Denver ROI analysis concludes historical success of TIFs.

• Author: Sheehan, Richard
• Position: Solutions - Return on investment - Tax increment financing

Denver has received a 140 percent ROI on 26 TIF areas established before 2012, with an average payback of 12 years to the city upon the close of the TIF area.

The average return on investment for tax increment financing (TIF) areas created in the City and County of Denver, Colorado, is 140 percent of the original investment in equivalent number of years after the close of the TIF area (calculated in general fund dollars). Taxpayers and other governments do not only benefit from the renovation of blighted areas from the creation of TIF areas, but they benefit substantially from the permanent increase of incremental tax revenues generated upon the conclusion of the TIF area redevelopment. This does not begin to include the "multiplier effect" of increased property values surrounding the now improved blighted area. TIF areas are an essential tool and "profitable" investment in the future of a community.

TIF becomes necessary for four main reasons:

1. The Costs of Infrastructure, Interest Rates, and Timing. The timing of projects can be either favorable or unfavorable to interest rate changes, and unfavorable timing can delay a project for years.

2. Environmental Remediation. Remediation costs can be extremely expensive--these include expenses for demolition and removal of underground storage tanks, contaminated soils, asbestos, and lead paint.

3. Long-Term Master Planning Requirements. Additional costs associated with meeting the local government's community plan or regional design level requirements.

4. Leveraging Social Benefit. The community as a whole has needs such as affordable housing which is built in as part of the requirements of the project, "first source" hiring requirements of local employees, minority contractor requirements, and Federal Prevailing Wage requirements.

ANALYSIS AND CONCLUSIONS

The "gap" financing TIF provides requires stringent policy analysis, performed by the Denver Urban Renewal Authority (DURA) and reviewed by the City and County of Denver Finance Department. DURA performs the financial analysis of the plan, identifying the financing gap in the developer's proposal. DURA also examines the incremental taxes generated by the redevelopment as well as the TIF-eligible costs, which include public improvements such as roads, building improvements, and environmental remediation. The redevelopment must meet city goals and demonstrate a financing gap such that the redevelopment will not likely occur in the city otherwise. The financial plan provided to DURA includes sources and uses of funds, operating pro forma, verification of developer assumptions, comparative financing rates and availability, independent market studies, and a determination of a net reasonable return. The city also reviews the financial plan to ensure that it is reasonable and likely to succeed. The city's planning department then reviews the plan to make sure it complies with city planning efforts. Considerations include the additional costs the city would incur to support the redevelopment (e.g., capital costs borne by TIF versus operations and maintenance costs...