It took five months of wheeling and dealing for the city to get the automakers to pick Alabama.
One of the caveats to the deal was Huntsville taking care of the infrastructure for the mega site. In order to cover the initial expense, the city plans to create a Tax Incremental Financing (TIF) district.
WHAT IS A TIF?
It‘s a public financing method that is used as a subsidy for redevelopment, infrastructure, and other community-improvement projects.
Huntsville is no stranger to tax incremental financing. If approved, this would be the city’s 7th TIF District.
HOW DOES IT WORK?
Like any financing deal it requires someone making an upfront investment, and in this case it‘s the City of Huntsville.
To secure the Toyota-Mazda deal the city agreed to take care of roads and infrastructure associated with the mega site, which is expected to cost around $70 million. That number does not include the cost of purchasing all the land.
The city intends to borrow the money upfront in order to lay the groundwork for the plant. Once the Toyota-Mazda facility is up and running, the city will use the surplus in property tax revenue within the TIF district to pay the money back.
TIF SUCCESS RATE:
Huntsville City Administrator John Hamilton told WAAY 31 two of their six previously established TIF districts have already paid for themselves.
“Ours have been successful. They have [once the TIF is paid off] resulted in new schools, new roads, other amenities and things like that; all public infrastructure,” Hamilton said. “Normally what happens is in the early years, we have to sustain the debt services out of our capital plan as the investment is occurring, because it takes a year or two for the property values to actually increase, so you’re only going to make that happen by borrowing upfront and making the investment in infrastructure for things that you need.”
WHAT CAN PROPERTY OWNERS EXPECT?
For those who live in what city leaders are calling the 7th TIF District—where the megasite is located—it won’t change their tax rate or add a “new” tax.
Officials do, however, believe property value in that area will go up, as will property taxes, because the homes are valued more.
With that additional revenue from property taxes, the city will use it to pay off the $70 million debt.
“Companies don’t get any money out of the TIF. It really is just the way in which the city is able to finance our investment up front in order to make the deal possible,” Hamilton said.
WHAT ARE THE RISKS?
Now there are some downsides to doing a TIF. Some can take decades to pay off if the project doesn’t generate growth or the economic development necessary to boost property value, which is why city leaders told WAAY 31 it takes a special project for them to move forward with a TIF.
“This is our citizens, our taxpayers‘ money, so we have to be prudent with how we use that. We’re only using it in places where: one we have an appropriate level of risk, we’re able to properly model what the outcomes would be and that there really are infrastructure needs,” Hamilton said.
Huntsville City Council held its first public hearing on the 7th TIF District Thursday. They are not expected to vote on it until next month.