By BECKY KISER
Hays Post
A recent state audit of the Tax Increment Financing (TIF) districts in six of Kansas' largest cities showed half did not recover their costs in a timely manner.
Two cities, Wichita and Topeka, aren’t likely to recover the costs of three projects through TIF revenue by the end of the districts’ lifetimes, according to the audit.
The cities and their local taxpayers could potentially be responsible for the costs.
That can't happen in Hays under the city's current economic development policy.
"The difference is those cities have issued debt for those districts, and those districts are not generating enough revenue to cover the debt service," said Hays City Manager Toby Dougherty. "We don't have that problem because the developer takes care of their own debt."
The state does allow bonds to be issued for a TIF, "but our economic development policy doesn't allow that, so it's a 'pay-as-you-go' TIF," said Kim Rupp, city finance director.
"They have to finance on their own, and then the TIF can pay them back."
"Issuing bonds for a TIF is something that local governing bodies can do, and Wichita, Topeka and Olathe have done so, but it's not something Hays does," said Jarrod Kuckelman, Hays management analyst.
SEE RELATED STORY: Audit of Kansas TIF districts reveals delays in returns, increased crime rates
Developers considering Hays projects first meet with Grow Hays, the city's economic development partner, to determine what financial incentives are available and appropriate.
TIF districts are often blighted or undeveloped areas identified for specific development projects.
Any increase in property taxes (city, county, school district) is reinvested to the developer for eligible project costs such as land acquisition and site preparation.
Hays has two TIF districts, each effective for 20 years as state statute dictates.
One is at the Hilton Garden Inn, 221 W. 43rd, and the development in front of it. The second is the Hess property at the Interstate 70 Exit 157.
The Hess property is inactive. However, the developer has paid millions of dollars for water, sewer and street infrastructure improvements in the past six years.
The developer has not built anything at that location to generate TIF proceeds.
"If we were to have issued debt for that, we'd be pretty nervous because we'd be on the hook, " Dougherty said.
No increment has been captured at the Hess property TIF.
"Right now, I think we're just frustrated because the developer has a lot of incentives out there they could be utilizing, but they haven't built anything above ground. But it doesn't hurt us financially," Dougherty said.
Several years ago, a different developer asked the city to essentially act as the bank for a project.
"The developer wanted a lot of incentives, but they also wanted the city to issue debt. So, the burden of performance was more on us than the developer," Dougherty said.
After lengthy discussions of incentives and risks, the city commission changed its economic development policy.
"Commissioners voted to be a little more liberal with the incentives they allow but they would not issue debt for a private developer," Dougherty said. "The developer takes the risk and can be reimbursed if the district performs."
Hays did issue debt for the Home Depot development, 1310 E. 41st, a project Dougherty refers to as a "TIF Lite."
Home Depot guaranteed the general obligation debt.
Only the city's portion of the property tax increment was rebated to the Home Depot developer. The Ellis County and Hays USD 489 property tax portions were not rebated.
"From an investment standpoint, that was a very successful district," Dougherty said.
It was paid off a few years ago.
Creating a TIF is a lengthy complicated procedure.
Rupp said the city leans heavily on the public finance law firm Gilmore Bell, Kansas City and Wichita.
"They know the statutes inside and out and are guiding us all the way through the process," Rupp said.
The bottom line is that Hays taxpayers are not liable for any underperforming TIF districts, Dougherty said.
"Governing bodies can always change their mind, and they can issue debt for TIF districts, but current policy is that they don't, and it's worked out pretty well for us," he said.