COUNTY — School board trustees authorized the board chairman and superintendent to commence a legal action on behalf of the district, in conjunction with Pickens County, to protect the legal interest of the district concerning the city of Clemson’s Tax Increment Financing Plan, in a 5-1 vote during Monday night’s meeting.
Attorney William Halligan, of the law firm Childs & Halligan, offered the public an explanation of Tax Increment Financing as well as the disputes that both the SDPC and the county have with the city of Clemson.
Tax Increment Financing (“TIF”) is one of several methods a city may use to finance the construction of publicly-owned improvements to encourage economic development in certain areas of the city. Tax increment financing is authorized and governed by state law, first adopted in 1984 and later amended.
The TIF law requires that the city council adopt by ordinance a redevelopment plan describing the redevelopment or TIF land area, the projects to be built, the estimated construction cost of the projects, the sources of funds to pay the construction cost, the amount of bonds to be issued and the length of time to repay and other terms of the bonds, the value of the real property in the TIF area at the beginning of the plan, the estimated value of real property after the redevelopment projects are built, and the time period or duration of the TIF plan.
“Tax Increment Financing” gets its name from the way real property taxes are handled within the TIF area. The governmental taxing entities (such as the city, county and school district) levy their respective annual property tax millage rates throughout the duration of the TIF.
Each year, those entities receive the taxes paid on the basis of the initial value of real property at the time the plan is adopted. As the value of property within the TIF area increases during the TIF because of new private investment or reassessment, the taxes generated from the combined tax rates of the taxing entities on the increased value is the “tax increment” and is diverted to the city.
The city uses the tax increment to repay the TIF bonds used to construct the publicly-owned redevelopment projects. If the annual tax increment is greater than the annual amount of the principal and interest payment, then the extra amount is surplus and is distributed pro rata by millage rate among the taxing entities.
In 1998, the city of Clemson adopted a plan describing the TIF area, 17 specific redevelopment projects with an estimated construction cost of $9.4 million, a TIF bond limit of $8 million to be repaid within 15 years, and many other non-TIF potential sources of revenue.
In 2002, the city issued $5 million in TIF bonds, followed by an additional $3 million in 2003. Also in 2003, the city amended the plan with the consent of the school district and county, to add a project with an estimated cost of $1 million and a commitment that the city would reprioritize the projects and not impact the school district or county.
The controversy between Pickens County and the School District of Pickens County on the one hand and the city of Clemson on the other centers on the use of the surplus. The city asserts and is acting as if the plan and ordinances say that the city is entitled to use the entire surplus for the projects, regardless of project descriptions, project cost and sources of funds in the plan. The county and school district believe that the TIF law, plan and city ordinances strictly limit the city’s use of the surplus, and the city must respect the limits. Retention of surplus by the city results in all other taxpayers in the county and the school district carrying an extra burden to make up for the money diverted to the extra city TIF expenditures.
All of the dollar figures at this point are estimates. It appears that the city has received about $10.7 million in tax increment revenues, which now exceed $1.6 million per year. The annual debt service for the TIF bonds is just over $800,000 per year, so the current surplus is also just over $800,000 per year. The TIF bonds (in the original principal amount of $8 million) will be paid off in 2017.
The city has represented that it has spent about $12.5 million on the projects so far (from the $8 million in TIF bonds and $4.5 million in surplus), approved an additional project expenditure of $940,000 last week, and intends to spend all of the surplus every year until the TIF terminates in 2017. The amount of the surplus over the life of the TIF is estimated to exceed $10 million.
To the extent that the city’s use of the tax increment is restricted to the project costs of $9.4 million, the surplus to be distributed to the taxing entities would be about $8.6 million. Just over one-half of the surplus would be owed to the school district.
The school district submits that the redevelopment plan limits the city’s discretion to use tax increment revenues. The city is restricted to the TIF bond proceeds of approximately $8 million and the additional sources of funds listed in the plan to pay the cost of TIF projects which could not exceed the estimated project cost of $9.4 million, as represented to the city, the county, and the school district, and their taxpayers.
The key purpose of the plan is to notify the public and establish the terms by which the city is allowed to use the tax rates of other entities in a limited manner to build a defined end product rather than fund the school district and county. The plan restricts the city and is not a license for the city to take all of the incremental TIF revenue and use it for any city capital improvement. The city has not, in the school district and county’s view, lived within the limits defined by the plan and the TIF law, to the financial injury of the school district, county, and those who rely upon their services.
The board of trustees of the School District of Pickens County has approved legal action, in conjunction with Pickens County, against the city of Clemson, to recover from the city all of the funds which exceed the limits of the TIF statute, redevelopment plan, and other documents. At this time, the District believes that the surplus is at least $8.6 million and may exceed $10 million over the life of the TIF, of which over one-half is owed to the school district.
“What’s happened is the TIF revenue is turning out to be substantial,” school board chair Alex Saitta said. “It’s not $11.4 million. It’s probably more like 21 million. So, our argument is we pledged $11.4 million. The city of Clemson is collecting $21-something million. That excess or surplus $10 million, we believe the law says, should be returned to us. They think they should spend it all. And that’s the claim.”
Dr. Herbert Cooper, who represents the Clemson area on the SDPC board, was the lone member who opposed entering into a lawsuit against the city of Clemson.
“I feel like this ought to be mediated among the lawyers from the three different groups rather than filing suit against the city. I think all of us would like to make sure that we have a fair settlement,” said Cooper. “I would hope that the three groups would come together and come up with some kind of fair settlement. I disapprove of filing suit against the city of Clemson.”
Fellow SDPC board trustees did not agree with Dr. Cooper.
“One thing that I think was missed was that representatives from the school district and the county did meet with Clemson city council members a couple of times and we talked about our claim being $10 million,” said Saitta. “They talked about being able to spend all the money, and the offer we made was we’ll meet you halfway at $5 million. They rejected it. So this is the last resort. It started last March. It’s taken that long to get to this point.”