TIF Payments Clarification

Hello everyone,

            I wanted to take a moment to help clear up something that was brought up at last night's candidate forum, hosted by the Oronoco Area History Center and Oronoco Lions Club. TIF payments were discussed and I have had a few residents come to me and ask for more explanation and clarification.

           Tax Increment Financing ("TIF") is an economic development tool used to spur development that would not otherwise occur. It redirects newly generated taxes back into the project. In other words, a City foregoes the new tax base associated with a project for a temporary period of time so that taxpayers can benefit in the future from new tax base.

           TIF, when utilized on a Pay As You Go ("PAYG") basis, is not generally part of the City's regular budgeting process. In these instances, TIF is automatically calculated and collected by the County on behalf of the city. The City maintains a separate fund for this activity from all other accounts of the City in its accounting software. This means that the County sends the TIF revenues to the City each year automatically, and then the City simply cuts checks to the developer to reimburse project costs they incurred at the start of the project.

           PAYG TIF is risk-free for the City. The City only agrees to pay out based on what is actually received. The City continues to pay on its contracts until a dollar figure is hit, or until the final payment date of the contract, whichever comes first. As such, some contracts potentially could pay off early. But others, such as in Oronoco, will go the full life with an unpaid balance remaining at the end. The good news is that PAYG TIF contracts simply "write off" any unpaid balance. There is no burden on existing taxpayers of the City for any shortfalls.

           In Oronoco there is just 1 TIF District (CH Robinson). It was designed on a PAYG basis.   The good news is that the final collection year for this TIF District is 2025. In 2026, approximately $100,000 worth of tax base will be released to the regular tax rolls....again, tax base that would not otherwise have been there. Based on current tax rates, this means the city will be able to levy approximately an additional $40,000 in 2026 without any impact on the tax rate.

           Finally, it should be pointed out that TIF projects are not fully removed from the tax rolls while they exist....based on statutory formulas, the School District will have benefited some from day one of the project. Operating referendum school levies are NOT collected as part of the TIF.

           I hope that this helps clear up some of the confusion for anyone. Sometimes these topics can be tricky to fully understand. If you have any questions, please feel free to reach out to City Hall and contact me. You can also reach my through my email at jbaker@oronoco.com. Have a wonderful day!

 

Jason Baker
City Administrator
10/24/2024