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February 11, 2016

9 Questions and Answers About TIRZ

TIRZ. No, it’s not the name of an alien overlord who’s going to conquer earth, or the name of the latest video game console that your kids are going to want. It’s actually an economic development tool used by the City of Bryan. There’s been a lot of discussion of TIRZ within the City of Bryan, and its a relatively complex subject to understand. So we sat down with Lindsey Guindi, Director of Strategic Projects for the City of Bryan, to try to get a better handle on the TIRZ topic. Here’s what we found out:

1. What is a TIRZ and how does it work?

TIRZ stands for “Tax Increment Reinvestment Zone.” TIRZs are used as forms of tax increment financing, which is an economic development tool to incentivize both development and redevelopment. A TIRZ is not a new tax. Instead, it establishes a “base tax value” for a designated geographic area when the Tax Increment Reinvestment Zone is created. Once that base tax value is established, a TIRZ reallocates the additional ad valorem property taxes in the zone.

Huh? Say that again?

We know. It’s not the easiest thing to understand, but we’ll do our best to explain it.

So when a TIRZ is created, the City of Bryan records the sum of the ad valorem property tax at the time of the TIRZ creation for the properties within that zone. It’s like taking a snapshot in time of what the property taxes are at that specific moment. And the City records that number as the “base tax value.”

Each year, within the TIRZ, the property taxes collected up to that “base tax value” number continue to go into the City’s general fund, as most taxes do.

But as properties in the TIRZ develop and become more valuable, any additional property taxes collected, over and above that “base tax value” number, go directly into a TIRZ fund. Those TIRZ property taxes can only be used within the TIRZ, and can be used for infrastructure, facade programs, landscaping, streetscaping, or practically any type of public enhancements to the zone.

So, ideally, you create a TIRZ when property values are low. That means the “base tax value” number will be low. And that means that as property becomes more valuable, a higher percentage of taxes end up going directly into the TIRZ fund, which can only be used to continue improving the TIRZ.

A TIRZ can last anywhere from 20 to 25 years. So you have to realize that the return on your investment is not going to be overnight or even in one or two years. When the city makes the commitment to create a TIRZ, it’s a several decade commitment. And you’re not going to see the full potential of that development right away. It is going to take 10, 15, 20 years before you really start to see the benefits of creating the zone.

2. What does a TIRZ actually do?

A TIRZ is a way that the City can divert tax dollars from the general fund to be utilized in a specific zone within the City.

Yeah, we just covered that. But what does that really do?

A TIRZ is used to jumpstart development in an area of the City that may not otherwise develop, for a variety of reasons.

  • It could be the surrounding properties are keeping it from developing.
  • It could be the cost to extend infrastructure to that development is so high that a single developer may not be able to take on those costs by themselves.
  • It could simply be that it’s a part of town that has other circumstances, such as proximity to neighborhoods.

The TIRZ jumpstarts that development to get things moving a little bit faster and, hopefully, starts generating tax revenue. That additional tax revenue goes into the TIRZ when its property taxes value increases.

But there are also other taxes that get generated from new development – like sales tax revenue – and those taxes don’t go into the TIRZ, but they still benefit the City almost immediately.

3. What are the benefits of a TIRZ? And are there any drawbacks?

The benefit of creating a TIRZ is that you start to see development in certain areas that you may not otherwise have seen. TIRZs allow the City to take a more proactive approach in economic development, and allow the City to use tax increment financing as a tool to recruit businesses that may otherwise not have considered the City of Bryan.

There are some drawbacks to utilizing a TIRZ. Probably the most notable drawback is that fact that all of your property taxes, above and beyond your “base tax value” number, go into the TIRZ.

Wait a second! Didn’t we just say that was a good thing? Well, yes, and no.

For the TIRZ, it’s great.

But for the rest of the City there are other things to consider. There are City support services, such as the police and fire departments, that the City has to pay for out of its general fund. And the property taxes that the growing, and increasingly valuable, TIRZ is creating aren’t going into the general fund to help pay for those departments and services.

4. How is a TIRZ managed? Who has oversight of these zones?

Every city is a little bit different, but in the City of Bryan, a TIRZ is managed on multiple levels.

