TIF Ruling

Clemson TIF Ruling

By Alex Saitta

May 10, 2014

Introduction:

A TIF is short for Tax Increment Financing. First, a city creates a TIF Area. From that day on, the city, county and the school district agree any tax revenue generated from the appreciation or growth of property in that area will not go to the three taxing authorites, but it will be reinvested in the TIF area. The aim is to revitalize that area with an injection of tax revenue/ investment.

Keep in mind, there are 4 entities here. One is the TIF that is using the money. The three others are the taxing authorities that are giving their revenue to the TIF. The taxing authorities are the city of Clemson, the county and the school district.

The county and school district had two main complaints in their lawsuit.

First Complaint:

Under the law, the TIF has to limit the size and scope in the redevelopment projects in the TIF area and put a cost estimate on the projects. The cost estimate of the initial plan in 1998 was $9.4 million. The plan was added to a bit in 2003, raising the cost to $10.4 million.

By law, the TIF was to limit the spending to $10.4 mil lion. Anything above that is considered surplus and was to be given back annually to the city, school district and county.

The TIF is generating about $21 million in revenue over its life, and instead of returning the amount above the $10.4 million (about $10 million in surplus), the TIF started to expand the projects in the plan and add others.

For example, in the plan the Clemson city hall was to get a $800,000 facelift. In the end, $2.6 million was spent.

In the plan College Avenue was to get $553,000. They spent $2.2 million on College Avenue and expanded the spending beyond that area.

Second Complaint:

The second complaint is the law states if the annual TIF revenue rises above the annual bond payment, that excess is surplus and must be returned annually to the three taxing authorities.

This is how the TIF is supposed to work looking at the law:

Step 1: Develop a redevelopment plan, identifying the projects with cost estimates: Like I explained that was $10.4 million in projects.

Step 2: Wait for the project redevelopment area to appreciate a bit, so the TIF area starts to generate annual incremental tax revenues for the TIF.

Step 3: Issue Bonds.

The TIF did this, borrowing $8 million over 15 years for a total cost of $10.7 million in principal and interest.

Step 4: The TIF builds the projects and pays for those redevelopment project costs with the proceeds of the bonds.

Step 5: Use the annual tax revenues for the TIF to pay the annual bond payment. The city’s annual bond pay ment is $825,000.

Step 6: The annual TIF revenue keeps growing.The TIF revenue grew to $1.7 million -- $825,000 was used to make the annual bond payment, but the remaining $875,000 was surplus to be returned annually to the taxing authorities. (This money was being spent.) Over the life of the bond, the total interest and bond payments would be $10.7 million. $21 million was coming in, so again the surplus is $10 million.

Step 7: TIF Ends: When the bonds mature, the TIF is dissolved.

Compromise Attempts:

Under both complaints, the county and school district had a $10 million plus dispute.

Representatives from the county and school district met with Clemson government leaders three times to try and settle this out of court. We offered splitting the difference of $10 million and settling for $5 million.

We weren’t trying to bankrupt the Clemson government. We were trying to settle it in a palatable way. They rejected our offers. Suing the TIF was our last resort.

Judge's Ruling:

The judge split the $10 million plus dispute, very much as we proposed initially.

From 2011-12 through the end of the TIF in 2016-17, the judge declared the annual TIF revenue above the bond payment as surplus (second complaint). The annual revenue is running about $1.7 million and will likely grow to $1.8 million or so over time. The bond payment is about $825,000. It seems the surplus is going to be near a million per year on average for the six years from 2011-12 to 2016-17. In sum, it looks like TIF has been ordered to unleash about $5.5 to $6 million, which will be given to the three taxing authorities.

The city of Clemson will reap about 25%, the county 20% and the district about 55% of that ballpark figure of $5.5 to $6 million.

The six year look-back and look-ahead entitles the school district to about $3 million in total.

After the TIF ends, in 2016-17, all the TIF revenue (about $1.9 million by then) will flow to the county, district and city, and the district will get a bit more than $1 million a year. About 1/3 of that will go to school district debt service and 2/3 to operations.

Appeal?

The TIF could appeal the $5.5 to $6 million judgment. They could just pay the judgment. The law says the TIF was entitled to nearly $11 million. The extra $10 million is surplus that should have gone back to the taxing authorities.

The judge’s ruling splits the $10 million surplus, so the TIF/ Clemson will get to $5 million of the surplus or a bit more than $15 million in total and the district and county are getting about $5 million.

The judge characterized his ruling this way… This is, therefore, an equitable result for Clemson.

My Personal Opinion:

Personally, I hope the leaders of Clemson seriously consider this ruling and see it for what it is -- a 50-50 compromise on the $10 million dispute, and also see this in the larger context. If you look at the initial plan of the TIF in 1998, the goal was $9.4 million in projects. This ruling ($13.7 million for the TIF and $1.5 million for the city of Clemson or $15.2 million total) is much more than the TIF/ Clemson hoped for at the start.

June 2014 Update: Clemson accepted the judge's ruling and did not appeal the decision.