Can Tax Increment Financing Help Build a Hotel in Royal Oak?

As a Southfield real estate broker prepares to gauge the Downtown Development Authority’s (DDA) interest in supporting a hotel and conference center complex on North Main Street, it’s worth reviewing what Tax Increment Financing (TIF) is.

In a memo sent to members of the Royal Oak Downtown Development Authority, Tim Thwing, the executive director of the DDA, said David Griffin of CBRE is interested in exploring the redevelopment of the former Fresard auto dealership at 400 N. Main St. into that includes a separate banquet facility and five-story apartment building.

Plans of the project are not being submitted for review or approval, but rather to determine whether the DDA is interested in providing incentives or assistance, such as TIF.

What is Tax Increment Financing?

The City of Royal Oak provides a 113-page document called “Royal Oak Downtown Development Authority: Tax Increment Financing Plan” on its website, which explains what a DDA is and how TIF works.

In the 1970s the state legislature offered cities the legal basis to create a DDA as a tool to restore and revitalize downtown areas after population and development trends of the 1970s, such as shopping malls, eroded city centers, according to the document.

TIF is a tool the DDA can use to capture tax money from its boundaries to use for economic vitality projects such as streetscaping or capital improvements.

Patch asked Bill Harrison, a member of the DDA, to explain how TIF works.

Patch: How is TIF tax money captured?

Harrison: Tax Increment Funding (TIF) is calculated as the millage rate x (current taxable value of the DDA area - taxable value of the DDA area at the time of creation of the DDA). 

Stated otherwise, it is the current millage rate times the difference in taxable value of the DDA area now verses the taxable value of the DDA area at the time the DDA was created.  The taxes captured include city tax, county tax and some minor miscellaneous taxes not including school tax.  The taxes are collected by the city and the DDA portion is allocated to the DDA.

Patch: What are examples of projects in Royal Oak that have used TIF money?

Harrison: Examples of the use of TIF money are portions of the planning director and one planner’s salary and benefits, salary and benefits for three police officers dedicated to the downtown, paying the bond payments for the courthouse and Lafayette/Sixth Street parking structure, maintaining the cleanliness of the downtown, summer flowers, holiday lights, events such as the Holiday Magic Parade, advertising and promotion of the downtown are the major expenditures. 

You can go to http://downtownroyaloak.org/meetings/ and click on the Agenda for the 4-18-12 DDA meeting for the Agenda and then click on the link to the Budget to see more detail.

Also note that the DDA area property owners also pay an additional Ad Valorem tax of 1.6477 mills that is captured by the DDA.    

Patch: What are some of the ways TIF money can be used for a hotel development?

Harrison: TIF money has typically been used to supplement the developer’s cost for streetscaping and city infrastructure improvements.

Patch: Can TIF money be used to pay for public safety?

Harrison: Yes, TIF money can be used to pay for public safety such as the dedicated police.  Upgraded crosswalk markings and improvements to specific crossings have been discussed.  TIF money was used to install angle parking on Washington which slows down traffic in addition to providing additional parking.