Finance Director Breaks Down Interchange Financing, TIFs, Assessments

The financing the , is creating great debate among landowners affected by future assessments and Avon officials. Avon Patch sat down with to break down the proposed financing for the estimated $27 million project.

Patch: What is the breakdown of costs for the interchange project?

Logan: The total interchange project we are still estimating at $27 million. This includes the construction estimate which is around $18 million, property the city has been purchasing for the right-of-way at about $6 million, and there is about $2.5 or $2.4 million spent since 2004 on preliminary and design information. The Jacobs Group has been paying the $2.4 million of engineering. There also are some smaller costs within that such as wetland mitigation, legal expenses, etc.  Once the project is sent out to bid in July, we hope those costs come down, we think they will. There is not a major project like this going on every day so we think we will get some good bids. There is another item we’d like to see come down, as well. Within the ODOT agreement, they are allowing for 10 percent of the construction costs for inspection costs. Within the numbers are about $1.6 million of ODOT inspections costs which we feel shouldn’t be anywhere near that much.

Patch: How is the financing planned thus far?

Logan: The way the financing is planned is for the Jacobs group to pay one third and the city to pay two thirds, primarily through TIF revenue, and the potential of assessing the benefited property owners (one third).

ODOT says it’s an 18-month project. What we do to finance is the city would issues short term notes, or BANs (bond anticipatory notes). During the construction project, that is what you draw from to actually pay the costs, and you don’t go out and bond the project and issue long term bonds until the project is completed. So we would conceivably issue bonds in early to mid-2013, and that is when, if there are assessments, those would be rolled into that bond issuance. If there were assessments, let‘s say we bonded in 2013, the benefited property owners who would pay the assessments wouldn’t start paying until 2014 through their property tax bills. The county would roll that into the property tax bills.

The way the Jacobs Group agreement is laid out, the city would issue the bonds, and Jacobs would pay their share of the debt services on those bonds more than likely to the city. Assessments would go out 20 years. The city debt could go out as long as 30 years

Patch: What are TIFs?

Logan: Tax increment financing.  This is used in the state of Ohio, developed through the Ohio Department of Development. It is considered as an economic tool municipalities can use to help create development or help for the infrastructure related to development. It means no difference to property owners whose property has been TIFed.

The way the city has TIFed property since 2006 is commercial and industrial property, primarily north of I-90. There some areas like City Center, and French Creek Square that are TIFed.  But primarily it’s commercial and industrial property, some do mention residential, but those are residential properties that have the ability to go to commercial.

To the property owner, they are going to continue to pay their property taxes based on the bill they are getting from the county. But when that property is TIFed, what happens is the school district continues to get the same amount as if it weren’t TIFed, but the city, in addition to their normal property tax rates, picks up the county rate. Where the county would normally get that property tax, the city gets that tax. When you TIF a property, there is a base value at the time you TIF. That base value doesn’t change and continues to get taxed with the property tax revenues going to the various entities, the schools, health district, etc. But as the value on that property grows, such as the land value, that increment, the tax on that goes to the city on this TIF. Those revenues can only be spent on infrastructure improvements, waterlines, sewers, interchanges. The city is spurring this economic development with the help of this kind of financing.

Almost 500 total parcels in the city are TIFed. Any TIF revenues throughout the city can go toward the interchange.

Patch: How much is the city collecting?

Logan: We are working on finalizing those numbers. For every million dollar increase in value, the city gets about $7,500 of additional increment to the city.

Patch: How much could the property owners be assessed?

Logan: The city has hired a real estate appraiser who is currently still working on this project. There is a set of assessment factors that include items such as proximity to the interchange, visibility from the interstate, access from an existing roadway, zoning, whether you have access to a sewer system etc. These factors are used to determine how much a property owner should pay. The base that we are using now and was used last June when we had the meeting with the benefited property owners is still $9 million. Again, we are estimating $27 million for the interchange and if we think we should assess a third of it, then $9 million is the base. Depending on all those factors,  if you take those 105 properties that could potentially be assessed, and do the math, let’s say a particular piece of property has only two acres out of the total 600,they get X percent of this. That is how that $9 million is being divided up at the moment based on those factors. Those factors really play into it where again if its vacant land that’s close the interchange, it has more potential to benefit than one of the businesses that is already developed that may be close to the interchange, but you’ve already got a building on the property.

Council is wrestling with the whole issue of assessments and whether they need to do this. We are still considering it from a financing standpoint. If it can bridge a potential financing gap until TIFs really start to kick in, then those assessments would help pay the debt services in the early years, after the bonds are issued. There would be no assessments paid until after the bonds are issued. That’s when a property owner would start to pay those assessments, again I can’t stress enough, if there are those assessments.  In addition to that, there are provisions in the Jacobs agreement, which is not yet  finalized yet, that Jacobs would help pay debt services in those early years. Not just their own, but some share of the city’s until the TIF revenues are sufficient enough.

Patch: What if the property owner starts paying and then they sell the property?

Logan: This is not in any kind of ordinance form ... but those that are still farming on their property, the mayor and council have offered that the city would pay those assessments, if there are any, until such time that they sell the property. When they sell the property the assessment could become due in full or it could be prorated. This is still being worked out. If they don’t sell that property for 20 years and continue to farm for 20 years and then sell in the 22nd year, there will be no assessment. This can change with council’s input and determination.

Patch: What if council votes not to assess?

Logan: The Jacobs agreement, if it gets signed, is structured such that they would make a certain amount of minimum debt service payments, for up to approximately five years, once the bonds are issued. We feel that this is certainly adequate time that the TIF revenues in the city (the interchange area, some of the other areas that still will develop), will be enough to handle the debt services (the two thirds the city would be responsible for).  In addition to the TIF revenues, there will be added income tax as well with the Cleveland Clinic and other business coming in. Those income tax revenues can be used toward debt services.