Downtown Development Authority: Tax Increment Finance District

Presented January 7, 2003

The Development and Tax Increment Finance Plan (TIF) for the City of Frankenmuth was adopted in 1991 and amended in 1996. The Downtown Development Authority as enabled by the State of Michigan through the City of Frankenmuth administers the TIF fund. Its purpose is to provide funding for public improvements identified in the Frankenmuth Hospitality Plan and for other public improvements allowable by state law.

The City ordinance governing the TIF prioritizes the use of the TIF revenues accordingly:

Much progress has been made on the original Frankenmuth Hospitality Plan of 1996. Streetscaping has been substantially completed from the North City limits to Jefferson Street on Main Street. The frontage on Eddie Zehnder Park (on the west side of Main, north of the Main Street Bridge) remains unfinished and is tentatively planned for construction in Spring 2004.

Other unfinished elements including improved signage, completion of certain amenities including the mast arms at Jefferson and Main, banners "on the hill", and "tweaking" of elements along this section remain. These will be addressed Spring/Summer 2003.

The DDA has initiated the design phase for Weiss Street from the intersection at Main to Heritage Park.

This is tentatively scheduled for construction in Spring 2004. Bonds will be sold to finance this project.

Using the Hospitality Plan projects as "matching funds", with the cooperation of the Frankenmuth Bavarian Inn and Zehnder’s Restaurant, and pledging DDA/TIF revenues for any shortfalls in the project, the City of Frankenmuth was granted funds for the completion of two plätze as part of the streetscaping plan. The grant totaled $590,000. But for the availability of funds through the TIF plan, this grant opportunity would not have been available to the City.

Through TIF funding, the DDA worked in conjunction with the City of Frankenmuth to build a new storm sewer on Main Street. The creative finance solution includes a low interest loan and grant totaling $290,000. The maximum grant award is $150,000 (we have qualified $140,000). The debt service on the loan portion will be paid by the DDA with TIF funds. With this project, the City realized a two and a half million dollar plus project, 15 new jobs, and enhanced storm sewer capacity for the general neighborhood.

The DDA is in consideration of other public projects, using TIF revenues for project costs, additional bonding if appropriate and possible new granting opportunities. They include:

The DDA established a minimum limit of $250,000 to be held in its fund balance for the payment of the TIF bonds.

The DDA appointed a new treasurer for 2003, Mr. Jerry Blohm. Former treasurer John Benson will remain on the Financial Committee.

According to the City’s Audit of June 30, 2002, total bonded indebtedness for the DDA TIF district is $4.425 million.

Tax Increment Finance is simply defined as the capture of increased property tax revenues due to new private investment to pay for public improvements. The use of TIF allows the City of Frankenmuth to pay for new public improvements without raising taxes. The DDA boundaries are the same as the Tax Increment Finance district boundaries.

Historically, growth of the TIF district has been stable, averaging a little more than 4% annually (since 1991). Tax laws limit growth in value but for new private investments such as new construction, new square footage, or new personal property.

As qualified in the audit of June 30, 2002, the DDA district increased its total taxable value 4.54% between tax year 2000 and 2001. The total taxable value of the DDA district on June 30, 2002 was $60, 147, 570.

In 2002, with the addition of Frankenmuth River Place, the Marriot Suites Hotel and the Bronner’s expansion (among other changes), the DDA estimates that the district will increase its total taxable value about 19.8% to $72,057,881. (Refer to Chart 1.)

The City is realizing the goals of its TIF plan with the completion of the streetscaping projects. Private investment remains strong and is evident in new constructions, expansions and general growth of the district. The DDA is focused on completing the initiatives of the Frankenmuth Hospitality Plan as approved in 1996. Additionally, it will consider other public improvement projects as opportunities arise.

Two elements are necessary for the continued growth of the TIF district: continued private investment and the willingness of the City to continue the TIF district.

Projections for the FY 2002-2003 are very healthy due to a significant increase in taxable value within the DDA district. In this fiscal year, the DDA estimates it will capture $637,095 or 17% of the total $3.7 million in taxes generated by the district. Of that, the DDA estimates the City’s participation is $286,477 or 45%. The DDA recognizes the significance of this number to the City.

More importantly in 2002-2003, for every $1 the City contributes to the TIF fund, it will attract $1.20 in outside revenues from the DDA, the County, and Delta College. This is the power of the TIF fund.