  1. The most basic level starts with the City staff. There are multiple City officials and employees who manage the Tax Increment Reinvestment Zones for the City. Staff from Financial Services, Economic Development, and Planning and Development Services work within the City organization on development within the TIRZ.
  2. Above that is the TIRZ board or the Tax Increment Reinvestment Board of Directors. This board serves as a recommending body to the Bryan City Council. So if the City is considering, for example, creating additional projects within a TIRZ or expanding the zone, then the TIRZ board would be the first body that would make a recommendation on those projects, or whatever action is being considered with regard to the TIRZ.
  3. The final level of oversight is the Bryan City Council.
    The TIRZ board does not have any final approval authority. All decisions that are made, or all recommendations that are made by the TIRZ board, go to the Bryan City Council for final approval. So the City Council really has the last say when it comes to utilizing TIRZ dollars, creating new projects, expanding the zone, etc.

city council meeting

5. How many people are on a TIRZ board, and how are they appointed?

A TIRZ board is made up of nine individuals.

One of those is from the State Representative’s office, one is from the State Senator’s office, and then, typically, one representative from our other taxing jurisdictions, both Bryan Independent School District and Brazos County.

The remaining positions are appointed by the Bryan City Council, which typically appoints individuals who have some type of interest in the TIRZ – either a property owner, or someone who may be serving as an agent or developer for a property owner within the zone.

6. How many TIRZs currently exist in the City of Bryan, and where are they?

There are four existing reinvestment zones in the City of Bryan, all of which are are referred to with a number.

  • TIRZ No. 10 is the Traditions area off Villa Maria Road and Highway 47.
  • TIRZ No. 19 is the area around the Post Office on William J. Bryan and the Nash Street extension.
  • TIRZ No. 21 is in Downtown Bryan.
  • TIRZ No. 22 is the area around the Target Center, Cracker Barrel, and the hotels along Briarcrest Drive.


tirz map

7. How is a TIRZ created? And what governmental entities can participate?

A TIRZ can be created in one of two ways.

  1. The first way is at the direction of the Bryan City Council. The Bryan City Council could direct City staff to create a Tax Increment Reinvestment Zone, and staff would move forward with the creation of the zone.
  2. The second way is creation by petition. In the City of Bryan, all TIRZs have been created by petition. To create a TIRZ by petition, you need a threshold of 50 percent of all of the appraised value within the zone. So the property owners who represent at least half of the appraised value within the area would come to the City and petition to have the zone created.

Brazos County is another governmental entity that has the ability to participate in a TIRZ. So just as the City puts property taxes, above and beyond the “base tax value” number, into a TIRZ fund, Brazos County can elect to do the same thing. Currently Brazos County is participating in two of the City’s TIRZs: TIRZ No. 10 – Traditions, and TIRZ No. 22 – Target Center/Briarcrest.

8. How many reinvestment zones have been used in the City of Bryan throughout the City’s history, and what are some of the projects that came out of them?

This City has had a total of five reinvestment zones over the last 20 years or so. And only one of those is not currently active: TIRZ No. 8, which is known as the Park Hudson TIRZ.

TIRZ No. 8 encompassed the area around University Drive and Copperfield. That TIRZ was so successful that it was able to be closed early, and now all those property tax dollars go straight back to the taxing entities and the City of Bryan general fund.

Some of the major projects that the City of Bryan has seen within TIRZs include:

  • The Physician’s Center in Park Hudson.
  • The Traditions residential development within TIRZ No. 10.
  • The Target Center in TIRZ No. 22.
  • Downtown Bryan redevelopment.

Target actually decided to open its Bryan store as a result of the creation of TIRZ No. 22.

And TIRZ No. 21 – Downtown Bryan, is actually the only TIRZ that has not issued debt. So the City is able to use the property taxes that are going into the TIRZ No. 21 fund for some of the development projects in “Downtown North.” The City is starting to see the creation of that specific zone pay off, as it is able to offer incentives for the development of “Downtown North.”

view of Downtown North looking toward the South

9. What kind of incentives are you able to offer to developers, for example in “Downtown North,” as a result of that property being in a TIRZ?

There are several types of incentives that the City can utilize through the creation of a TIRZ.

The most common incentive is assistance with the cost of infrastructure. In many of these areas the cost to extend infrastructure initially for the development has been very costly. So in some cases, the City of Bryan has actually utilized TIRZ funds to extend that infrastructure. And the City also has scenarios where the developer is extending the infrastructure out of their own pocket, and then is repaid for those costs as their development creates enough increased tax value within the TIRZ.

The City can also utilize tax abatements through the TIRZ. Tax abatements can be used anywhere in the City, but they are being used as a tool in Downtown Bryan to assist with the redevelopment of Downtown North. The City has also utilized TIRZs to offer façade grants to assist with the restoration and preservation of some of the City’s historic structures.

 
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