At a recent Budget Committee meeting, Finance Director Doug Smith and Town Manager Kevin Smith, discussed the future of the Tax Increment Financing Districts (TIFs) and the town’s unassigned fund balance.
The TIFs were established to draw investment into the area in northern Londonderry near the airport. Businesses including Pratt & Whitney, FedEx, UPS, EFI and F.W. Webb are within the TIF districts. With a TIF, some of the tax revenue and all expenditures associated with it are managed separately from the town budget.
In setting up the TIF, the town makes investments in infrastructure to make the area more appealing to developers. The hope is that developments in the TIF will cause the property values to increase leading to an increase in property tax revenue to the town. When the TIF is established a baseline value for the area is established and property tax revenue resulting from the pre-development baseline go into the town’s general fund. Any incremental property tax revenue from the increase assessed value of the property after development flow into the TIF fund.
The TIFs have maximum lifetime of 10 years but can be dissolved by the town earlier if all required infrastructure investments have been completed. When the TIF expires, the full property tax revenue goes into the general fund. Doug Smith shared that for FY2018, the costs associated with the TIF and the tax revenue from it were a wash.
He expects that in FY2019, the TIF will be net positive, generating more revenue than expense. FY2019 will also be the last year of the TIF and at that point the town will not have any TIFs. In FY2020, all tax revenue from the properties formerly in the TIF district will flow to the general fund. Kevin Smith indicated that the town does not have plans to create any new TIFs.
In the same meeting Budget Committee Chair Kirsten Hildonen asked for clarification on how the town unassigned fund balance (UFB) would change given the recent move by the town council to no longer hold money in that account for the school district. By policy, the town holds 5-10% of their budget in the UFB to handle any unexpected large expenditures.
Historically, the town has also used this money to pay for one-time project expenditures. While the amount spent from the UFB varies from year-to-year, it generally is in the range of $2M.
According to Kevin Smith, the result of the town council’s policy change is that there will be a one-time addition of $1.9M to the town’s UFB. This one-time increase represents the portion of the fund balance that the town had been setting aside for the school district in FY2018.
Going forward, the school district will have their own UFB, although by state statute they are limited in what they can hold in such an account. Committee Member Tim Siekmann asked if all or some part of the $1.9M could be transferred to the school district. The Town Manager said that because the town and school district are separate entities, state law does now allow that. He did say that the town is allowed to spend money on school district issues and that he would be inclined to do so in an emergency situation.
He also shared that the town does not currently have plans to use the UFB for significant projects during the FY2019 budget cycle.