TIFA (Tax Increment Finance Authority)

3-19-2007-03

North Star (Systems Control-Boss Snow Plow) Parking Lot issue  by Ted Corombos, TIFA Board Chairman 

An inquiry was posted at post # 3-18-2007-01 about the history of the large parking lot behind North Star Industries operations.  I will try to explain the history of it. 

Four or five years ago, before all but one of the current City Council members and before John Marquart was City Manager, the city was approached by North Star Industries.

They stated they were running out of space because their business was expanding.  They asked if the city and/or TIFA could get involved with their expansion plans and move things along. 

Their first choice was a five acre parcel across Quincy Street from their current operations. That site had been purchased years earlier from the city by Peninsula Beverage, but they had not developed it.  They built their building just south of that parcel. 

North Star’s proposal was that the city, actually TIFA, purchase that land and deed it over to them.  In exchange, they would build new offices and a parking lot on that site.  They would also make major changes at their current operations by eliminating all the cramped offices and convert that area and more to needed manufacturing space.  The cost of all this ranged from $6,000,000 up to $15,000,000, depending on various scenarios. 

Peninsula Beverage offered to sell the land for $20,000 per acre or $100,000.  Their original purchase price was either $1,200 or $1,500 per acre.  TIFA would be paying a premium for the land, but the capture of even the lower, $6,000,000 proposed expenditure, would have made it financially viable.  TIFA would capture their investment in a few years. 

North Star, quite sensibly, wanted an environmental study done before getting a deed, so they would not be facing future liabilities.  TIFA hired Coleman Engineer to do a preliminary study for around $5,000.  They found some methane.  TIFA and North Star agreed to do a more in depth study of all five acres, not just the few holes that were part of the first study.  They split cost of the study 50-50.  It came to just under $20,000. 

The premise was that hopefully, some of it may be methane free.  It wasn’t.  This parcel was used years ago by the city and local wood products manufacturers as a wood landfill.

The city mostly put stumps of trees in there.  All of this was filled over when the city developed the area into an industrial park, in some parts by as much as twenty-five feet of fill. 

As a result of these studies, building on the land was out of the question.  The methane risk was too high.  North Star asked for proposals from Kingsford, Niagara, Aurora and perhaps other units with the thought in mind that they may move out of Iron Mountain. 

The State of Michigan was losing many jobs as it was and was not anxious to have over 200 more jobs lost to Wisconsin or other states.  A grant was applied for and received, for up to $1,000,000, from the state to remediate the site for parking purposes only, if the city would match 10%.  TIFA agreed and pledged $100,000.  The actual cost came in under $700,000 as I recall. TIFA’s presumption was that by taking all the parking away from the manufacturing area, North Star would expand in that area with new offices and enlarged manufacturing capabilities. 

While all this is going on, Iron Mountain was looking around the Pine Mountain area to build a water reservoir.  In the process, they discovered that Timberstone had mistakenly used some land for the golf course that was still city-owned.  If the city had reclaimed it, it would have been quite disastrous for Timberstone, which was up and running.  As luck would have it, the same principals owned Peninsula Beverage and Timberstone.  A no-money land swap was arranged.  That’s how Iron Mountain ended up with the five acres that are now the parking lot for North Star.  The city swapped land they didn’t know they owned for land they wanted and TIFA saved $100,000. 

Then things get even weirder.  Both the Peninsula Beverage building and the Khoury Assembly building up the hill became available.  North Star bought both of them.  North Star is really two businesses.  They manufacture Boss Snow Plows and also manufacture complex electrical panels for the utility industry.  They have had problems storing the inventory build up of Boss Snow Plows, which is seasonal business.  The Peninsula Beverage building alleviated this problem.  At the Khoury building, they built a substantial office complex and I am told they moved some or all of the electrical panel business there.  The Khoury building is outside of the TIFA district. 

