Port Clinton is considering infrastructure improvements for a Waterworks Park redevelopment and the Laurel Avenue street improvements. Both projects would be financed using a funding technique known as Tax Increment Financing, which has been around for many years.
Both of these proposals will create opportunities for employment, and at the same time, hopefully improve the income tax base for the City.
Representatives of the city have been quoted as saying that a TIF is not tax abatement. They are technically correct in that the developer will pay all of the taxes that they would normally pay. They are not granted any tax reductions. They pay their fair share based upon the assessed value of the development.
Then who is paying? How does a TIF really work?
The city will need to borrow the money. The developer will build his development using private funds and the property owner would be assessed their estate taxes upon completion of the project.
Real estate taxes are distributed, based upon a formula, among the various governments, including the schools. But under the TIF proposed by the city, 75 percent of the taxes collected go directly to a separate fund the city uses to repay the debt on the public improvements, for up to ten years.
Of each dollar of taxes collected in Port Clinton, about 68 cents goes to the school system. Under the two TIFs proposed, the school system would lose 75 percen, or 51 cents of every tax dollar paid by the developer. When a TIF is proposed at or below the 75 percent figure, school districts have no say in the matter and no recourse.
In most cases, however, the communities proposing the TIF work closely with the school district and negotiate annual payments to the school. With the annual payments, the school districts generally agree to a longer term on the TIF to assure adequate revenues for the project and the schools. Without this type of partnership, the TIF financing technique will just make the process of educating our children that much tougher.
The city opted not to apply for 50 percent grant funds and 50 percent loans at no interest to build the Laurel Avenue street improvements under the State Issue 2 program. One can only hope that the city investigates alternative sources of funds for future infrastructure programs and doesn't simply rely on the TIF concept.
So maybe a TIF is not strictly a tax abatement because the developer pays his taxes. But when the school system receives fewer dollars than they would have without the TIF, the end result is Port Clinton is using the school system to subsidize public improvements for private developments.
Walter C. Wehenkel