April 16, 2008 — A tax-increment financing (TIF) system and two other economic-stimulus bills proposed by the governor recently raised the red flag for senators Wednesday, who said the measures could hit residents with increased property taxes and other costs.
The TIF system has long been used on the mainland to bring in economic-development opportunities, and was initially created as a means to rehabilitate "blighted" or economically stunted areas, according to Patricia Goins, bond counsel to the Public Finance Authority. She testified Wednesday during a Committee of the Whole meeting on St. Thomas.
The proposal by Gov. John deJongh Jr. is specifically tailored to the territory, provides a means of public-private partnership and involves the entire community, the Legislature and the Economic Development Authority in the decision-making process, Goins said.
The system works as follows: Once a developer comes in with a proposed project, it would first have to submit development plans to the EDA and go through a public review and hearing process. If the development is approved, the anticipated revenues generated from the project — such as property taxes or gross-receipts taxes expected to increase as a result of the development — would be pledged against bonds floated by the PFA to fund associated infrastructure costs, such as roads, sidewalks and utility lines.
Once the debt service on the bonds are paid off by the anticipated TIF revenues, the money will start flowing into the General Fund, Goins said.
The project would also have to be located within a specifically designated TIF district — an area that the government has declared a public infrastructure zone, according to Nathan Simmonds, the governor's senior policy advisor.
The establishment of special TIF district raised concerns for senators, who said local property owners would have to shoulder the cost of increased property values brought on by new development in their area.
"Because someone around me has a big development — even if I haven't done anything to my property or made any kind of improvements — you're going to charge me higher taxes," said Sen. Louis P. Hill. "I have a major problem with that."
Not necessarily, Simmonds said.
"Let's say there is 40 acres of undeveloped property sitting somewhere, and a developer wants to come in and build a mall," Simmonds explained. "The assessment value is taken on the bare land, and whatever that is becomes our base value rate. After the project is complete, whatever incremental increase in revenue there is between that base rate and the new value of the property after it has been developed will provide the financing for the infrastructure. Now only that 40 acres is going to be reassessed after the development is complete, not the properties around it. Obviously, if you're going to make improvements on your property, then you're going to be reassessed, but that's in keeping with local law."
The base-assessment value stays in place for about 30 years — or throughout the life of the bond, Simmonds said.
Senators also questioned how the system would work on government facilities, such as power plants.
"The administration has not yet looked at government-designated TIF areas," Simmonds said. "There would be a concern, though, that in the case of something like power-generation facilities, the cost would have to be passed onto the consumer."
Another of deJongh's proposals allows for the implementation of special-assessment financing, another method that can be used to pay off the debt service on the bonds. The special assessment — which has to be agreed upon by other home/land owners in the area — will show up as a special charge on residents' property-tax bills, and will "disappear" once the bonds have been repaid, Goins said.
However, provisions built into each bond covenant allow for some revenues to be tucked away into an emergency account in case of default, she added.
Still skeptical, senators said they would most likely amend the bills before clearing them through the full legislative body. The discussion on the three-bill economic stimulus package picks up again on Thursday at 10 a.m.
Present during Wednesday's meeting were Sens. Liston Davis, Carlton "Ital" Dowe, Juan Figueroa-Serville, Hill, Norman Jn Baptiste, Shawn-Michael Malone, Terrence "Positive" Nelson, Basil Ottley Jr., Usie R. Richards, James Weber III and Alvin L. Williams.
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