The size of the parking lot, somewhere around 500 spaces I believe, was built under the premise that all manufacturing operations would be in the original location.  There was an allowance for future growth and for ample parking during shift changes.  As it turns out, with the electrical panel division up the hill at the former Khoury property, all of the employees working up there also obviously park there.  As a result, as events evolved, it turns out the parking lot is way too big.  

My understanding was that some arrangement would be made between the city and North Star whereby North Star would be responsible for all costs, plowing, maintenance, resurfacing and a fee in lieu of taxes.  I assume such a contract has been entered into. 

If you’ve read this far, you understand why I said in my earlier post that it had many unexpected twists and turns.  I hope my explanation satisfies you.

This post is in response to various issues raised by post # 2-11-2007-04.

Ted Corombos, Chairman, TIFA 

First, I would like to congratulate the writer for doing a good deal of research.  It takes time, dedication and a deep interest in the subject. TIFA operations are not readily understood by the public in general.  The TIFA button on the home page of this site is a close approximation of an article I wrote for The Daily News quite a while ago.  It tried to give an overview of how TIFA operates. I think it’s been changed somewhat, but I didn’t save the clipping from the newspaper, so I’m not sure how much it was changed.

It’s clear to me whoever posted it had my article in front of them, however. 

Let me first address amendment changes to the original plan.  As the writer correctly points out, the original plan named the streets and the boundaries where TIFA could reconstruct the street  system and utilities.  As a result, TIFA couldn’t go beyond those boundaries because they weren’t in the plan. On the advice of legal counsel, the new language allowed TIFA to build anywhere within its total boundaries.  It was a common sense change. 

As for any unauthorized amendments, trust me, it didn’t happen. Amending the TIFA plan is a complex and lengthy process. Every unit affected by TIFA must be notified and allowed to comment.  Both the City Council and TIFA must approve the changes formally. The new amendment is then filed with the state. 

The forward financial and project projections made by TIFA in its original plan and changed when an amended plan is adopted are a requirement of the TIFA plan under state law.  They are, and we all understood this, just a guess, and a pretty wild one at that.   Nobody could possibly predict in 1985, 1988, or any time thereafter, how much TIFA would be capturing five, then or fifteen years down the road.  We made conservative estimates based on past historical trends of the preceding ten or fifteen years. It came out, as I recall, to 3% per year. That estimate would have brought TIFA’s total capture for its entire 25-year life to something around $2,000,000. If someone would have suggested in 1985 that TIFA, in fact, would by capturing more than that in a  SINGLE YEAR,  his sanity would have come into serious question. TIFA has exceeded the most optimistic projections by a very wide margin. 

It is not necessary to change to TIFA plan because more money comes in that anticipated.

TIFA simply finds itself in the position to do more infrastructure work, street paving and other projects than originally anticipated. 

I’ll now try to answer some specific questions of the writer as best I can, but in some cases I will ask for clarification because I’m not sure of the question. 

Question 1:  Please specify the unauthorized projects to which your are referring so I may comment each project specifically. 

Question 2:  TIFA has spent more on certain projects than was originally project because    

(a)    it had the money to expand them, (b) inflation since the  original estimates, (c) unforeseen projects that fit with the plan. 

What projects are you referring to that are in the TIFA plan that are authorized but not completed? 

Question 3:  To my knowledge, the only TIFA property purchases were the current city Hall and the former Eureka building that was razed to build the parking lot between Sikora’s and the Mellon Clinic. These transaction were clearly within the TIFA plan.  We were skating on somewhat thinner ice when we budgeted $100,000 for the purchase of 5 acres from Peninsula Beverage. We also spent around                   $50,000 on that property in environmental studies, even though we didn’t own it.  We did this because it was a city disposal site at one time.  North Star Industries (Systems Control) wanted to build their offices on that site. As events turned out, the city swapped some land with Timberstone for that  site and the city now leases it, I understand, to North Star.  It is a large parking lot now.  I’m not clear on the rest of the question.  Jim Urbany has not been a consultant to TIFA since John Marquart became City Manager.  He helped us on the North US 2 project.  (Saved us around $200,000 and charged us next to nothing.) 

