In 2004, the City of Independence, MO approved The Falls at Crackerneck Creek, a taxpayer funded retail development. Independence owns the facility, and rents space in it to high profile retailers like Bass Pro Shop, Duluth Trading Company, and Hobby Lobby.
Shortly before the Great Recession, the city finished the project’s construction and opened the doors. The taxpayer funded Falls at Crackerneck Creek is part of a special tax district. Taxes collected from other businesses that locate inside the district help pay the city’s bond debt on the project. The city will pay the last of those debts on what it calls the Bass Pro TIF in 2050.
And things haven’t gone as expected with the TIF. The Great Recession dampened retailers’ enthusiasm for the project. That meant the special tax district didn’t grow fast enough to allow Independence to stay ahead of the bond debt. To relieve the debt burden on the city’s general fund, Independence refinanced its original bond issue. That helped, but the city still needed to divert general fund revenues to pay the bond debt on the project.
In 2015, the City refinanced the bond issue for the taxpayer funded development a second time. That move, combined with growth in the district, balanced the tax revenues and the bond debt. Independence hasn’t had to make debt payments from the general fund since that time. Unfortunately, that’s not a permanent solution because the bond debts increase annually. Starting in 2024, the bond debt once again outpaces the expected tax collections to the tune of about $2M. By 2029, that gap increases to $7M. And in 2026, the Bass Pro Shops lease expires. The City has no guarantee that the company will renew it, and Bass Pro Shops anchors the TIF.
Refinancing taxpayer funded development is now trickier
So, the City is considering refinancing the project’s bonds for the third time. Interest rates are historically low, but there’s a wrinkle. In the past, public entities could refinance a tax-free municipal bond issue with another tax-free municipal bond issue. In 2017, however, the Trump Administration’s Tax Cuts and Jobs Act changed the rules. Municipalities that want to refinance existing tax-free bonds can replace them only with taxable ones. The bond interest rate will determine whether these taxpayer funded developments remain attractive to investors, after accounting for taxes.
It goes without saying that the taxpayers of Independence, MO did not ever actually agree to pay for this project. The officials who concocted and approved this taxpayer funded development are long gone. It is very similar (in structure and outcome) to Ypsilanti’s Water Street deal. That also ended badly for the taxpayers. Ypsilanti residents were basically forced to approve a bond-and-millage issue to refinance the City officials misguided investment in Water Street.
You can argue that these projects were the victims of bad timing, bad planning, overly optimistic projections, or anything else. In the case of Kansas City, no one could have predicted the pandemic. In Grand Haven’s case, they simply couldn’t find another tenant for the community center. The common thread in all of these is the inability of public officials’ ability to envision, predict, and manage risk. The common solution is that the public body turns to its general fund to pay the bills. And universally, the taxpayers get screwed for years or decades over something they never agreed to pay for.
There’s a lesson in here somewhere
This will happen at Washtenaw Community College if the Board of Trustees carries out the Administration’s Master Plan. Washtenaw County taxpayers will fund speculative real estate deals at WCC that we did not explicitly authorize. WCC will use the taxes we did authorize for education to pay for hotel and retail space construction. And we will pay for this taxpayer funded development for decades after the clown show that authorized it is gone.
Photo Credit: mtfrazier, via Flickr