Sunday, December 2, 2012

Other People's Money

When an Operating Levy for the Hilliard City Schools is passed by the voters of the School District, one would expect that the revenue generated would indeed be used to operate the schools.

But Ohio law provides for a mechanism called "Tax Increment Financing" (or TIF) which allows a municipality to redirect some of that school revenue stream to redevelopment projects that are the responsibility of the municipality. In other words, the City of Hilliard can - and does - grab some of the money that would otherwise go to Hilliard City Schools, and uses it to build roads, sewers, sidewalks, etc. As long as it limits its grab to no more than 75% of the additional revenue stream created by the redevelopment of a piece of property, a City doesn't even have to seek the permission of the School District, and the City of Hilliard doesn't.

TIFs aren't always a bad thing. Every dollar of property tax paid by a commercial entity in our community is a dollar of property tax that doesn't have to be paid by homeowners. The School District has shown that it is willing to work with a City to grant TIFs to commercial entities, knowing that this is part of what is necessary to recruit businesses to come to our community, as we are competing with several other municipalities in the region for the same companies. It's better to grant a TIF and get x% of something than to lose the opportunity, and get 100% of nothing.

Residential development is another matter. When a new residence is built, we get some additional property tax revenue, but we also, on average, get 0.8 more kids enrolled in our school district. It takes a home valued at about a half-million dollars to generate enough school property tax revenue to underwrite the cost of that 0.8 kids. Not too many new homes fall into that category.

If the only new development in our school district is residential properties, then those of us already living here end up subsidizing the cost to educate the kids that arrive with those new homes. A new development of 500 homes valued at $250,000 will create the need for 1 mill of new property taxes on all of us to fund the difference.

The best way to mitigate that is to encourage new commercial development. Why?  Because we get new property tax revenue, but no new kids to educate.

There have been times when the City of Hilliard and Hilliard City Schools have worked together to bring new commercial development into the City.

By the way, the City of Hilliard does NOT own the Hilliard City Schools. These are two separate governmental entities, each with its own body of elected officials: the Mayor and City Council for the City, and the Board of Education (School Board) for the school district.

Two good examples of a City and School District working together are the TIFs for BMW Financial and Boeringer Ingelheim Roxanne Labs.

In the case of BMW Financial, a 100% TIF was granted by the City of Hilliard, with the support of the School District (ie 100% of the property tax revenue was redirected to the City for infrastructure improvements), but an arrangement was made so that the School District receives payments from BMW that are equivalent to we would have received had there been no TIF.

For Boeringer Ingelheim, which is in the City of Columbus, the request was for a TIF on a major expansion to their already-substantial operation, which would in turn allow BI to compete within their firm for new business. Without this, BI might have moved some of its current operations out of the community. In time, the TIF will expire and the school district will receive its full share of the tax revenue.

The thing that doesn't make sense is for a city to use a TIF to facilitate residential development. After all, applying a TIF to a residential development means the school district will get more kids to educate, but not much incremental revenue for doing so. Meanwhile, the city and the developer get to avoid the cost of building infrastructure with their funds.

The Hilliard Mayor and some City Council members make the argument that apartments are 'commercial' rather than 'residential,' and therefore it is consistent with our shared interest in fostering commercial development to grant a TIF to an apartment complex.

But in these economic times, more families are choosing to live in nice apartments in good school districts, rather than buying a house. They are unsure about their income, and concerned that property values might not hold up, especially if the school district runs into fiscal problems.

The typical school property tax revenue for an apartment is about $1,000/yr. This means that for an apartment complex to be self-funding from a school perspective, there can be no more than one school-age kid for every 90 units. I haven't seen confirmed statistics yet, but I believe the new Hilliard Grand apartment complex (on Wilcox Rd near Hayden Run) has substantially more kids than that.

The same is likely true for the Hilliard Summit apartments at the corner of Roberts Rd and Alton-Darby Rd. The City of Hilliard did grant a TIF for that apartment complex, and used the money to help fund the new intersection and connector.

The Hilliard City Council will soon be deciding whether to grant a TIF to the new development being proposed for the site around the Starliner Diner. Part of this development will be retail space on the first floor, including a relocated Starliner Diner, but the rest will be 183 apartments or so. The design includes a realignment of Luxaire and Franklin Streets so as to create a new shortcut between Cemetery and Main Sts (bypassing the roundabouts!).

Typically, the City demands that the developer pay for infrastructure upgrades, such as water/sewer lines, sidewalks, and street improvements. With a TIF like the one proposed, the developer still pays to for all this infrastructure work, but instead of eating that cost, the developer gets reimbursed by having what should have been taxes paid to the schools and the township (for fire/safety services) directed back to the developer, who may no longer own the property by the time the tax stream begins.

