Rural fields are giving way to subdivisions and industrial parks in the Orchard Farm School District. But property tax revenue is not keeping pace.
The school district would receive an extra $2 million annually if not for tax increment financing, or TIF, an economic development tool that governments use to attract businesses to areas considered "blighted."
When an area is developed, businesses generate increased sales tax and property tax revenue. But in a TIF district, the increased tax revenue is diverted. Instead of going to school districts, library districts, fire districts and other political entities, the increased revenue goes back to the developer to pay for infrastructure within the TIF district.
If the property generated $10,000 in annual property taxes before TIF redevelopment, then generated $100,000 after it was developed, $90,000 could be diverted for infrastructure.
"When people drive through our area, they see this economic development and get the impression that taxes are going to the school district. But in reality, they are not," said Orchard Farm Superintendent Dan Dozier.
Orchard Farm has two TIF districts - the Fountain Lakes and Elm Point commercial developments, both off Highway 370.
According to an April 2008 report prepared for 10 Missouri education organizations, Orchard Farm ranks tenth in the state for total TIF diversions, losing $2.1 million in 2007.
"If you had an additional $2.1 million in annual operating revenue, you could do a lot more and offer more services for the children of this district," Dozier said.
The Fountain Lakes TIF will expire in 2014, Elm Point in 2020. Once each TIF expires, Orchard Farm will begin collecting increased tax revenue from that project.
St. Charles allows 15 percent of tax growth to "pass through" to political entities in its TIF districts. Dozier said Orchard Farm received approximately $750,000 in pass-through money from 2005 through 2007.
Nadine Boon, economic development director for St. Charles, said the pass-through money represents hundreds of thousands of dollars Orchard Farm would not receive without the TIFs, and all without adding one student to the school district's enrollment.
"After the Fountain Lakes TIF expires in 2014, Orchard Farm will be the richest school district in St. Charles County," Boon said. "All the taxes will flow there. That would not have happened without the TIF."
Before the TIF district was established in 1997, Fountain Lakes' total assessed valuation totaled $71,430, Boon said. By 2007, its valuation had increased to $27.7 million.
FINANCING HAS LONG-TERM IMPACT
Terrence Ward, principal partner of Doolin Ward Consulting in Kansas City, prepared the April 2008 report on the fiscal impact of economic development incentives on public education throughout Missouri.
In 2007, Missouri school districts lost $140.8 million in total tax diversions and abatements, including $79.8 million from TIF districts, according to Ward's report.
Ward joined the North Kansas City Board of Education in 1994. His school district ranks third in the state for total tax diversions and abatements, losing $8.9 million in 2007. It has 13 TIF districts and about a dozen other tax abatements.
"I'm concerned about the growing tendency to award economic development incentives without recognizing that there are future impacts on school districts," Ward said.
Many abatements last 10-23 years, Ward said. They impair the ability of tax-supported organizations to provide necessary services, he said. Economic development incentives may attract new jobs in the short term, Ward said, but at the cost of 23 years of future services.
Meanwhile, they place additional burdens on individual property taxpayers, he said. As the percentage of tax revenue from commercial property decreases, school districts sometimes have to raise taxes on individual property.
Dozier said the 52-cent tax levy increase that Orchard Farm passed in 2004 could have been lower if the district had been collecting full tax revenue from the TIF districts.
The Wentzville School District has two TIF districts - the Edinger Road project and M&B Sachs Business Park, also located on Edinger, across from the General Motors assembly plant.
At $4.1 million, Wentzville ranks eighth in the state in total tax diversions and abatements. TIFs account for only a small portion of the school district's lost revenue. The majority is due to tax abatement.
MONEY DIVERTED IN OTHER WAYS
TIF districts aren't the only way tax money is diverted from schools. Cities also issue Chapter 100 industrial development bonds to purchase property, then sell the bonds to a developer, said Kevin Supple, Francis Howell's chief financial officer. The city owns the property, so it relieves the developer from having to pay property taxes.
Wentzville ranks first statewide in Chapter 100 tax abatements, losing $3.8 million in 2007.
The Francis Howell School District ranks second statewide in Chapter 100 abatements, losing $3.3 million in 2007.
In the Francis Howell district, Chapter 100 bonds were used for the CitiMortgage development on Technology Drive in O'Fallon.
In the Wentzville district, Chapter 100 was used for personal property in the General Motors plant, and personal and real property for the MasterCard International headquarters.
Kari Monsees, the Wentzville School District's chief financial officer, said General Motors and MasterCard are "good community partners with the district."
"They provide good jobs and improve the overall health of our community," Monsees said.
Monsees said it is true that, due to Chapter 100, there are tax dollars that are not coming to the district.
"But we never had them to begin with," he said. "So it's not like we had it and they took it away. You learn to live with it."
Supple said economic incentives lower the tax burden on commercial businesses while increasing the burden for residential property owners.
"The real impact is, but for the abated taxes, the school district would have a lower tax rate," Supple said. "We are concerned about keeping the tax burden for the homeowner as low as possible, and this works against that."
'ALL TIFS ARE NOT ALIKE'
Francis Howell receives half its operating revenue from property taxes, Supple said. School districts depend more on property tax revenue than any other entities, he said.
"The other side of the coin is, but for the incentive, the project would never get started," Supple said. "But the economic development tools are used so frequently that that is not always the case. There is a reasonable argument to be made that a project would have gone forward without the tool being used."
Supple said most legislative attention on economic development incentives has focused on TIF reform, particularly the definition of "blighted." Critics of TIF argue that many areas designated as blighted do not fit any common sense definition of the word, but are labeled as such merely to facilitate tax incentives.
Ward said he recognized that some economic development incentives can transform a community for the better, such as the incentives Kansas City used to develop a power and light district. But he was concerned that municipal leaders were not weighing the benefits against the cost to school districts and other entities.
Ward said economic development incentives diverted revenue in 73 of 114 Missouri counties, plus St. Louis City, in 2007. The Missouri Department of Economic Development reported that the total amount of TIF diversions between 2004 and 2006 almost doubled, totaling nearly $4 billion.
In St. Charles County, TIF districts accounted for $111 million in total assessed value in 2007, a 23.5 percent increase over $89.9 million in 2006.
St. Peters Mayor Len Pagano said, "All TIFs are not alike."
TIFs in St. Peters are different than in other municipalities, he said. In St. Peters, TIF captures 50 percent of new taxes. The other 50 percent goes to the political subdivisions in the TIF district.
"Some people say TIF is bad," Pagano said. "But not really, if you do it fairly like we are doing now."
As an example, Pagano pointed to the Premier 370 Business Park TIF project, built on 1,650 on Highway 370, north of Interstate 70. In 1999, before the TIF, the land generated $11,000 in property taxes. St. Peters city officials expect it to generate hundreds of millions of dollars in the future, with $135 million potentially going to the Fort Zumwalt School District during the next 22 years.