Old policies have put Rockford in a tough spot when it comes to struggling TIF districts.
"We're looking right now at a number of $14 million," says Rockford Finance Director Carrie Eklund.
It's a problem the City of Rockford can't afford to ignore. Millions of dollars are owed to money lenders because an economic development incentive has, in some cases, done more harm than good.
"We're ensuring that we don't get into this situation with negative TIF balances again," Eklund says.
Tax increment financing, or TIF districts, are used to spur new construction in blighted areas, like the condos on River Oaks Lane, off of South Main Street. But, if you take a closer look at that property, you'll see much is missing. The project never finished. It stalled out after the nation's housing crisis years back. If the city's new TIF rules applied back then, that loss would have only been felt by the developer. Now-a-days, projects have to be completed and raise property values before builders can cash in on property tax increment money. It's called a pay-as-you-go system. But, that wasn't the case for River Oaks. The condos were built back when Rockford took out loans to create TIFs. That money paid for improvements that were meant to compliment redevelopment efforts, including street repair, curb and gutter, lighting and land improvements. The idea was for the city to take out bonds and help out developers at first, then once the developer's project was completed and the property's value went up, that added property tax income would help the city pay back the bonds. But, the city didn't expect that some projects wouldn't finish or wouldn't amount to what was originally planned.
"So, there's no increment being generated or significantly less than originally planned and there's not enough payments to cover that debt service," Eklund explains.
Struggling TIF districts like River Oaks have added up to the $14 million deficit the city faces today. According to Eklund, if property values don't see a major turnaround in the next decade, Rockford taxpayers may be forced to foot a very big bill when these struggling districts expire and have to be made whole by using general fund property tax and sales tax dollars. The city says this isn't an ideal use of these funds, but it may be the only way to zero out the districts. According to state law, a TIF can't expire with a negative balance and if the city doesn't pay back its lenders, it could face legal action or damage to its credit rating.
Eklund hopes progress can be made in the next ten years to stop the bleeding and lessen the deficit in seven struggling TIF districts.
"We have time to not only continue to push for development in these TIFs, but to continue to push for incentives for people to finish the projects."
Despite this multi-million dollar problem, the city says the majority of its TIFs are performing well, especially around the Chicago Rockford International Airport. But, this may be a costly lesson that Rockford has learned.
River Oaks is in 5th Ward Alderman Venita Hervey's ward. She says the city should put money away in savings every year for the next decade in order to pay off these TIFs when they expire.