Question 4:  I don’t know what you mean by “the job wasn’t legal” Explain. 

Question 5:  The Carollo Street project had three bids.  Bacco had the low bid of $62,873.75.  The other bids were $71,862 and $98,995.  I voted against the whole project.  The owners would have moved their    septic system at their own expense.  The TIFA Special Meeting of October 9, 2006 on the city website is now correctly posted. 

Question 6:  Your question was why TIFA is paying for (environmental) studies on the old Khoury site.  This was another close call.  TIFA voted $20,000 for this study. On second though I suggested to the TIFA board that we seek legal opinion since it wasn’t in the TIFA plan.  The opinion came back from Miller-Canfield that we can’t do it, so we haven’t. 

Question 7:   TIFA has budgeted altogether over $160,000 for technology at City hall, including the computer system and all it entails, website, phone, etc. We had spent money on the original computer system as well as all the furnishings when we bought and remodeled the current city hall.  I guess             our premise was that if it was legal under the TIFA plan then, it is now.  Jim Urbany was the City Manager. I’m confident he did it right.  I don’t know about the computer requested by whoever was fire chief then.  I know we can’t buy fire trucks or DPW  equipment.  I ran the fire truck idea up the flagpole one time on the premise that maybe TIFA could pay a percentage of it.  I got shot down. 

Question 8:  You asked why John Marquart shoved the Hamilton Shaft project down TIFA’s throat.  I don’t know of any Hamilton Shaft project.  If you are referring to broken pipe we replaced going through the Recreation Parking lot that was a TIFA project.  At the same time, we changed its location to accommodate a small room the Comfort Inn wanted to build.  We had to get new legal easements, but they paid for it.  The cost to TIFA did not change.  If it had anything to do with the Hamilton Shaft itself, TIFA was not involved.

Question 9:  You ask when is the City Council going to stop unauthorized spending of TIFA funds?  TIFA makes up its own budget and the City Council has to approve it.  We get some input from them.  I’m not pleased with some requests.  Sometimes we put them in the budget with no intention of ever actually making the appropriation. 

Finally, I do have some concerns about ideas that are thrown our way from time to time. 

TIFA is not a cookie jar for every whimsical idea somebody thinks up.  We have changed Iron Mountain forever with the projects we have completed.  We will look at projects that make sense and can stand up to financial analysis and public scrutiny.  If we can’t spend the money wisely, it should be passed on.  We all know the City Council is faced with daunting problems down the road. 

 I wish more people would come to TIFA meetings.  We meet on the third Tuesday of every month at 3:00 PM. 

Webmaster:  You may want to add this post to the TIFA button.

TIFA Projects

Iron Mountain's TIFA Board (Tax Increment Finance Authority) has been receiving more and more attention recently.  Although it has been in existence since 1986, its size and impact has grown exponentially since that time.  Historically, the TIFA Board has performed its job in a low-keyed manner, without seeking publicity for its many projects.  In this question and answer format, we will try to explain TIFA, since many questions have arisen concerning its operations.

How did TIFA began?

The TIFA concept was first presented to the city in 1985 by then Mayor Ted Corombos.

The Iron Mountain City Council voted to proceed with the required legal work and a TIFA district was established. 

Upon retiring from the City Council in 1989, Corombos was appointed to the TIFA board and has served continuously since that time.  He is currently chairman. 

James Urbany was city manager at the start of TIFA and was intimately involved with all major projects until his retirement in November 2000. 

TIFA engaged him after his retirement as a consultant on the North US-2 project and on the early stages of the South US-2 project. 

City Manager John Marquart is now TIFA administrator. 

Board Members include Chairman Ted Corombos, Tim Elmer, Jim Brinker, John O'Donnell, Bob Haglund, Mark Angeli and Terry Barnes.

What is TIFA?

All TIFA's throughout the state operates under legislation established by the State of Michigan.  Units of government, such as the City of Iron Mountain, are permitted to establish TIFA districts with precisely defined boundaries. They are almost entirely in commercial and industrially zoned areas. 

