As Traverse City officials begin looking at a new budgeting process and creative solutions for addressing financial pressures, uncertainty surrounds one major outstanding factor: TIF 97. Beyond just impacting the TC Downtown Development Authority (DDA), the city’s financial future will also be heavily shaped by whether the tax increment financing plan is extended past next year – with commissioners reviewing several paths forward Monday.

TIF 97 covers the downtown core and is one of three main funding sources for the DDA, along with Old Town TIF and the general fund. The TIF funds capture taxes on rising property values within their districts to pay for public improvement projects and downtown operations, while the general fund collects a two-mill levy from all properties in the DDA district. TIF 97 expires at the end of 2027 and can’t be extended without the approval of voters.

City Manager Benjamin Marentette said he wanted commissioners to have “clear, factual information” on how TIF functions and could impact the city budget. Addressing common misconceptions around TIF, he noted it’s not a tax, does not apply to properties outside TIF boundaries, and does not raise taxes. Property owners will receive the exact same tax bill whether or not TIF 97 continues, Marentette said.

While the TIF 97 district represents just 2.6 percent of the city’s geographical area, it represents 13 percent of the city’s entire taxable value. It’s an area “with the highest levels of daily use, events, and visitation,” with significant concentration of streets, sidewalks, utilities, and public spaces, according to Marentette. Currently, TIF 97 generates about $4.5 million annually for downtown upkeep – $2.6 million of which would otherwise go to the city, and $1.9 million of which would otherwise go to regional taxing jurisdictions like Grand Traverse County. If TIF 97 ends, that regional funding for downtown will end and the city will become solely responsible “for all projects and programs” in that district, Marentette said.

That would include capital investments, infrastructure maintenance, beautification/holiday lights, trash and recycling, and the downtown police officer, among other expenses. Marentette said that on the positive side, the city would have greater flexibility on where it allocates its funds. However, there would also be “increased competition within the general fund for limited dollars,” he said, which could require tough budget decisions. Mayor Pro Tem Laura Ness said a key issue is whether 15,000 city residents have the “obligation” to maintain a downtown used by 50,000 people daily from across the region. “I think those are fair questions to ask,” she said.

Marentette outlined four potential scenarios for TIF 97, seeking commission feedback on which direction they supported. Options include:

#1: TIF 97 Expires: This is what is scheduled to happen at the end of 2027 and will happen if voters don’t support an extension. The $1.9 million in annual regional funding captured by TIF 97 will go back to the regional partners and will no longer be available for city use. The remaining TIF 97 funds will go back to the city, which can use them across the entire city but must also assume responsibility for downtown.

#2: TIF 97 Resets: When the DDA last renewed a TIF plan – extending TIF 2 in 2016, at which time it was renamed Old Town TIF – the district’s base was reset. In a TIF district, the taxable values of all parcels in the district’s boundaries are frozen at the rates of the year the plan starts (for example, 1997 rates for TIF 97). Those rates serve as a “base” for the 30-year lifespan of the plan. As property values have increased over time, taxes on the difference between the 1997 base rates and the actual property values have been captured to pay for public improvements.

When city officials renewed TIF 2, they also “reset” the baseline – moving it up to current property values, with the DDA capturing the new tax increase going forward. Resetting results in significantly less revenue coming in for projects, at least during the early years of a new plan until the tax capture gradually grows over time. But it also means more money going back to taxing jurisdictions. If TIF 97 were to be reset, the first year of capture is estimated at $117,000. Over 30 years – the maximum lifespan of a plan, though officials could also choose a shorter duration – the reset TIF 97 would capture an estimated $64.5 million.

#3: TIF 97 Extends: In this scenario, TIF 97 keeps functioning as it does today. The 1997 base would remain in place, and the district would continue to capture the growing difference in taxable value. The projected capture over the next 30 years would be $213 million. This is the scenario the DDA has been pursuing, with a new name for the plan called Moving Downtown Forward.

#4: TIF 97 Extends, with Plan Amendment to Reduce Capture: Finally, this scenario would keep the 1997 base in place but change the capture percentage. Instead of full capture, the district could capture a reduced percentage – say, 50 percent – with the other 50 percent flowing back to the city and regional partners. In the 50-50 example, Marentette said, $106 million would be captured over 30 years for the downtown district, $50 million would go to the city, and $46 million would go to regional partners.

Several commissioners were drawn to scenario 4, with an expiration or reset also generating some interest. Marentette reiterated that every scenario but expiration must go to voters for approval. The DDA board has an ad hoc committee working on a potential ballot proposal, along with a new TIF plan detailing the projects and programs that would be supported by future funding. However, since city commissioners must eventually approve any TIF plan after voters, getting the DDA and commission in alignment is critical, staff have said. The two boards are set to jointly meet in the future to discuss scenarios.

Marentette said that with or without TIF, downtown maintenance is crucial since “a healthy downtown makes for a healthy city.” He plans to return at a future meeting with more information requested by commissioners Monday to evaluate scenarios, such as the total amount that’s been captured by TIF 97 to date. Ness, who agreed downtown is a “regional asset,” said commissioners have a critical role to play in shaping an acceptable proposal for the public.

“This is a huge decision for our community, a significant long-term decision,” she said. “We have an obligation to set this up for success, otherwise the answer is scenario ‘no.’”