As local governments struggle with a revenue drought, one source of public funding keeps gushing: The downtown Tax Increment Financing Zone.
In the past month alone, the TIF Zone board has recommended spending $945,238 from the fund on incentives for five projects, including a rooftop bar and grill, upscale lofts and apartments and retail, as well as a renovation of the Waco Independent School District’s board room.
The once-obscure TIF Zone has emerged as the main public funding engine of downtown development. Using a portion of city, school, college and county tax revenues collected on properties within the zone, it brought in $4.9 million in the current budget year, more than doubling its revenue of $2.7 million five years ago.
It has spent $23.4 million during its 29-year existence and still has $7.2 million of uncommitted funds.
And that’s just the beginning. Because of the way it’s set up, the fund will continue to grow as more development comes to downtown.
All property tax revenue generated above the base level set in 1982 goes into the fund to be spent on improvements in the TIF Zone. The zone includes the Brazos River Corridor, Elm Avenue and the central business district west to 14th Street.
By the conservative estimates of TIF board chairman Mike Harder, the TIF Zone could bring in $75 million during the next 11 years. Assuming a 10 percent annual growth rate — actually lower than in recent years — the fund would pick up $115 million during that period.
Then, in 2022, the TIF Zone vanishes. By the state law that set it up, the property in the formerly blighted zone goes back on the regular tax rolls when its allotted 40 years is up.
“When you look at the remaining life of 10 years or so of the TIF, we’re talking about significant money,” Harder said. “We have the opportunity to do some pretty big things, and we need to be smart about that.”
Expect no shortage of ideas for how to spend that money, especially in the wake of the city’s new Imagine Waco plan for Greater Downtown Waco.
The majority of TIF funds have historically gone to help private developers build or renovate properties that will add more value to the TIF rolls. Usually, the TIF Zone contributes about 15 percent of the project’s cost, with money going to facade improvements, landscaping, parking lots and sidewalks.
The TIF board, composed of appointees from McLennan County, McLennan Community College, Waco Independent School District and the city of Waco, recommend projects to the city council, which has the final say.
Focus could shift
But City Manager Larry Groth predicts that in coming years the emphasis will shift from subsidizing individual businesses to major public projects, such as parking garages, transit improvements and pedestrian improvements along the Brazos River.
“I see it moving from direct assistance to meeting infrastructure needs,” he said. “We’ve got some fairly large projects we’re wanting to get done, and we’ve got to be careful not to use all that money on small things. But small things are important too.”
He said he expects an as-yet-unnamed downtown development corporation will propose big projects and will go to the TIF board for funding.
The city this spring authorized the new corporation, which will have a 15-member board representing local taxing entities and community groups. It is now in the stages of legal formation with a sister nonprofit organization and will have a staff devoted full-time to implementing the Imagine Waco Plan and marketing downtown.
The TIF board has long supported public projects, including improvements to the zoo, Texas Ranger Museum and McLennan County Courthouse dome restoration. WISD, the largest contributor to the TIF Zone, has begun requesting and receiving funding for its downtown schools and buildings, helping resolve debates about whether the school district should forfeit money to TIF.
But the Imagine Waco Plan, compiled by Fregonese and Associates and adopted by the city council, proposes a different kind of public spending. It envisions “catalyst” projects intended to make downtown a center of tourism, business and social life.
They include a public square on Elm Street, a public-private riverside development on the west side of the Brazos, and a “festival street” along Mary Avenue.
Imagine Waco also calls for major public transit improvements and parking garages, items that could cost tens of millions of dollars.
Chris McGowan, urban development director for the Greater Waco Chamber of Commerce, said TIF would be indispensable for helping to fund those projects.
He said the Imagine Waco Plan helps provide a “targeted strategy” for developing downtown that could help the TIF board prioritize where it spends its money.
But he said he wouldn’t want to see incentives for individual projects go away.
“The TIF has done a great job getting projects over the hump,” he said.
Councilman Malcolm Duncan Jr., who is helping form the new downtown development corporation and serves as the council’s liaison to the TIF board, said he doesn’t see the TIF board abandoning incentives to smaller projects any time soon, though the emphasis may change.
“I think with the downtown authority in place, there will be more of a focus on developing bigger projects downtown,” he said. “I think TIF is working extremely well as a partnership and I don’t see it changing. But it’s not like the TIF board is charged with going out and developing projects. So the new downtown development authority and the chamber will be able to take projects to the TIF board.”
Incentives are critical
Developer Steve Sorrells said even though downtown has progressed in the past few years, TIF incentives are still critical to attract development, especially since credit is tight and downtown is “still arriving.”
“It’s absolutely vital,” he said. “We’re going through a nice renaissance with downtown Waco, but at the same time, we’re still pioneering. It takes this kind of public-partnership investment to make these things happen.”
Sorrells, long known as a suburban homebuilder, has recently ventured into the inner city, buying several buildings and planning two middle-income residential developments. He has received a promise of $639,000 in TIF funding for Cameron Heights, a cottage-style condo development he is preparing to build at Fifth Street and Bosque Boulevard.
This month, the TIF board recommended giving his firm $279,000 for the Belmont, an “urban, edgy” apartment complex he’s planning in the 600 block of South Sixth Street.
Sorrells said he’s also interested in Parkside Village, the abandoned low-income housing complex the city of Waco recently acquired and plans to demolish. And he’s interested in Elm Avenue, East Waco’s long-neglected main street. But he said public funding is necessary to make such inner-city developments work.
Sam Brown, who with his sister owns much of the Elm Avenue corridor, agreed that TIF could be helpful in developing the east side of the river. But he said he’s focused now on what to do with the street’s dilapidated buildings — to tear them down or save them. He said he recently looked at the cost of bringing five buildings up to code and found it could be as much as $1 million — four times the cost to tear them down.
Brown said he doesn’t have that kind of money to preserve buildings for which there is no immediate demand, and the TIF Zone isn’t set up to help with his situation. Brown said he supports the Imagine Waco plan’s vision for Elm Avenue, but he needs to make a decision on his buildings.
“I’ve been very pleased with the city, and it’s very inspiring to see what could happen over here, but none of that is moving forward yet,” he said.
Across the river
On the other side of the river, developer Rick Sheldon said he hasn’t given up on his plans for a major riverfront development at Franklin Avenue and University Parks Drive, though he wouldn’t say when he plans to start.
Sheldon said he expects TIF money would be key to the public-private partnership he envisions there.
“I feel like the TIF is the golden goose,” he said.
Councilwoman Toni Herbert said the TIF Zone is an example of foresight by past city leaders, and it is largely responsible for downtown’s turnaround.
“To me, the TIF is Waco at its best,” she said. “It’s one of the most effective cooperative programs we have, and it’s a great model for other things we’re doing.”