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'NOTHING LIKE THIS IN THE COUNTRY'

'Enormous' West End TIF district would be Kentucky's largest. It's unique -- in size and scrutiny.

'Enormous' West End TIF district would be Kentucky's largest. It's unique -- in size and scrutiny.

LOUISVILLE, Ky. (WDRB) – It would cover more than 12 square miles and include all or parts of nine neighborhoods in Louisville’s West End. For 20 years, a portion of tax money generated there would be diverted from government coffers and invested in the area on yet-to-be-determined projects. 

Backers of the tax increment financing plan set in motion by state lawmakers say it’s a way to use an established economic development tool to revitalize part of the city that has languished for decades. 

But the Louisville plan is unique even in Kentucky, where the subsidy known as TIF has spread to urban and rural counties over the past two decades and helped pay for projects such as the KFC Yum! Center, Lexington’s 21c Museum Hotel and Owensboro’s riverfront revitalization.

The proposal for the West End would create a mammoth district that wasn’t previously possible under Kentucky law and, because of its novel approach, won’t face the scrutiny required of similar publicly-subsidized areas, according to a WDRB News analysis. Specifically:

• The zone would be the largest in the state, more than twice the size of one near Louisville’s airport. Kentucky had limited new districts to no more than three square miles, but legislators changed that when they wrote new TIF statutes for the West End project last year.

• The bipartisan measure that passed in the final hour of the 2021 General Assembly didn’t include the state oversight and approval that typically apply to TIF proposals with state taxpayer dollars, such as an independent consultant’s report.

• The bill also didn’t require data “demonstrating that the projected benefits outweigh the anticipated costs,” as is mandated in current law for TIF districts with state taxes.

Proposed West End TIF district

The tax increment financing district proposed for Louisville's West End would cover more than 12 square miles, making it the largest in Kentucky.

In another difference, the tax revenue would not be earmarked for a single project, such as public infrastructure for a hotel or stadium. Instead, the board of the fledgling West End Opportunity Partnership would control and decide how to spend the money. No such plan is in place, although the law says the partnership must focus on projects backed by residents and businesses.

Not only is the West End TIF plan unprecedented in Kentucky, but it may have few, if any, equals in the U.S. in terms of size, structure and governance. There is scant comparable data on TIFs by physical size – a shortcoming experts acknowledge is a gap in fully understanding the subsidies.

Some economists, TIF scholars and land-use experts say these unusual aspects could create difficulties or unintended consequences in the future.  

“TIFs can work really well if they are very clearly defined, and if they are based on a project,” said Abigail Hall Blanco, associate professor of economics at Bellarmine University.  “One of the things that is, I think, a real challenge -- potentially a real problem for the current TIF that's being proposed for West Louisville -- is that as opposed to being project-based it's very, very broad geographically.”

And that, she said, raises more questions: What commercial areas are supposed to be “driving revenue”? Who -- or what organizations – are creating the tax revenue to ensure the funding is there?  

“When you have something that is this broad, it's really difficult to know what you can actually pay for,” Hall Blanco said. “So the thing that's really unclear to me with this particular TIF is what the ultimate goal is.”

No projections or independent analysis

Tax increment financing has evolved in Kentucky since the first such subsidy program began in the early 2000s. But the general principle remains: Measure the amount of annual taxes collected in a defined area – as small as a city block or, in the case of the West End TIF, more than 8,000 acres essentially west of 9th Street.

Then, when tax collections exceed that baseline amount each year, send a share of the new revenue to developers rather than to the city or state government that typically receives it. That amount is the “increment.”

The West End TIF would capture local property and occupational taxes, as well as state property, income and sales taxes. Over the two-decade life of the program, 80 percent of the annual incremental tax revenue would go to the newly established board.

With the exception of the West End TIF plan, projects seeking state TIF subsidies must get approval from the Kentucky Economic Development Finance Authority board before proceeding. What’s more, proposals seeking taxes other than property tax alone need an independent consultant’s report and certification from the Office of State Budget Director and the Finance and Administration Cabinet that there is a “net positive economic impact” to the state.

(Gov. Andy Beshear’s office did not respond to multiple requests for an interview with the budget director’s office about those safeguards being excluded from the West End TIF.)

The consultants’ reports include vast detail about how proposed TIF districts might affect local and state governments. For instance, take the 2018 analysis for a $43.5 million mixed-use project in Ashland, Ky., to renovate a hotel, build a conference center and parking structure and add apartments on 36 acres in the northeastern Kentucky city.

The report estimated the number of jobs, worker earnings and new local and state taxes that would be collected as a result of the project over 20 years.

