SHERIDAN — Tax increment financing might help subsidize future improvement projects for the city of Sheridan.
Tax increment financing is a tool for spurring development and rehabilitation.
“It’s certainly worthy of considerations by communities seeking to grow,” said city of Sheridan community development director Brian Craig. “It’s a valuable tool. It works for some, but not for all communities exploring financing opportunities.”
TIF uses existing tax structures but redistributes tax income over a set amount to specific projects. An entity — like the city of Sheridan — first creates a TIF district that specifies the area where the funding would be distributed.
Former city of Sheridan economic development director Robert Briggs said the city created a TIF district, called a Downtown Development Authority, a while back to allow the city to potentially utilize a TIF funding model. The city has not yet utilized the funding structure but learned about an ongoing project in Colorado utilizing the project and will consider it going forward. The existing DDA encompasses a majority of the area Downtown Sheridan Association serves.
The alternative to creating a DDA for an indefinite period of time is to tie it to a specific project through the city’s urban renewal powers. TIF funding serves as an aid to help pay off debt for the projects in the urban renewal plan.
“Once you pay for those projects, the TIF district goes away and extra money flows back into normal tax entities,” Briggs said.
Once the entity establishes a district, funding may be collected and distributed to help with economic development in that area.
The funding system works on already-established sales or property tax structures. Citizens will pay the same amount of taxes, but the distribution differs. Sales and property taxes typically increase yearly. The entity controlling the structure would put a cap on the tax. Any revenues coming in above that capped amount would be considered TIF taxes and would be distributed in the district or to the specific capital project assigned to receive the funding.
“TIF financing is about grabbing that increase in sales and property taxes,” Briggs said. “And then it can be captured in the district and earmarked for development in that area.”
While delegating additional revenues to help a specific capital investment project or area of town — like Sheridan’s historic downtown district — an entity cannot rely on yearly increasing taxes. If tax revenues do not exceed the capped amount, no funds will be distributed to the TIF district.
“Starting a TIF isn’t like opening a pipe for money to flow in,” Briggs said. “There has to be investment; there has to be improvement in the area.”
The unpredictability forces the TIF structure into a subsidy role, rather than a sole project funding source.
Entities must determine whether they want to pull funding from sales tax revenues or property taxes. Briggs warned that sales tax TIF structures are all but impossible, as they require a lot of work for a small amount of income.
City of Sheridan public works director Lane Thompson said no plans have been set to utilize TIF funding at this point, but he will defer to the mayor and city council to see if TIF funding will be a viable option for the city in the future.