The city may have to pay about $565,000 a year for the next eight years to subsidize the special tax zone for its Town Center unless the city can restructure the debt and extend payments.For years, the zone has not brought in enough tax revenue for required payments, and the situation is unlikely to change soon, City Council members were told Tuesday.
“Up to this point, you’ve already subsidized $3.9 million. If it continues on, it would be another $4.5 million,” David Medanich, with city bond adviser First Southwest, told the council. “What that equates to is 1.4 cents on the tax rate. Now, that’s real money.”
The property tax revenue from the zone would have to grow by about 15 percent to fully cover the 2011 debt payment, “which is probably not going to happen unless you get some substantial growth,” he said.
When the tax increment reinvestment zone was created in 1998, it was envisioned as a retail center in the heart of the city. It stretches from Pate Orr Road on the west to Keller Smithfield Road on the east and just north of Keller Parkway on the north to Bear Creek Parkway, near Keller Pointe, on the south.
The city borrowed about $33 million to finance the construction of Town Hall, the natatorium and other infrastructure amenities, with hopes that the tax dollars raised in the district would pay off the loan, City Manager Dan O’Leary said. Officials hoped that the improvements would attract retailers and restaurants to the zone. To finance construction, the city issued certificates of obligation, which did not require a bond election, but taxpayers are obligated to pay.
“The only way that we could borrow the money for the TIRZ is ask the Keller taxpayer to co-sign the note guaranteeing that they would make up the shortfall the TIRZ had during the course of paying back the note,” O’Leary said.
In 2003, the city collected $865,000 in property taxes inside the zone, O’Leary said. Taxpayers had to subsidize the district $693,000 that year, he said.
“Our annual debt payment was $1.5 million on that $33 million that we borrowed,” he said. “In fact, every year from 2003 to 2010, the Keller taxpayer has had to subsidize the TIRZ because the private development in the TIRZ didn’t grow as expected to meet the demand for the debt payment.”
Medanich presented plans to restructure the debt with a five- or 10-year extension.
“What we are trying to do is give you the option — of course, you are going to hope for the best, but you are going to plan for the worst,” he said.
With minimal growth in the zone, the five-year extension may cause a spike in the city’s debt, Medanich said.
The 10-year extension would alleviate that, he said.
City revenues would be responsible for the debt beyond 2018. Revenue from the district would fully pay the annual debt service, and cash might accumulate within the zone fund, provided that growth occurs.
If the taxing district does not perform and the refunding bonds remain outstanding, the city would have to pay about $744,000 more annually from 2019 to 2028, or $2.77 million more in total net debt service, Medanich said.
“If the TIRZ performs better than previously indicated, which was the 3.5 percent or 5 percent growth, we would accumulate enough cash that we could call the bonds early, which is actually savings of $3.1 million or $2.9 million at the present value basis,” Medanich said.
Councilman Mitch Holmes said the tax zone has been a “sensitive subject.”
“But it is important to point out that it has been good for us, and we do have some infrastructure that we value,” he said. “It was designed to be a cash cow, but it didn’t turn out to be a cash cow. … It turned out to be short of that — but still good for us.”
A public hearing is scheduled during the City Council meeting at 7 p.m. March 23 at Town Hall, 1100 Bear Creek Parkway.
Category Archives: Town Center
Jim Carson sent the following to Dan O’Leary in response to his reasoning on the need for a TIF Refinance. It is so good, I thought it best to add it as its own post.
For too long, the City of Keller has treated its Town Center TIF [TIRZ] as some ne’er-do-well brother-in-law to whom we grudgingly loan money in hopes that maybe someday he’ll pay us back. The Town Center TIF was, is and always will be a project of, by and for the City of Keller. Everyone understands that the school district gave up 20 years of incremental tax revenue in return for a Natatorium. The Tarrant County entities signed on as a calculated bet that their tax revenues would be dramatically higher after twenty years of forebearance.
But it was the City of Keller that held all the cards. It was we who took the risk. It was we who would have reaped the rewards. And it is we who must now accept responsibility for its failure. The first order of business is for the city council to dispense with this talk of “subsidizing the TIF” and replace it with “paying for our losses.” It is just wrong to say “the TIRZ design has not paid the costs for this debt.” Intellectual honesty requires that we now say “our TIRZ design has not paid the costs for our debt.”
You did not create this mess. Neither did I. And sadly, neither did the voters of Keller, as they were never offered a vote in the matter. But the voters, and you, and I, inherited this problem. It is not fiscally responsible to punt our problem to a council and taxpayers a decade from now. Nor is it a “no brainer,” as the mayor suggested.
