Explained: Downtown Covington's Tax Increment Financing District
The final ordinance placed into law by the outgoing Mayor of Covington and City Commission is among the most substantial for economic development in the city's urban core, the leaders said on December 20. A vote to approve a tax increment financing (TIF) district for Downtown happened in a special session two days after the final regularly scheduled meeting in which Mayor Chuck Scheper and the outgoing commissioners said their goodbyes.
"This is a significant measure. It's a shame there aren't more people here to see it," Scheper said. "This is setting the stage for the activity going forward."
Two reporters and an attorney made up the entirety of the audience. Even two commissioners, Shawn Masters and Steve Casper, were absent. The attorney, Jim Parsons, the former city manager of Newport and former county administrator in Boone County, helped the city navigate the law in crafting the plan for its new TIF district which passed three to zero and which will encompass most of Downtown north of Twelfth Street and east of the interstate. It will facilitate the development of such projects as The Hotel Covington, to be built in the Coppins building which currently houses City Hall.
"It allows a city or county to designate an area for development purposes," Parsons said of the TIF. "They can then pledge the incremental increase in taxes to develop the area more." The TIF relates only to new tax revenue created in the designated district and the city has pledged to reinvest eighty percent of its share back into the district. That means of any new and expanded business or any new payroll taxes collected in the area, eighty percent goes right back into the area for economic development. Kenton County officials have agreed in earnest, but not officially, to reinvest sixty percent of its share.
The Kentucky League of Cities explains it as, "...the difference between the amount of occupational and property tax generated before creation of a development area and the amount of tax revenue generated after creation of a development area. Taxing districts continue to receive the base tax amount while tax increments are used to fund the public costs of development. Growth is used to pay for growth."
Parsons, an attorney with Taft Stettinius, and Hollister, is an expert in local government economic development incentives. According to the firm's website, he presented on TIFs to the Kentucky League of Cities over the summer of 2012 and has also assisted with Union, Kentucky's Union Town Center project. While city manager and city solicitor in Newport, Parsons worked on the Newport on the Levee and Newport Aquarium projects. He has also worked on the Manhattan Harbour development in Dayton, Ky.
He explained to The River City News that developers seek TIF opportunities for special projects. "(TIFs) allow cities flexibility to pull revenue from the area to support a series of projects," Parsons said, citing the boutique hotel at City Hall and the expansion of Gateway Community & Technical College's urban campus.
Across Kentucky, several cities have utilized a TIF for landmark developments. In Louisville, special districts facilitated the expansion and renovation of Churchill Downs, the development of the Yum Center, and the Louisville Marriott & Convention Center. Lexington used a TIF to support its development of a 21C boutique hotel while Bowling Green, a city closer to the size of Covington, used the special taxing district to complete a new baseball stadium and a performing arts center.
While the state could also participate in a TIF but for cities that go it alone, the tax revenue used can only come from local sources. To qualify, an area must meet two of the following conditions: substantial loss of residential, commercial, or industrial use; forty percent of the households are low-income households, more than fifty percent of residential or industrial structures are deteriorating; substantial abandonment of residential or commercial structures, substantial presence of environmentally contaminated land; inadequate or deteriorated public improvements; any combination of factors that substantially impairs the growth and economic development of the city.
A governing entity must also be created to oversee the TIF and so the city's ordinance creates the Covington's Economic Development Authority which is to have a board consisting of no less than three and no more than five members with staggered four-year terms. Four members will be appointed to the inaugural board: Mayor Chuck Scheper, Assistant City Manager Larisa Sims, Kenton County Judge-Executive Steve Arlinghaus, and Jeanne Schroer, executive director of the Catalytic Development Fund of Northern Kentucky.
Written by Michael Monks, editor & publisher of The River City News
Further reading: TIFs explained by the Kentucky League of Cities
PHOTO: Covington City Hall, future site of The Hotel Covington/RCN file
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