Lawrenceburg council missed golden opportunity
I have given much thought to the 3-2 vote by Lawrenceburg City Council earlier this month on how the city will fund its $15 million portion of the planned 150-unit apartment building on West High Street by using TIF funds.
It was a mistake.
The issue is complicated, but overall the three councilmen who voted not to bond the project missed a golden opportunity to help secure the city’s future by taking the position that “one in the hand is worth two in the bush.” That may true for some things in life, but not for a city that has no bond rating.
Bear with me.
The vote essentially determined the city would draw the money from the riverboat budget, which contains $25 million, and at the same time use TIF tax money as it comes in instead of bonding any portion of the $15 million, an option which was on the table.
The reasoning of the three “no bonding” voters came down to a couple of issues, most importantly they did not want the city to pay interest on the bonds.
They also reasoned the developer has pledged to make up any annual shortfall in TIF collections from the complex and Lawrenceburg Event Center combined, estimated at about $700,000 annually.
Bear with me because this is important to Lawrenceburg residents.
TIF, you may or may not know, stands for Tax Increment Financing. It is a federal device that allows cities to declare an area blighted. The land of the abandoned telephone poles at the west end of High Street is assuredly a TIF area in need of development.
A TIF essentially reallocates funds from property taxes. It works by freezing allocations to various taxing bodies, so somebody pays the price, usually school districts.
In this case, the vote included a “pass through,” meaning the Lawrenceburg school district will not lose tax money as a result of the TIF.
That was a great gesture, but here’s the rub: The city owns the land, so the school district is getting nothing now because the city does not pay taxes on its own land.
In essence, the passthrough is a gift to the school district. Ok, fine.
But the city paid the price. By not bonding at least half of the $15 million, Lawrenceburg remains fat and sassy today, but woe to a city that has no bond rating, particularly a city that has relied on gaming revenue for 20 years.
The future of gaming money looks less robust with each passing year.
Critical point 1: The riverboat fund contains $25 million of which 60 percent has been committed to the apartment complex.
That’s what sparked councilman Tony Abbott to declare “its wrong” after the vote was cast.
I agree. It shows a lack of basic financing know-how. It’s too risky, considering the city has between $80 million and $90 million total in the bank.
Critical point 2: In the boat’s heyday (yes, we are past its heyday), the “true-up” money guaranteed from the state was about $40 million annually.
Last year, the city received $2.1 million. In fairness, it has been about $20 million in recent years; still only half of its peak.
Critical point 3: Collected TIF taxes can be used only in a TIF district.
That means Lawrenceburg is faced with creating more TIF districts or finding a way to unleash the money from the requirement. I’m not sure how that would be accomplished. To me, it looks like the vote tied the city’s hands.
“That’s the whole thing, we don’t have a bond rating, and that is what we need to do because down the line further we won’t have a credit rating. Unless we do something like this,” said Abbott. “We have a lot of money to back us up now, so it’s pretty easy to get that bond rating now, but as time time goes on its will become more difficult.”
Abbott hits it right on the head. It is common practice for cities to bond projects with large price tags. There is no shame in it. If you live up to your obligations borrowing money in the long run is easier. Folks, the boat floats for a reason!
Fat and sassy, boys. It’s time to think about the city’s future.
Joe Awad is managing editor of Register Publications.