Many of the arguments you and the council members have offered in favor of this proposal amount to “these are conservative estimates, and if the TIF outperforms then we’ll be able to call the debt early and not incur so much interest.” This argument is both circular and specious. If the TIF begins to outperform, you’ll be able to make up the very shortfall you’re trying to wish away with debt. You will have solved a non-problem.
Your final paragraph disappoints me greatly. If the TIF had succeeded, would some other entity have provided the fire, police and other services? It is ridiculous to call this a subsidy. Again, we have met the TIF, and he is us, not our brother-in-law.
I strongly supported you as city manager, and still do, but it hasn’t escaped my notice that your only proposed solution to the TIF shortfall is the one that makes your job easiest. I would suggest that it is your responsibility to offer alternatives to the city council, and the people of Keller, that include cost-cutting measures in lieu of additional debt. I would be happy to offer some off the top of my head, or even sit down with you and the mayor and staff and go through the budget.
Several times in Keller’s recent history we have had Town Hall meetings to discuss specific spending increases. Is it not time to hold some Town Halls to discuss specific spending decreases?
Update: My commentary above won’t make a lot of sense to those not well-versed in TIF issues. For background, read Doug’s prior post, Let’s Just Refinance It Again.
Thanks to Jim Carson who alerted me to the fact that the City Council is yet again talking about refinancing the TIF debt, and the consensus is that they will extend the debt out another 10 years past the expiration of the district. The reason?
The City is currently subsidizing the TIF to the tune of $500,000 a year and that number is going to go up to around $600,000. I’ve been saying this was going to happen for years and this isn’t a suprise, but instead of just biting the bullet and cutting spending, they want to extend the debt out so our kids can pay it back. Sounds just like Washington D.C. to me.
They are going to say they are going to stabilize the tax rate on debt because they want to issue another $8,000,000 in debt this year. Has anybody at City Hall heard of cutting spending? Maybe the powers that be at City Hall need to take a Dave Ramsey course. They are also saying that they could pay off the bonds early if the TIF ever turns around. Have you ever heard of a government entity not spending “found” money on another pet project?
What will this cost us? $800,000 $2.7 MILLION of extra interest. Maybe former Mayor Tandy can write a check to cover the difference.
Don’t believe me? Go watch the February 2nd City Council work session.
Sorry about the light blogging this week, but been up to my eyebrows at work with my counterpart on vacation. Not only that, but I’m trying to get caught up enough for a trip myself to Yellowstone next week, just waiting on a number of items to fall together for that trip to happen and to add insult to injury, I’m being audited by the IRS. Seems like the kindler, gentler IRS of the GWB days is gone.
- This week we found out that our City taxes are going up to pay for the recent bonds (Fire Station, Library, Road Construction). I still ask the question how we could have built the original library proposal without raising taxes? Can we all agree that the Pro Library side was not telling us the truth at the time?
- We also found out the the City Council has decided to push off any new bonds for a while. I figure it will be after next years election.
- There is also an exciting proposition of building a Hotel and Conference Center at Town Center, problem is, the land needed is now park land. I’ll hold my official opinion until I see some more facts, but I will say this….we are subsidizing Town Center to the tune of a half a milion clams a year, we would be stupid to not fully investigate this opportunity and take advantage of it if it feasible.
- Unemployment is at the highest rate since 1983, which happens to be the year I graduated from High School. Coincidence? The stimulus seems to be working…….yeah right.
- Is it me, or has this summer been hotter than normal? I wonder if I’m just getting old and not able to take the heat as well when I was younger?
- The Rangers are only a half a game back after taking 2 of 3 from the Angels of somewhere in California. The hitting is finally coming back after a dreadful June. CJ Wilson had a good tweet the other day “In a few more days the Josh Hamilton Stimulus Package arrives back in Texas….aka Batting Production Order #32”
- After two weeks with the new iPhone I must say that it is even better than the 3G. I’ve owned iPhones since they first came out and they just keep getting better and better.
- The Big Bob Rally has stalled and is falling apart. Day after day of terrible news is finally having its effect.
- Everybody have a happy and safe Independence Day. If I’m blogging, it means my vacation plans fell through, otherwise see you in a week or so.
My brother writes today on why he loves this country so much:
I have many, many, many reasons for loving this country. Almost uncountable.
But I suppose the thing I cherish most is that I am free to rhetorically whack members of the government on a daily basis without worry of imprisonment. I would’ve been dead a long time ago if I lived in many other countries. What you see here is my nature, and I highly doubt I would’ve been able to stifle that part of me if I lived elsewhere.
This weeks Video is of the greatness that is Eddie Van Halen. Sometimes I think my mind has to work as fast as Eddie’s fingers just to keep up with all I have going on.