TIF, TIF: Fire chief says new ‘downtown development authorities’ are one more reason why .79% sales tax increase is needed
Ben Roof/Special to the Daily
Understanding what downtown development authorities do for towns can be complicated, but the effect they have on the budgets of other governments operating within those towns is simple.
The result is less revenue.
Those are the words of Eagle River Fire Protection District Chief Karl Bauer, who says the formation of new downtown development authorities in Eagle County is one more reason why he’s urging voters to pass a .79% sales tax in November.
But-for test
Understanding the effect of downtown development authorities on the budgets of fire districts first requires an understanding of tax increment financing, otherwise known as TIF. And the key word in understanding TIF is the “increment” part of the acronym, the amount by which something changes. In this case, that increment is related to property taxes on businesses.
When a property tax sees an incremental increase over the years, it’s because the property has been assessed at a higher value, determined by the government’s assessor as being worth more than it was the last time it received a valuation. Factors that can cause property values to increase often involve the things happening around those properties, which governments can influence.
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If a town builds a nice park in front of a candy store, for example, that candy store may see an increase in value. It then pays more in property tax, and that property tax is distributed amongst the taxing agencies within its location, like the county, town, school district and fire district.
But if a town creates a redevelopment authority around that candy store before it builds that park, it can then calculate the increment by which the property value increased after the park was built, and the higher taxes being paid as a result, and divert that increased tax increment into the new authority. The authority can then use the funds to create more improvements, creating a snowballing effect that results in more economic activity in the area.
The financing part of TIF occurs as a result of the authority’s powers to receive and issue loans. In the park/candy store example, the simple fact that a development authority has been created also means that the authority can receive a loan to build that park or issue a bond to a nearby business to create something new within the authority near the park, like a coffee shop next to the candy store. That coffee shop would then pay its new property taxes back into the authority.
But that also means those new taxes won’t be going into other districts in the area, like the school district and the fire protection district.
Bauer describes it as a “but-for” situation, using the legal test of “but for” to project the cause and effect of the event. A common example of but-for logic is an injury to a person would not have occurred but for the actions of another person.
“The prevailing argument for tax increment financing asserts that in the long run it promotes economic activity through the development of local businesses that otherwise would not occur,” Bauer said. “Meaning that if tax increment financing was not available, new businesses that generate economic activity would not have developed.”
But those new businesses can also create new demands on the existing districts within the authority, namely, in this case, the Eagle River Fire Protection District. If a new coffee shop within the downtown development authority starts on fire, for example, the fire district still has to respond, even though the majority of the coffee shop’s property tax is going into the authority and not the fire district.
The offset on that can be the new sales tax generated by the coffee shop, but unless a portion of sales tax is dedicated to existing districts, they won’t see those new revenues, either.
“As development comes into the area that is encouraged by the TIF financing, the demands on the district increase, but we don’t get the increase in the assessed value because that money is siphoned back to the development district,” Bauer said.
That’s why the new .79% sales tax that the Eagle River Fire Protection District is seeking through Ballot Issue 6A is so important, Bauer said.
“It provides us, if voters approve, with the ability to also realize some of the benefits of new business that has been encouraged by virtue of tax increment financing,” he said.
New powers
Up until recently, members of fire district boards in Colorado have not been able to ask for sales tax increases for their districts. But HB19-1047, which became law in 2019, modified the rules of metropolitan districts’ taxing abilities to include fire protection along with already existing services like street improvements and transportation issues.
Last November, the Eagle River Fire Protection District had plans to ask for a property tax increase but decided to remove it from the ballot when they saw the increased burden taxpayers were already facing due to the increases in valuations that property owners were seeing in the district.
The Eagle River Fire Protection District board thought it over and decided a sales tax increase, using the new powers granted to the district by HB19-1047, would be a better ask.
Bauer said while he hasn’t specifically called out downtown development authorities in asking towns to support Ballot Issue 6A, he definitely sees it as an important factor in the future of his budget, especially considering the fact that development authorities are only becoming more common.
Avon created an urban renewal authority for the area of town west of Avon Road in 2007, and last year, a downtown development authority was created in Avon for the properties east of Avon Road. That means much of the town is now part of a TIF district. Urban renewal authorities have more power than downtown development authorities in terms of their ability to execute government functions like eminent domain, but they’re essentially the same in terms of their ability to divert increased tax increments into the authorities.
Avon’s new downtown development authority has committed to using half of its revenues to create a funding mechanism for more worker housing in town, with Mayor Amy Phillips describing the authority’s formation as “a critical and visionary step” for funding more community housing in Avon. More community housing is something that is desperately needed, most agree, but it will also put more burden on the fire district in providing service to those new properties, which is why Bauer says the passing of Ballot Issue 6A is important.
And Avon is not the only town in the Eagle River Fire Protection District interested in creating new development authorities. Minturn will ask property owners in town, through an independent mail ballot election, to create a new downtown development authority, as well. That authority, if passed, will encompass the 100 block from N. Main St. south (excluding residential properties), the right of way down to the 500 block, with some properties included in between (in the 200 and 400 block), and all of north Minturn from the right of way to Dowd Junction.
Minturn’s downtown development authority election, while not part of the coordinated election conducted by Eagle County Clerk’s Office, will also occur on Nov. 5.