The Iron Mountain TIFA district runs from north to south city limits along the US -2 corridor, the industrial park, and those properties between Carpenter Avenue to Stephenson Avenue (US-2). An exact map of its boundaries is available at City Hall. 

Once established, what can TIFA do? 

Before it is operational, city officials approached other taxing units, the largest being the County Board and School Districts, requesting that they allow TIFA to "capture" their taxes on any new buildings within the TIFA boundaries.  The original taxes remain intact.  TIFA collects the “incremental” or new taxes, thus the word incremental in its name. In the case of the School District, they are reimbursed by the state, so TIFA has no effect on their operations. 

TIFA also "captures" the city taxes on new construction within its boundaries that would otherwise go to the city general fund budget.  At its inception, TIFA has no income or starting capital.  It is only when building takes place within its boundaries that it begins to receive income from the taxes that otherwise would have gone primarily to the city, county and school district.  Only then can it begin considering various projects. 

Why would the state legislature agree to reimburse the school district for lost taxes? 

The state legislature understood that governmental units (such as Iron Mountain) typically pay for all construction of water, sewer and other infrastructure improvements, but collect only a percentage of the taxes on the subsequent building that takes place.  The other units are, in a sense, "piggy-backing" and getting rewarded with no investment.  Locally, Iron Mountain would collect only about 35% of the total taxes paid by owners of new buildings within the TIFA district.  Most of the rest would go to the county and schools. In many cases, it does not make economic sense for the city to bear the infrastructure costs alone, so many projects it would like to undertake are left undone, sometimes for decades. 

As an inducement to make infrastructure improvements more equitable, and give an incentive to the city to make them, the legislature created the TIFA concept. 

Does TIFA last indefinitely? 

No.  TIFA has a 25 year lifespan.  In the case of Iron Mountain, it expires on June 30, 2011. In other words, it has about seven more years left.  After that, the taxes TIFA had been collecting will revert to the city, county, and school district proportionately. 

Can you give an example of how the TIFA capture works? 

Let’s say a parcel of property within the TIFA district has a fair market value of $100,000 and is taxed accordingly. A $1,000,000 building is built on the property.  The taxes on the underlying $100,000 land value continue to be spread out among the various taxing units, just as they had been before.  TIFA would capture all the taxes on the new building during its existence. 

How much does TIFA capture per year? 

In the early years, it captured very little.  Each year the revenue goes up as more and more construction takes place within its boundaries.  In the year ending June 30, 2004 TIFA expects to capture about $2,100,000.  Over the 18 years of its existence, TIFA has captured close to $20,000,000. 

Does that mean it has $2,100,000 a year to spend? 

No.  TIFA has issued two series of bonds. The principal and interest on those bonds is about $970,000 per year.  Realistically, it has about $1,130,000 per year available for projects.  Some projects, such as the recently completed North US-2 project and the upcoming South US-2 project cost more than TIFA’s annual income, so it has to budget carefully.  TIFA income should increase in the years ahead. The amount of increase depends on how much construction takes place within its boundaries. 

The City Council has had to make some serious cuts in the General Fund budget.  There have been some suggestions that TIFA should be discontinued to help the city’s financial plight.  How would that work? 

For one thing, TIFA is fully committed to the South US-2 project and a couple of other ones, so it would be June 30, 2006 before any help from TIFA could be seriously considered.  That doesn’t help the current fiscal problems of the city. 

Next, in order to pass-through funds to the city, TIFA is required to pass-through the proportionate amount to the other units.  In round numbers, for every dollar of pass-throughs, 35 cents would go to the city and 65 cents to the other units.  So for every $1,000,000 passed through, the city would get about $350,000, and the other units would get $650,000.  That’s close to the limit TIFA could pass through in a couple of years because bond payments come first.  While $350,000 seems to be a substantial figure, it would not begin to solve the overall financial situation the City Council faces.