So the City gets new infrastructure for free. The developer gets reimbursed for the cost of building that infrastructure. Meanwhile the School District gets only 25% of the revenue it should on the improved value of the property, but 100% of the cost of educating any of the school age kids who might live there.

When the people of our community pass a school operating revenue levy, the expectation is that all property owners will be contributing an equal share of their property value to the operations of our schools. A TIF means the revenue from a particular piece of property gets redirected instead to building roads and sewers.

The very real political game being played here is that the elected officials in the City of Hilliard have figured out that a TIF gives them a cut of the school district's revenue stream, meaning they'll get to avoid the painful task of asking the people of their city to pay more taxes to fund these developments. Instead it becomes the burden of the School Board to put school levies on the ballot to replace the money redirected by the TIF. I made this very point before the City Council when they were considering the TIF for the Hilliard Summit and Anderson Meadows developments (which the City did implement, using the money to construct the new Roberts/Alton-Darby intersection and connector).

But the reality is that most of us who live in the school district don't get to vote for the Hilliard Mayor, or for members of the Hilliard City Council. My wife and I have lived in the Hilliard School Community for 33 years, yet have never lived within the borders of the City of Columbus. When I addressed the City Council about this, they knew they weren't listening to one of their constituents.

The Hilliard officials understand that dynamic, and clearly feel that they can use TIFs on residential developments with impunity, essentially pulling in money from everyone in the school district to fund infrastructure development in the City. I'm sure their argument is that the whole Hilliard Schools community benefits when these kinds of developments take place.

It seems to me that the only entity which benefits from this economic arrangement is the developer. So why are the city leaders so eager to facilitate that?


  1. This comment has been removed by a blog administrator.

    1. This comment was removed because it contains a potentially libelous comment (no, I wasn't the object of the statement).

  2. Paul,

    Your comment is just one issue when the community and the school district lines do not match. Upon self education there are a number of things one would expect.

    One would expect that the board would wake up to the fact that we are not going to get more money from the state.

    One would expect that we would learn to live with the money we have, not just promise to make a levy last x years. What makes the board think the community will always support the next levy.

    One would think we would be having talks now about what we want. But we wait until the money is gone then tell you we can only cut sports and bus service.

    One would think that the teachers pay more than do for health care.

    One would think the super and board would communicate more. However we only hear what needs to be voted on.

    One would think we would hear more about the A & A which was the reason we were to vote yes several levy votes ago. The open talk of that group is what is needed by the board.

    One would think a district of our size would have some saving afforded by our district size.

    One would think the union would pay 100% of their president, but ook what we paid when Strader was here.

    One would think we would not pay a person and then send him to the statehouse to protest SB5 as part of his job.

    Just a few of the items one would think.

  3. Sheesh...I'll keep my restaurant reviews to myself. Certainly not libel, mind you, but I suppose a blog published by an individual with no economic motives would be especially careful to be safe.

    In summary, TIFs are great for income tax jurisdictions and bad (in the medium run) for property tax jurisdictions. At a minimum, property tax jurisdictions (read: school districts) should be made whole by the city/income tax jurisdiction. On the whole, this is corporate welfare supporting politically popular and trendy development.

    1. Somehow I think you meant to zing me with the first paragraph, but I'm too stupid to get it.

      This problem would be solved if the law were changed so that the only revenue stream a political subdivision (ie municipality, township, school district, etc) can give away is its own. I believe a school district would be inclined to participate in a TIF to recruit commercial development, provided the municipality is willing to invest as well.

      But if the municipality wants to abate the taxes on a residential development - regardless of whether it is single-family homes, condos or apartments - it should be from its own income taxes and development fees.

  4. One wonders if a large class-action lawsuit by the non City-of-Hilliard residents in the school district against the City for, basically, theft of our children's education might rock the apple cart a bit...

  5. That's a stunner. I was under the impression that our representatives and mayor represented our interests and not those of developers. It surprises me that even on such a local level we don't seem to have representatives more sensitive to the people's interest.

    I usually vote Republican, but I'm beginning to think there is much to that argument that Republicans are in the hands of corporate interests.

    1. I've chosen to be an independent vote, not affiliated with either of the major parties. It's far less about philosophy for politicians these days than it is getting connected to sources of campaign funding. You'll call yourself a Democrat if you want to get connected to the sea of money from Big Labor, and you'll align with the Republicans if you want to tap into the sea of money from Big Business.

