TIF Watch . . . Mall Success . . . July 12, 2008
Mayor Sharon McShurley hates forking over $300,000 a year from her Economic Development Income Tax funds to pay off debt of the Horizon Convention Center, itself largely funded by the county’s food-and-beverage tax (1 percent added to the bill for all meals and drinks at local restaurants). She’s contractually obligated to do so, though, via the bonds issued to build the center, which is in and added onto Muncie’s original downtown U.S. Post Office structure on High Street.
She doesn’t think she’s getting enough direct economic development for the money. In fact, she’s not particularly happy with local economic development efforts period, which are handled by the city’s private, nonprofit Chamber of Commerce and a spin-off, the Delaware Advancement Corporation, another private nonprofit.
But economic development officials might point to one major success that will likely lead to another, and will free up for the mayor a different $300,000 in committed funds years earlier than planned.
The Muncie Redevelopment Commission learned this week that the bonds for the Muncie Mall TIF project will be paid off by February, one year earlier than anticipated, and four years earlier than originally planned in 1996. That’s when MRC and Muncie City Council created a TIF district around the Muncie Mall (see below right). The area roughly was bounded on the east, south and west by Broadway, McGalliard and Madison Street (just west of Linda Layne), excluding existing at the southwest corner. The north boundary was the extent of Simon Property Group land north of the Mall. TIF, or Tax Increment Financing, uses increased property tax revenues in a specified geographical area that result from targeted public improvements within that area, and the public improvements are paid for from the increased property tax revenues.
To jump start improvements, MRC issued two bonds totaling $5.4 million and built the wide-curving extension of Barr and Princeton streets that swept around the Mall to the west and north, complete with curbs and gutters and several drainage retention ponds. Then Simon Property Group built the separate strip mall north of the Muncie Mall, where Kohl’s and OfficeMax anchored the ends and a half-dozen other retailers opened up in between. OfficeMax later closed, but MC Sporting Goods opened up in its place. Still later, Target constructed its new store west of the Mall and the Mall itself expanded the space now occupied by Macy’s. Throw in the recently added Kerasotes ShowPlace 12 and Qdoba’s Mexican restaurant, and the additional property taxes generated by millions worth of new properties in the TIF have allowed the bonds to be paid off years earlier than the August 2012 initial repayment date.
By a lot of standards, one would have to conclude the Mall TIF redevelopment project is a success. I don’t know how many new jobs were added, though they were mostly retail and those won’t be terribly well paying positions. And, of course, the new Target replaced an older Target that closed (though I believe the building is occupied by a new tenant).
But the story goes on.
In 2006, Muncie attracted Sallie Mae to what’s called a “spec building” in the Air Park Industrial Park on Riggin Road. A spec building is a structure with walls, roof and floor and all utility hookups and parking. MRC was speculating that the investment would attract a business. Terry Murphy, lead economic development official with both the Chamber and DAC, and local government officials managed to land Sallie Mae, and MRC completed the building’s interior to office space as required for a company that provides loans to college students.
To pay for the building and interior improvements, in 2006 MRC expanded the Mall TIF district north and west across Walnut and included the whole park south of the Muncie airport, and floated another bond, this one for $5.5 million at 7.5 percent interest rate over 10 years (see image to left, and click on it to see a larger version). City and county officials agreed to chip in equally from each government’s Economic Development Income Tax funds to pay the note. This year’s payments will be $728,000, but next year, and all subsequent years, payments would be just under $600,000, or $300,000 apiece for city and county.
The deal was for the mayor and county commissioners to pay from EDIT until the earlier Mall TIF improvement debts were retired, at which point the spec building/Sallie Mae costs will be picked up by those TIF property tax revenues. Current projections would continue payments until 2017, when a balloon payment from Sallie Mae of $3.2 million will turn ownership of the building from MRC over to the private firm. If any more development occurs around the Mall, or anywhere in the Air Park for that matter, TIF payments could accelerate, though Sallie Mae won’t likely complete purchasing the structure before 2017.
Meanwhile, the mayor (and county commissioners, too) next year will have $300,000 each of disposable EDIT money they didn’t expect. TIF districts have been controversial in the past — after all, they do remove property tax revenues from the General Funds of local governments. But the increased tax revenue wouldn’t have existed without the improvements, and local government would have been hard pressed to find other revenues for the improvements. Unless I’m missing something, this is a sterling example of how TIFs should work.
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