Alternative tax plans mean different things to Rock Hill, York County
It’s been more than six months since Rock Hill officials asked for the York County Council’s consent to extend a special tax district designed to boost the development of the Knowledge Park area around downtown.
City leaders say adding 10 years to the tax-increment financing, or “TIF,” district is critical to finishing public improvements and attracting new businesses and investment to the Knowledge Park, the city’s vision for developing a multi-acre site that’s mostly between downtown and Winthrop University.
But in September, the County Council sent a letter formally objecting to the proposal, asking for more information. In January, the County Council set up a committee to review the documents the city provided. That committee has met several times and heard from Rock Hill officials about details of the proposal but has yet to report back to the full council.
The ongoing wait is disconcerting to Rock Hill Mayor Doug Echols, especially because York County regularly forgoes tax revenue in the name of economic development when it strikes its own tax-break agreements with incoming industries. Those agreements often involve larger amounts than what the city expects for Knowledge Park. County fee-in-lieu-of-tax agreements regularly sail through the approval process without the same level of scrutiny.
Just five such agreements with different companies approved by the council in 2014 provided companies a total $175 million in tax breaks, according to figures provided by the York County Economic Development Board. That’s more than the county would be expected to forgo from the Knowledge Park tax district. The city’s borrowing limit for the existing Knowledge Park financing is capped at $40 million.
Tax districts such as Knowledge Park’s and fee arrangements reached with industries are different means of funding economic development. But Echols argues that as far as the county’s decisions go, the two arrangements are the same.
“Both forgo a certain amount of tax revenue,” Echols said.
A TIF district funnels property tax dollars that would otherwise go to local governments – in Knowledge Park’s case, York County and the city of Rock Hill, along with the Rock Hill school district – back into the tax district to pay for road work or utility lines to serve new buildings. The money comes from capping tax revenue at a 2004 level, when the tax district was created, and using tax revenue from new development through 2039 to pay for the new infrastructure.
The current tax district is set to expire in 2029.
A fee-in-lieu-of-tax agreement, or FILOT, on the other hand, routes tax revenue that would go to local governments back to the company, usually over 20 to 40 years, in exchange for pledges to invest a certain amount of money and create a specific number of jobs.
“When you do a FILOT, the money goes directly into the pocket of a private business entity,” Echols said. “The TIF is a public improvement, so what it does benefits the whole community. ... It’s returned to the people of Rock Hill. It’s returned to York County residents.”
But TIF skeptics on York County Council say the guarantees baked into a fee agreement provide the key difference between the two, and how the county treats them.
“The difference is that a FILOT is a very directed development,” said Christi Cox, who chairs the county council’s Knowledge Park committee. “The company has to commit to a specific number of jobs to get the FILOT.”
Cox argues fee agreements go forward so swiftly because the details have been worked out in advance and “very heavily scrutinized” by economic development staff, while the county doesn’t know what the ultimate shape of Knowledge Park will be.
“There are no named companies with X number of jobs listed in the TIF,” said Robert Winkler, also a member of the committee. “If a company doesn’t do (what the fee agreement requires), there are ways the county can claw that money back. ... It’s not comparing apples to apples.”
The latest Knowledge Park proposal calls for a mix of residential units, retail businesses, and high-tech firms. A master developer has been selected, but an overall agreement with the firm is still being finalized.
Winkler worries extending the TIF for another 10 years will make future extensions self-perpetuating.
“That’s my No. 1 concern,” he said. “This is not a perpetual funding agreement. The goal is to get development in there, hopefully the value of the property goes up, and then the county gets the increase in revenue.”
The committee review is necessary, in Cox’s opinion, because the county doesn’t have specifics on what companies will ultimately locate in the Knowledge Park area, what the impact on property values from the city’s infrastructure improvements will be, or even what specific improvements the city plans to undertake. The final development agreement between the city and the developer won’t be completed until the 10-year extension of the tax district is finalized.
When it comes to Knowledge Park, “We don’t have the same level of specificity or commitment,” Cox said. “This is what we have to do to try to figure this out.”
But Echols argues the city has made all the relevant information requested by the county available and has offered to make regular reports to the county on the TIF’s progress.
“I don’t know what else they want,” he said.
Councilman William “Bump” Roddey, who supports an extension of the Knowledge Park district, says a fee agreement with a company is not as much of a sure thing as supporters think.
“Once (the company) gets to the end of the FILOT (period), they’re not obligated to stay,” Roddey said. “They could decide to pack up and chase incentives somewhere else.”
Roddey thinks an “east versus west vibe” creeps into any county discussions around Rock Hill, because “there’s an impression that Rock Hill gets what it wants every time.”
Echols insists he doesn’t want to get into a discussion of which instrument is better, only that they make similar trade-offs in the county’s tax stream.
“We don’t have a problem with fee-in-lieu-of-tax,” he said. “It’s a tool that’s available to the county to use, and that’s what you have to do to recruit businesses.”
Council members serving on the committee likewise say they don’t object to the city establishing a TIF district, only that they have to do their due diligence before they agree to it.
“I was born and raised in Rock Hill,” Cox said. “I want to see it grow the right way. We just have to see if this is the right thing to do, and look at it objectively.”
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Tax districts and tax breaks explained
What is a TIF? TIF stands for tax increment financing. A TIF district designates an area pegged for development. It is an area where private enterprise is unlikely to thrive because of environmental challenges, weak infrastructure or otherwise run-down features. To improve the area and encourage investment, a city or town borrows millions of dollars to fix streets, utilities and other public places. Over time, those loans are repaid by the property tax that new businesses in the TIF district pay – this is what “increment financing” refers to. A city that borrows money to pay for improvements in the TIF district will temporarily receive more than its normal share of property tax from new businesses, in order to pay down the debt. This means the local school district and the county must agree to give up some future property tax for a set time. When a TIF district expires, the city, the schools, and the county return to sharing property taxes. If new development happened as planned, each entity sees more tax revenue in the long term.
What is a FILOT? FILOT stands for fee in lieu of tax. A FILOT agreement exists between a county government and a business – usually a major corporation – that is looking to locate in that county. To encourage the new investment, a county can allow a business to pay a certain annual fee, instead of full-rate property taxes. This amounts to a tax break – sometimes close to a 40 percent reduction – for a set time. Counties use FILOTs to land new companies that have options of going elsewhere and are looking for the best deal. In exchange for temporarily paying less tax to the county and the local school district, the company agrees to invest in machinery, property and buildings. If the company doesn’t uphold its end of the deal, the county assesses its property at the full tax rate. When a FILOT expires, companies pay full tax, supporting schools and local government services. Each entity sees more tax revenue in the long term and some new tax revenue in the short term.
Major similarities:
▪ Neither directly increases taxes for homeowners or businesses.
▪ Each have specific expiration dates.
▪ State law provides certain rules and regulations for both.
▪ Both are economic development tools, used to spur investment and job creation that otherwise would not likely happen.
▪ Local schools and municipal services temporarily forgo some property tax revenues.
Major differences:
▪ TIFs require legal approvals by affected school districts and other municipalities, often resulting in political debate.
▪ FILOTs reduce the company’s tax burden; TIFs do not directly raise or lower taxes.
▪ A TIF designates a geographic area; FILOTs can be used countywide.
▪ FILOT revenues support general county services; TIF revenue is used first to pay down public debt.
▪ A business in the TIF district cannot pay reduced property taxes.
This story was originally published March 22, 2015 at 7:15 AM with the headline "Alternative tax plans mean different things to Rock Hill, York County."