      Of course, Big Labor and Big Business always hedge their bets. During the 2004 Presidential Campaign, the teachers' unions gave big to Obama, but they had also sent money to McCain, because even if he lost the Presidential election, he would still be the ranking minority member of the Senate Education Committee.

      In the case of Hilliard, I've never understood the motivation to help out residential developers. After all, the Mayor has run essentially unopposed, so it's not like he needs campaign support.

  6. This is what the resolution to grant a TIF looks like on the City Council Agenda:


    This was on the agenda of last night's City Council meeting, and I believe this is for the retail/apartment development behind the Starliner Diner, based on comments made on Fox28 News last night.

  7. The Hilliard City Council approved the TIF on the "Silo" development, by a 5-1 vote, with only Councilman Joe Erb voting against (Councilman James Ashenhurst was absent).

    This means the TIF was supported by Council members:

    Brett Sciotto
    Kelly McGivern
    Albert Iosue
    Nathan Painter
    Stephanie Kunze (who was just elected to the Ohio House of Representatives)

    Win for the developer, loss for the people of the school district...

  8. Paul, do you believe it is in the best interests of the school district to continue to use the city attorney as the legal advisor for the district? As I understand, the district does not have a full-time attorney on staff, and it contracts with law firms for services only on an as needed basis (I am not an attorney, but I see the value in having a consistent person or persons provide oversight on issues as they arise -- not only when requested). In my opinion, the city attorney has an inherent conflict here, is not going to be pointing out all of the legal nuances to these agreements, and the school district is not well served by someone who will not present the board with all of its legal options in this scenario. Is there anybody advising the board? Now that Hilliard's current city attorney is leaving (or maybe has already left), perhaps it is time to cut this tie for good. I'm sure the Mayor loves the arrangement.

    1. To my knowledge, the school district does not now, nor has it ever used the city attorney as its legal representative. We retain private counsel for labor matters (including union negotiations), financial matters (e.g. bond offerings), and real estate matters (e.g. when the City took some of our land via eminent domain for the roundabouts).

      If you know of a case where the school district has asked the city attorney to represent us on some matter, please let me know. But in the three years I've been on the school board, I've not heard of such a case.

    2. I don't know of any specific case, but was told this several years ago by a person who worked in the administrative office but has since left. Perhaps it was only done on a few select occasions. I'm glad to know it is not routine, though it may be worth asking the administration about any continuing relationship given that this is a transition time for the city attorney.

    3. So I asked... no, we don't use the services of the city attorney in any manner. Thanks for asking the question!

  9. Perhaps it is time for school forces and those of us who
    have issues with this reckless idea to recruit 3 or 4 candidates who will put a stop to this payday for developers for residential Theft Increment Financing.

    Also we should oppose in the next election for this very reason, the council people who voted for this

    1. Exactly. You can't change the way a public body acts without changing the players. City Council members Brett Sciotto, Kelly McGivern, Jim Ashenhurst and whoever is appointed to fill Stephanie Kunze's seat will all be up for reelection next November.

      However, if things hold to pattern, the real election will be the Republican Primary in May 2013. The four candidates who win that primary will likely advance to the November election with little if any Democratic opposition.

      To get on the ticket as a Republican, one must be approved by the Republican Central Committee. The representatives from Hilliard to the Central Committee are: Mayor Don Schonhardt, Councilman Joe Erb, Councilman (State Rep Elect)Stephanie Kunze, and Norwich Twp Trustee Tim Roberts.

      Joe Erb voted against this TIF. I haven't asked, but I'm assuming Tim Roberts is opposed to this use of TIFs as well, as it's taking away money from the Township. Stephanie Kunze supported the TIF, which might mean she got campaign support from the developers. And the Mayor is the initiator of these TIFs, so we know where he sits.

      Makes it pretty tough to get someone on the Republican ticket to replace the incumbants, should the choose to run.

      That probably means getting together a ticket of independent candidates to challenge the Republican nominees in November.

    2. Clarification: to get on the ballot has nothing to do with the Central Committee. To get the Republican endorsement you need the committee approval.

      To get on the ballot, you just need to file paperwork to run, and then get votes of course. Not everyone who wins the primary is an endorsed candidate; there have been surprises in recent memory.

    3. M: Thanks for the clarification.

  10. FWIW, the Hilliard Tea Party will be holding a community meeting on Jan 24th to discuss this very issue. The meeting is tentatively titled "How the City of Hilliard is Stealing your Children's Education and Putting your Life at Risk" - I do hope that ruffles some feathers...