The Lincoln County Commission heard more information about the proposed tax increment financing (TIF) district for Lennox at their Jan. 14 meeting.
Toby Morris with Dougherty and Company, who is representing the city of Lennox and who has represented the county in the past, provided the commission with his background working with TIFs. He started working on TIFs in 2003. During the last 17 years, some things have evolved with TIFs.
When they first implemented TIFs in South Dakota after copying the law from Chicago, a piece of land or property had to be blighted. However, that was an offensive term and was reworded to say economic development.
In the last 5-7 years, Morris noted that nearly every city and county in the state has seen an issue with the limited availability of affordable housing. South Dakota housing guidelines say a first-time home-buyer home is roughly $280,000.
Morris then went on to speak about the implications a TIF has for a county. The way he looks at them is it is a partnership that should come with no liability to the government. He noted the TIFs seen in Harrisburg and Tea, the true debt responsibility is passed on to the developer.
“If the developer wakes up one morning and decides not to perform, that’s between themselves and their banker. We’ve seen some of the projects get behind schedule. Even if they get behind schedule, that is between the developer and the bank. That is nothing that the government entity is liable in any form or fashion,” Morris said.
He also noted one question he gets is, ‘how does a TIF impact the rating of the county.’ He said the way TIFs are setup it will have no implication on the county’s rating.
Commissioners asked Morris questions about what this TIF means to the county. Chair Mike Poppens asked if there were parameters for how much can go into a TIF. Morris noted that a county cannot exceed 10 percent of the county’s valuation of the aggregate of the TIF’s base value outstanding. Lincoln County’s valuation is just under $7 billion so their base value on all TIFs cannot exceed $700 million.
Commissioner Jim Schmidt asked what the liability to a county is if a TIF does not work to what it was intended to. Morris said the county has one obligation and that is to pass on all positive increment that comes within that district.
“Beyond the TIF plan, we really get into the developer’s agreement. One of the most important things in the developer’s agreement is laying out the list of items that must be accomplished,” Morris said.
Morris noted that he has seen some issues in the past of a developer putting in infrastructure and then sitting on the property and playing the appreciation game and not doing any developing. He said that does no good because a TIF is nothing more than a catalyst to start that development.
He has also seen it where the interest rate was 6-8 percent so they were using it like an annuity. That is not the case today because when the TIF amount is passed it already includes the interest.
“If you get to the point where some development doesn’t happen, we’re not letting that interest get out of control. It’s meant to be a catalyst where we try to eliminate as much as we can on any kind of interest expense and that’s where talk of a dollar in, a dollar out,” Morris said.
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