give the developers $2.5 million?” (See Reverend Kevass Harding’s Wichita TIF District: A Bad Deal in Several Ways.)
I didn’t know then that the confusion and obfuscation would get worse.