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F I~N A N C I A L MANAGEMENT TIF helps city shape up blighted area By David MacGillivray The author is director of project management for Springsted, St. Paul, Minn. Merriam, Kan., is moving toward com- pletion of a major commercial rede- velopment of a sizable, formerly residential area. The key to the project's success was the city's use of tax increment financing (TIF) in a way that reduced future risks while preserving the city's options. TIF is a redevelopment financing tool that is normally used to fund the costs of public infrastructure related to redevelop- ment and, in some cases, limited expendi- tures for private site preparation. Merriam is an established residential community with approximately 12,000 res- idents located in the western Kansas City metropolitan area. The city's 60-acre rede- velopment area consisted primarily of old- er, single-family housing that was experi- encing increased levels of absentee owner- ship, reduced private investment and heightening demand on public services. The city's objectives were to eliminate the increasingly blighted conditions and to enhance its operating position by diversify- ing revenues, the latter a result of the abili- ty of Kansas municipalities to participate in locally generated sales tax collections. TIF is increasingly being considered by Kansas jurisdictions as a viable redevelop- ment option. The state's TIF law, although broadened somewhat in the most recent legislative session, is targeted mainly at helping local governments deal with blighted conditions. If the major part of a certain area is blighted, a city may choose to establish a Making the project technically feasibl for the developer and funding a $2 millio upgrade of related roadways were the city greatest challenges. The cost of acquirin and demolishing approximately 100 pr~ vately owned structures, including 16 apartment units, was a major obstacle. TIF was chosen as the cornerstone i the city's efforts to meet these challenge TIF revenues were used to reimburse th developer for acquisition costs, as well as t fund Merriam's related acquisition and dc molition costs. Also, TIF, combined wit the project's new sales tax revenues, f: nanced the roadway improvements. The city reduced its risks by structurin the transaction as a "reimbursement," ¢ "pay-as-you-go," revenue note placed wit the developer. According to the deal, Me~ riam receives increment income from d~ veloper/tenant property tax payments. The city in turn uses these payments t cover its administrative costs and debt se~ vice payments under the 18-year not~ Thus, the developer's only source of pa5 ment from the city is the project's ow property taxes. Since the note will be fully retired aft~ 18 years whether or not all payments hay been made as scheduled, the city has, "in sense, created an arrangement where th developer must perform or the bonds the own will not be repaid," according to Cit Administrator Eric Wade. The city recruited a national commm cial developer with experience in buildin Merriam reduced its risk by making a "pay-as-you-go" deal'. TIF district. The municipality may then collect the increase in property taxes gen- erated by new development -- "the incre- ment'' -- to directly fund associated rede- velopment costs or to pay debt service on bonds issued to finance such costs. Eligible TIF redevelopment costs speci- fied by the state law include land acquisi- tion, demolition, relocation, public im- provements and related administration. and operating regional commercial center: The approximately $40 million, 500,00C square-foot Merriam Town Center is slate to open in the spring of 1997 and will b anchored by several retail stores, a mult: screen movie theater, restaurants, a publi park and several interchange/roadway irt provements. Thus, the city will have er hanced its economic vitality through th use of innovative financing. ~