Financial Benefits of Parks

Oregon’s Tax Incremental Districts

It’s important to have a basic understanding of Tax Incremental Districts (TIDs) because they can cost you a lot in property taxes. In 2022, Oregon’s TIDs cost the average homeowner $166.55. In 2023, that’ll grow to approximately $246.19. And it’ll likely increase more in 2024.

To put that amount in perspective, last year our residents debated for months over whether the Village should sell the property at 249 N. Main Street to reduce taxes. The loan for that property costs the average homeowner between $10 and $11 per year in property taxes.

So what is a TID?

At its most basic, a TID is a special zone where the Village wants to encourage development. A TID allows the Village to fund infrastructure and other costs using property tax revenue generated by newly developed property.

For example, if I had a $200,000 home when a TID was established, that $200,000 becomes the TID base value. The taxes on the TID base value go to the Village, the school district and the other taxing authorities to pay for the public services that I use.

Now if I tear my home down and build a $1,000,000 four-plex, I will be taxed on a $1,000,000 property. The taxes on the $200,000 base value will continue to go to the Village, the school district and other taxing authorities each year to pay for public services.

The other $800,000 of value that was added to my building is new value, or value increment. The taxes on this value increment are called the tax increment. The tax increment will go into the TID fund and not into the Village’s general fund. The TID fund cannot be used to pay for public services, this fund can only pay for the expenses of the TID.

When TID closes (30 years down the line), all of the taxes generated by the new property get divided up amongst all of the taxing authorities (see picture below). In that way, so the theory goes, everyone eventually gets to have their property taxes lowered because there’s more property value to spread the taxes around on.

So what’s wrong with that?

Well, if the taxes paid on new property value are going into the TID fund, who do you think is paying for the public services used by the people or businesses occupying the new property? It’s NOT the people or businesses residing at the property. It’s the rest of us taxpayers.

State law allows the Village to increase the amount of taxes it can collect for its general fund by the amount of new property value in the TID. That allows the Village to tax the rest of us property taxpayers to pay for the schools, police, fire, EMS, roads, parks and other public services used by the residents of the new property.

And we taxpayers will get to do that each year until the TID closes, which normally is thirty years after it was created.

Yikes!

The devil is in the details…

Sometimes that’s works out okay for us taxpayers, and sometimes it doesn’t.

For example, if a developer builds in TID 5 north of downtown, the tax increment that go into the TID 5 fund can be used to pay off the loan that the Village took out two years ago when it rebuilt North Main Street (some of that street is in TID 5). So, the residents of a new property are paying the loan that the rest of us taxpayers would otherwise be paying. And the rest of us taxpayers get to pay for the public services used by residents of that new property. It’s kind of a wash. It doesn’t cost us anymore, but it doesn’t save us money either.

Now let’s go a little farther with this example. Let’s say that same developer came to the Village and said “Hey, I can’t build this property unless you help me out. Can you give me $2 million in Tax Incremental Financing to make the project feasible?” In that case the Village Board can (and often does) decide to give the developer a $2 million loan from the TID 5 fund. Then when the new taxes on that property go into the TID 5 fund they will pay used to pay off the loan the developer got from the Village. They won’t be used to pay off the loan on North Main Street. In this case, it’s NOT a wash for the rest of us taxpayers. While the owners of the new property are paying taxes to pay off the developer’s loan, the rest of us taxpayers are paying for their public services AND we’re still paying off the loans the Village took out to rebuild North Main Street.

And that’s how TIDs raise YOUR property taxes. You’ll get to pay those increased taxes each year for the life of the TID.