School districts are the natural enemies of tax-increment financing projects (TIFs). The TIF designation of a redevelopment area limits a school district’s share of the increases in property taxes that occur in that redevelopment area, diverting what would have been the school district’s share of property taxes to paying for a portion of the developer’s cost of infrastructure.
On February 24, 2009, Missouri’s Eastern District Court of Appeals issued its opinion affirming the trial court’s summary judgment that had essentially held that the Eureka board of aldermen followed the TIF statutes in creating a large redevelopment area, rejecting the Meramec Valley School District’s challenge.
Municipalities and the construction industry like TIFs because the TIF projects generate increases in employment and sales taxes. The argument is that without the TIF designation, the redevelopment would not occur, so the school district shouldn’t complain about getting only a portion of the new taxes, using the half-a-loaf-is-better-than-none rationale.
Sometimes the TIF projects result in increased school enrollments, but the school districts feel that they don’t get the necessary revenues to accommodate the new students. Property tax revenues per student decline.
The decision of a board of aldermen or county commission in adopting a redevelopment plan and defining a TIF district is a “legislative” decision. Courts will not tamper with legislative decisions of these elected officials unless there are errors in procedure or unless the legislative decision is so wrong that it is not even “fairly debatable” that it was correct.
The Eastern District appellate judges used nearly half their opinion to review the Eureka redevelopment ordinance, which carefully tied the redevelopment area’s problems (bad roads, obsolete plats, history of lack of activity, etc.) to the statutory criteria for determining that an area is blighted. The court also declined to interfere with the aldermen’s “but/for” finding, that redevelopment would not likely occur without the redevelopment district designation, even though the school district had argued that the city had bought much of the land and failed to do anything with it.
Even in a state like Missouri, where most people and most legislators would swear that they prefer to let markets operate without government intervention, municipalities are often eager to use TIFs to capture sales tax revenue that they fear would be lost to another community who offered the TIF incentive.
However, the redevelopment district sometimes shifts sales tax revenues from stores outside the redevelopment district, with the effect that the municipality has less general revenue, because a substantial portion of the sales tax from the stores in the redevelopment district is earmarked for debt service on the TIF bonds used to finance the redevelopment infrastructure. The value of the real estate outside the district drops because of declines in sales. And the school district has less income per student.