Does TIF make whole?

DeKalb’s TIF program and its impact on District 428 schools was the topic of a meeting held at City Hall on October 5, 2009. The meeting was arranged through correspondence between DeKalb city manager, Mark Biernacki, and City Barbs editor, Lynn Fazekas. Participants in the meeting including Biernacki and Fazekas were Rudy Espiritu (asst. city manager – finance), Tom Teresinski (2nd ward alderman), Andrea Gorla (Dist 428 asst. superintendent – finance), Mike Verbic (Dist 428 board president); along with citizens Kay Shelton, Mac McIntyre and Kerry Mellot.

SOURCE: City of DeKalb (click for enlarged view)

The city council voted at its last regularly scheduled meeting to authorize the mayor to enter into a new agreement with the school district regarding the use of TIF funds.  The City of DeKalb is transferring some $3.5 million in declared TIF surplus funds to District 428 before the end of 2009 as part of an earlier “make whole” agreement. According to that agreement, the school district must use those funds exclusively for capital improvements to Cheseboro grade school and Huntley middle school.

The new agreement, which required the Illinois Governor’s signature and General Assembly approval, begins in FY-2010 for a 12-year term. The “make whole” formulas used in the previous agreement was altered slightly to increase Dist 428’s share of declared surplus TIF revenue (from 45% to 50%). Funds will be transferred annually in the new agreement.

Teresinski, previous to his tenure as 2nd ward alderman, served as school board president for Dist 428. The “make whole” agreements exist in part due to his efforts to identify and mitigate potential TIF shortfalls to the school district.

According to Biernacki, DeKalb’s TIF programs’ project expenditures have, since the agreement signed in 2003, required less than half of the increment revenues made possible by the TIF finance mechanisms. The school district received 45% of those surplus funds. Another complicated formula calculating the school district’s EAV helps determine per pupil state funding. Because TIF “freezes” the EAV for its financing mechanism the program helps defer reductions in state funding based on increases to the EAV.

Kerry Mellot suggested as an alternative approach for the City of DeKalb to consider reducing the term of the TIF by half. It appears that debt bond marketability is a major factor in determining TIF direction.

The new agreement allows the school district to use its share of TIF surplus funds, “unencumbered.” That provides more flexibility on the use of the annual installments of surplus funds. TIF captures the debt bond obligation tax rate due to the $110 referendum. Taxpayers with property within the TIF districts will pay the increase due to the referendum. But, because TIF first “captures” the referendum money and returns it to District 428 as unencumbered TIF funds, the school district does not have to use the money for its intended purpose.

Mike Verbic said that the school board is currently discussing using TIF monies that were collected in good faith as referendum debt retirement funds. Andrea Gorla suggested that the Dist 428 board would review the use of TIF/Referendum funds on an annual basis. It was suggested that the board devote all referendum funds for the full 12 years of the new agreement (be they TIF or otherwise) for retiring the referendum debt.

DeKalb’s TIF History: According to Biernacki TIF has helped the DeKalb community by allowing the City to:

• Repave, reconstruct, and/or improve streets, alleys and sidewalks
• Install handicap accessible improvements
• Fix sanitary sewers, storm sewers, and water lines
• Restore historic district brick streets
• Construct aesthetic streetscape improvements
• Construct and maintain storm water and flood control projects
• Improve and create public parking lots
• Install traffic and street lights
• Provide housing rehab assistance to those in need
• Make annual repairs to Barb City Manor and other publicly owned building
• Install railroad wayside horns
• Redevelop older neighborhoods
• Improve, rehab and construct parks and schools
• Provide job training assistance
• Fund building facade improvements
• Leverage private investment and general fund operational revenues

Create job, shopping and increased tax base opportunities

• Wurlitzer Industrial Park
• Airport North Industrial Park
• Target Warehouse
• Northland Plaza
• Target Shopping Center
• Part of the Walmart Shopping Center

Considering the scope and benefit of the above list it appears that TIF has provided an effective financing tool for the DeKalb community.

But use of TIF funds also produced the artificial skating rink and the pedestrian pass-through. These projects have become controversial at least within the local blogosphere and at city council meetings.

Part II will continue this report…