Paying With Tax Incremental Financing

January 6, 2014

 

I spent the month of December trying to get answers to the following questions.

1)    How many tourist development zones (TDZs) have been approved by the state of Tennessee, the date of approval and a map or designation of the zones?

2)    For those zones that are approved, how much is the base sales and use tax amount from which the incremental amount of taxes will be distributed?

3)    How much incremental taxes have been received each year since the inception of the TDZ zones?

4)    On what have the incremental taxes been spent?

I asked these questions of the City of Memphis and have again and again been promised answers. I know that during the Christmas season it is hard to get action. I also asked the first three questions of the Tennessee Department of Revenue and did get some answers from them. I have attached a schedule of distributions to municipalities for qualified tourism development zones by fiscal years earned. Also I received a similar schedule for sales tax allocation for sports authorities such as the NBA facility in Memphis and the minor league baseball facility in Memphis. This is interesting information and you will see that Memphis received $13.2 million in FY 2011-12 for the only TDZ zones we currently have approved (downtown) and $1.9 million for the Arena and zero for the baseball facility in 2012.

I received further clarification from the state concerning the rules on TIF distribution as shown below.

Mr. Saino,

 In an attempt to answer your question related to the 1.9 million. The 1.9 million dollars was paid to the city of Memphis / Shelby County as a separate payment each month as the sales tax dollars for the Grizzlies is collected. The information of zero that you have relative to the Redbirds is incorrect the amount paid to the Memphis Redbirds foundation was $586,282.41. These amounts are after we take the ½ percent for education off the top of the collections.

In calculating the TDZ we do back the amount of these sports authorities off of the collections for that year in determining the growth to apply.

So in the year we are looking at the overall collections for state sales tax was $ 750,776,304.38(this figure includes food) we reduce that amount by the amount of total state sales tax collections relative to the sports authority which was $2,722,845.30 (please remember the figures are different because this is before the ½ percent for education is calculated).

That net number $748,053,459.08 is compared to the same data as the previous year to determine the overall growth in the area.

This growth is then applied to the base to create the current base in the 2011-12 year the base was $34,215,152.17. The TCA reads the TDZ will benefit from the amount collected within the TDZ area that was above the base. The amount collected in the zone for state sales tax was 50,352,645.09 ( we adjust this number by the ½ percent for education) Giving a net collections of $46,156,608.12 then we add the food sales tax collections within the TDZ area which was $176,729.12. Those two figures combined total net state sales tax collections $ 46,333,337.24. This is the amount compared to the base and the TDZ receives the above and beyond in this case it was $12, 118,185.06. The local portion of the sales tax is calculated under the same basis.

Please let me know if you have any questions.

 

I still want to know how this money is applied to our debt which I expect the City of Memphis to answer.

 

Now it is my understanding that the City of Memphis is asking for a second TDZ zone for the Fairgrounds project. The question is this. IS THIS A SOUND WAY TO FINANCE BIG PROJECTS LIKE BASSPRO, FAIRGROUNDS, PINCH DISTRICT AND ON AN ON?

 

Look at some of the other cities like Chattanooga and Sevierville that went down this same path. In one report there was the following statement.

 

*Chattanooga received no state sales tax distribution in 2007 because taxable sales fell below their pre-TIF level. Several businesses left the designated area.

 

Also Sevierville has had problems with paying for their debt by this method. So the assertion that there is no risk for tax incremental financing is not true. At the very least the City of Memphis should provide a detailed analysis showing the expected amount of incremental sales tax expected from the TDZ needed to pay the debt and tell the public and the taxpayers the truth about their downside risk if the expected sales tax revenue does not materialize.

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