In previous decades, when a developer in Kentucky would embark upon a large economic-development project, such as CentrePointe, the city and state would agree to build the ”public infrastructure“ or to pay the ”publicly owned“ part of the expense related to the project.
However, as city and state budgets have become leaner, tax increment financing has been increasingly used as a mechanism to help spur economic development in the urban core without relying on the city or the state to jump-start the development with an infrastructure investment.
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Since Kentucky's new TIF law was enacted in April 2007, Louisville, Newport and Bowling Green have embarked on ambitious TIF projects. In fact, the Louisville Metro Council has approved four TIF projects over the last few years.
Why do these cities embrace TIF as a mechanism to pay for public infrastructure? Their local governments understand that if they don't use TIF, the new tax revenue coming from the local project will be sent to Frankfort and disbursed across the state. Conversely, if the cities used the new TIF law, for every $1 dollar they use in local government tax revenues to pay for public infrastructure, Frankfort will send back $5 to $10 of state tax money to pay for the cost of those local public facilities.
It should be remembered that the money is not there unless there is a TIF project.
In addition, the local governments are not being asked to guarantee the bonds to pay for the public infrastructure improvements. The developers, not the city, must come up with the financing plan for the public infrastructure. The city is not liable for those bonds.
So, in the final analysis, TIF projects are one heck of a deal for local governments.
If we take CentrePointe as an example, the lion's share of the revenue to pay for public improvements such as those planned for Phoenix Park would come from the state, not the Urban County Government. In fact, a preliminary estimate says that more than $55 million of the $70 million figure that keeps being thrown around as the ”local public investment,“ comes from Frankfort.
However, because some people are attempting to use the TIF as a ”stick“ against the CentrePointe developers instead of a ”carrot,“ The Webb Companies may choose not to use the program. In that case, less than 10 percent of the new state tax dollars generated by CentrePointe in the next 30 years will probably ever return to Lexington.
In other words, if the project does not use TIF, Lexington may lose out on $50 million worth of help from the state to pay for its urban core infrastructure.
And it should also not be forgotten that the new project may generate more than $1 million in new taxes annually for Fayette County schools. This money could be used to pay the debt service to build new schools, which Lexington desperately needs.
Fortunately, Mayor Jim Newberry understands that TIF projects, such as CentrePointe, will help the city pay for much-needed public infrastructure such as parks, parking, streets and sidewalks. It is very disappointing that some members of the Urban County Council do not share his insight on the opportunity for local public infrastructure improvements that the CentrePointe project will bring if it uses TIF financing.