Traverse City Record-Eagle

November 5, 2012

Tax policy debate tonight


TRAVERSE CITY — The future of about $800,000 in annual property taxes that are captured for projects in Traverse City's downtown may rest with a proposed policy that would make it difficult, but not impossible, to keep those funds indefinitely trapped inside the city indefinitely.

The policy could be used to argue for both the continuation of districts that capture property taxes from other agencies, or ending them when they sunset, said Barbara Budros, city commissioner and chairwoman of the committee that drafted the policy.

But the policy also directs that captured money that isn't needed or used be returned to the taxing jurisdictions, including the city's general fund.

"Instead of letting it roll over year-after-year-after-year, we need to look to see if it should be released back to the taxing jurisdictions on an annual basis," Budros said. "We never looked at that at all before."

The city commission will debate the policy when it meets today at 7 p.m. in the commission chambers of the Governmental Center.

The city's Downtown Development Authority captures property taxes from both the city and other jurisdictions such as the county, commission on aging, and district library through a process known as Tax Increment Financing.

Taxable values on properties in a TIF district are frozen for most taxing jurisdictions. The DDA or similar authority captures any new revenue generated by increases in property values from inflation, new operating millages, and new construction.

Captured funds are invested in public infrastructure that encourages new development under the theory that upon a TIF district's expiration, all taxing jurisdictions that forfeited revenue will reap tax benefits from new development.

Traverse City's TIF II district, set to expire in 2016, will capture $798,000 this year, including $137,000 from the county's general fund.

The committee previously recommended extending TIF II, but the city commission rejected it. The new policy recommends the commission wait to within one year of its expiration before making a decision.

Grand Traverse County Commissioners objected to the first proposal, and Budros correctly predicted they won't be totally satisfied with this one, either.

"Anything not as onerous as what they were first talking about is an improvement, but I firmly believe a TIF should expire when it's set to expire," said Ross Richardson, county commissioner. "The issue has been, there are always projects ... the idea that they would run out of projects is an illusion."

The new policy also sets guidelines for the review of projects.

"We should use TIF funds for projects that are regional projects that just happen to be inside the city, such as repair of one of the bridges," Budros said. "But some people would say that's not how the TIF dollars have always been used."