Hailed by community leaders as an economic development success story, Traverse City’s tax increment financing (TIF) 2 district – covering Old Town, River’s Edge and Midtown in downtown TC – is set to expire in 2016. Now TC commissioners are facing an August deadline to decide whether to keep the district going or let it expire for good.

First, some background: the TIF 2 district was established in 1985 with the goal of redeveloping the former TC Ironworks site (home today to River’s Edge and Hagerty Insurance). The taxable values of all parcels in the district’s boundaries were frozen at 1985 rates as a “base” for the 30-year lifespan of the plan. As property values have increased over time, taxes on the difference between the 1985 base rates and the actual property values have been captured by the Downtown Development Authority (DDA) to pay for public improvements to the area. Those improvements, in turn, have spurred private investment.

Last week, DDA Executive Director Rob Bacigalupi highlighted the program’s success to board members. $15.3 million in revenues have been captured to fund TIF 2 projects, said Bacigalupi, including the Old Town Parking Deck, streetscape improvements to Union, Cass, Lake and Eighth streets, the Midtown riverwalk and most recently, public WiFi. Bacigalupi notes the value of TIF 2 properties has grown 1,084 percent in 30 years, or 8.4 percent a year.

“Approximately $14 million was anticipated at the end of the life of the plan in (assessed value), and we’re very close to $40 million,” said Bacigalupi, calling growth a "tremendous increase" over what was anticipated.

As TIF 2 winds down, city commissioners now face three options: let the district expire, extend its lifespan (continuing to capture taxes based on the 1985 rates), or “reset” the district’s base. In the last scenario, the city would reset the baseline at today’s property values and capture the new tax increase going forward. While commissioners have final say over which option to pursue, there are “political implications involved in that decision,” cautions Traverse City Mayor Michael Estes.

A dozen taxing jurisdictions agreed to TIF 2 back in the ‘80s, Estes explains, with the understanding that in exchange for giving up their share of taxes then, there’d be a greater revenue stream waiting for them at the end of the district’s life cycle. “I think it’s wrong to tell all these parties these benefits are going to accrue if you go along with this plan…and then not deliver on that,” he says.

Grand Traverse County, for example, is set to receive $158,596 annually if TIF 2 expires. Northwestern Michigan College would receive $91,330, Traverse Area District Library $36,207, Bay Area Transportation Authority $10,447. The city itself would see a yearly boost of $382,706 to its general fund – though it would also assume responsibility for maintenance and public projects in the TIF 2 district. Estes says the city not only has a “moral” obligation to fulfill its promise to partnering jurisdictions, but will need the cooperation of those entities in the future to approve new TIF districts as well as joint projects like brownfield developments.

Most commissioners surveyed by The Ticker support the middle-ground option: keeping TIF 2 in place, but resetting the baseline so partners will get a boost in tax revenues. “If there’s a way to keep the success of TIF 2 going, I think we should pursue that,” says Commissioner Gary Howe. “But I’m more open to resetting the base than just extending it.”

Commissioners Jim Carruthers and Ross Richardson say they want to learn more about future projects TIF 2 would support if continued, but are open to a reset. Commissioner Tim Werner says he’s “hesitant to just let (TIF 2) expire completely,” calling it a “great tool” for the community, but notes the district was intended to have a “finite life” and should be “reset…for new opportunities in the future.”

Grand Traverse County Deputy Director of Planning and Development Jean Derenzy supports a scenario in which all taxing jurisdictions involved come to the table with city commissioners to decide how to move forward. “There’s a fourth option, too, which is deciding that because of the success of TIF 2…there’s somewhere else we want to have a TIF district,” says Derenzy. “There should be a comprehensive discussion of all our options and next steps. It’s a decision we should all be making together.”

Traverse City commissioners are expected to take up TIF 2 at their June 1 meeting at 7pm at the Governmental Center.