In the last three years, some big building projects in Sioux Falls have gotten an extra incentive from the city: Tax Increment Financing.
It's a big name for big bucks that are reimbursed to the developer when it comes time to pay property taxes on new projects. In the last three years the city named as many TIF Districts as it did in all of the 20 years prior. Some say TIFs are necessary for development, but others question how they're used and whether they're fair.
The building boom in Sioux Falls includes millions of dollars in projects ranging from a hotel to new office building to a sports complex to a major retailer. Every one of these projects received a tax break in the form of a TIF: Tax Increment Financing.
"We had to clean up the site, number one. We had to build public parking which is underneath the CNA Building and clean up badly contaminated land that the city sat on where their parking was; all that takes money," Developer Craig Lloyd said.
Developer Craig Lloyd has some $85 million in projects that got TIF to offset costs. Lloyd has four of the nine projects that received TIF in the last three years. It's the sharp increase in TIFs, including those outside of downtown, that has some critical of the incentive.
"They are apparently giving out TIFs at every possible occasion and every developer that comes to them seems to be able to get it. The city in fact, seems to be run by the developers for the developers. I think that ignores the needs of the rest of the community," Minnehaha County Commission Jeff Barth said.
Minnehaha County Commissioner Jeff Barth says the county misses out on much-needed tax money when TIFs are granted.
TIF is a method where future tax gains are used to pay for current improvements at the site. The idea is when an area is developed, there's an increase in the value of the surrounding real estate, so there will be increased tax revenues. The increased revenues are the "tax increment." That future increment is used to pay back the developer for certain improvements.
"A lot of people think when we approve a TIF district; we cut a check to somebody. Nothing could be further from the truth,” Sioux Falls Director of Community Development Darrin Smith said.
Angela Kennecke took a close look at all of the TIFs approved in the last three years by the Sioux Falls City Council. The least amount of total project costs reimbursed to a developer was 8 percent and the highest was nearly 20 percent and those were on two of Lloyd's downtown projects. 63 percent of total active TIFs went to Lloyd and Dunham companies.
"The reason they have a greater percentage is that they're doing 63 percent or more of all the projects in downtown in particular," Darin Smith said.
"There's really only two stupid people I know and that's Dunham and me because we're the only ones that ever answered it and if it was so good, there should have been a whole lot more people answering it and there should have been more competition, but we're the only ones who stepped up to do it," Lloyd said.
But step outside downtown and more than $8 million in TIF goes to Sanford Health, which was used for infrastructure at the Sanford Sports Complex. While some may make the case that TIF money shouldn't be used for things like streets, the city says otherwise.
"So Sanford fronted the money to build all the streets and many public streets to get to what is publicly owned property. And we're going to reimburse them to do that with their own tax dollars," Smith said.
The city granted a TIF of up to $5 million on the old Williams Pipeline site for a Dunham Apartment Complex and the new Costco store. TIF expert and attorney Todd Meierhenry says when it comes to attracting national retailers like Costco, TIFs are an important tool.
"We are competing with all the other cities, towns and counties in the nation and tax increment is the only incentive we have in South Dakota to provide to try to attract outside business or businesses in the state, to help them expand," Meierhenry said.
But it turns out Costco says it doesn't need the TIF after all. However, Dunham is expected to use part of it to build apartments nearby.
"We could end up having $1 million or $1.5 million in TIF reimbursable expenses, not $5 million," Smith said.
The city council just approved more rules for TIFs, including that an outside legal firm must approve all TIF expenses related to construction. Plus developers will have to pay for some administration costs and a $2500 application fee
"That is designed for developers to have some skin in the game on the front end and also for cover the considerable amount of staff time," Smith said.
"We usually figure it's about $100,000 to step up to the table. It isn't for light of heart or faint of heart. You're going to spend some money. So if it's another fee-do I like it, no. But if everybody's playing on the same page, I'm in favor," Craig Lloyd said.
But that may not be enough to appease those waiting on the tax revenues delayed by TIF.
"The stuff gets paid off and the revenue starts coming in. But for some of us the revenue is delayed for decades and that's a long time to wait for a payoff on some of these projects," Barth said.
The city is quick to point out that compared with other cities in the area, Sioux Falls has not given out more Tax Increment Financing. Sioux Falls has named 18 TIF districts since they began. Rapid City has had 73.