Because of the increased volume and complexity of applications for development assistance in Knoxville’s redevelopment areas, the City’s Office of Redevelopment is adding an outside financial review as part of the application process.
The review will be required for any projects seeking Tax-Increment Financing agreements (TIFs), one of the City’s most valuable tools for encouraging new investment in redevelopment areas.
“We have had great success with TIFs during the past decade. The revitalization of downtown would have been impossible without them,” said Bill Lyons, Deputy to the Mayor and the City’s Chief Policy Officer. “Now we are seeing applications for a wider range of projects, including new construction. Adding an outside review by public financing experts will ensure continued public and legislative confidence in projects going forward.”
Developers seeking TIFs for their projects will still submit their proposals and financial details to the City. If City staff believes a project serves the public interest, the proposal will be sent to Knoxville’s Community Development Corporation (KCDC) to do further due diligence relating to each TIF. KCDC plans to use MuniCap Inc., a Maryland-based company that specializes in public financing and real estate development, to evaluate the requested amount and term of each TIF. KCDC and the Office of Redevelopment of the City will use MuniCap’s guidance in shaping any proposed TIF agreement.
By state law, TIFs for redevelopment projects are undertaken by KCDC with the approval of the City and the County and must be approved by KCDC’s board as well as City Council and County Commission.
TIFs require no direct outlay of funds by local governments. They are private loans guaranteed by the developer, which can be repaid over a set period of time using a portion of new property taxes generated by the increased property value (or “increment”) after a project is complete.
The City has a strict “but for” test for any TIF agreement: Projects are approved for TIFs only if the developer can show that they will be impossible to finance “but for” a TIF loan.
“We are confident in our evaluations of these projects, which have been a huge boon to downtown Knoxville and the surrounding areas,” Lyons said. “The third-party review will add another layer of detail and input to our considerations.”
Among the properties that have been redeveloped with TIF support: the Holston, Mast General Store and JC Penney buildings on Gay Street; University Commons; North Central Village; Brownlow Lofts; the Arnstein Building; and many more. Together, TIF projects approved since 2005 have led to an increase in appraised property value of more than $246 million.
For a full list of TIF projects, see the City Website at http://knoxvilletn.gov/UserFiles/Servers/Server_109478/File/Redevelopment/TIF_Summary_2015.pdf.