TIF proposals in the U.S. usually include plans that show projected jobs, renderings and other details, said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based policy center that tracks public subsidies like tax increment financing.

“None of those things apply in this project,” LeRoy said of the Louisville TIF plan. “It’s kind of like, ‘Give us your money for 20 years and trust us.’”

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Kentucky State Senate President Robert Stivers, R-Manchester (courtesy LRC Public Information)

The West End TIF is a “different animal,” said Kentucky State Senate President Robert Stivers, a Republican who helped back the legislation in 2021.

He argues that the typical standards for other TIFs aren’t relevant to the one proposed for the West End. To make his point, he cites perhaps the most scrutinized TIF district in Louisville: the one surrounding the Yum! Center.

It was established as a six-square-mile area to help pay off construction debt on the downtown arena, but later reduced to two square miles after tax revenues failed to meet their goals.

Stivers said the West End TIF isn’t being set up to help make debt payments on a specific project. It doesn’t have a “guaranteed or demanded payment,” he added.

And he emphasized that the West End Opportunity Partnership board, which by law includes nine representatives of the neighborhoods in the TIF district, will decide how to spend the tax revenues.

“We’re creating a TIF for them to make a decision, for the communities to make a decision, this board to make a decision on how you elevate the status and change the trajectory,” Stivers said. “And you'll see that. It will be self-evident over a five, 10-, 20-year period.”

‘Nothing like this in the country’

No one tracks TIF districts by size, according to the Council of Development Finance Agencies, a Columbus, Ohio-based organization whose members include local and state finance agencies that typically are involved in public subsidies like tax increment financing.

But it cited examples of other large TIF districts in cities like St. Louis, Memphis, Baltimore and Portland, Ore.

In St. Louis, the largest approved TIF district is 2.3 square miles; it has yet to be activated, according to the St. Louis Development Corporation.

Portland’s largest such district is 6.2 square miles, while the Uptown TIF in Memphis is 4.3 square miles. Baltimore’s planning department did not respond to questions for this story.

David Merriman, interim dean of the College of Urban Planning and Public Affairs at the University of Illinois Chicago, said the typical TIF project he researches takes in three or four blocks. He described the proposed Louisville TIF district as “enormous.”

That could result in economic activity simply moving from adjacent areas or other parts of Louisville into the TIF district, creating new tax revenue there but no new revenues altogether.

“That would probably be a concern here,” Merriman said. “What's going to happen to the area of the city that's not in the TIF? Are businesses going to move across the line in order to get access to subsidies?”

Parkland sign

Parkland is one of nine western Louisville neighborhoods that would be included in a West End tax increment financing district. 

It appears that the West End TIF is launching as the area already is beginning to gentrify, said John Mozena, president of the Michigan-based Center for Economic Accountability. That means, he said, tax revenue from investments that would have happened anyway would go to the board rather than to general funds that elected officials determine how to spend.

“It almost becomes this enclave with an unelected and largely unaccountable sort of shadow government deciding how money gets collected and spent, which is a problem if you're a fan of transparency and accountability and good government and want to try to avoid situations that are conducive to corruption,” Mozena said.

Tony Arnold, Boehl Chair in Property and Land Use at the University of Louisville, suggests that the West End could be splintered into two as a result of the TIF: The section north of Broadway that takes in an expanded Waterfront Park, and the Russell, Portland, and Shawnee neighborhoods, could become more gentrified as a result of investment, while central and southern areas near Rubbertown and other industrial zones could receive less attention.

“We can't really predict with tremendous accuracy, because we don't have a lot of evidence and models to tell us really what happens with a TIF this size,” Arnold said. “But I think one possibility is that you get more competition among the neighborhoods. Instead of unifying, it ends up dividing.”

There are no formal projections of how much revenue the TIF district would produce over its 20-year life, which would start in 2023. But the Kentucky Department of Revenue is working to determine the “baseline” for the TIF, or the taxes collected in the area this year.

“There's nothing like this in the country. So we're starting from scratch here. And so we're going to get that baseline,” said Louisville Metro Council President David James, a Democrat who serves as the interim chair of the West End Opportunity Partnership. “Once we have that baseline then we can make some predictions. But until that happens, we're building it as the car drives.”

The Historically Black Neighborhood Assembly tenants' movement has been leading a grassroots campaign to stop the TIF plan. Among other things, opponents claim that rising property taxes needed to create revenues will accelerate gentrification in some areas and force out renters.

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A group of west Louisville residents protest a proposed tax incremental financing district in the city's west end over concerns that they will no longer be able to afford to live in their own homes. (WDRB photo)

Mariel Gardner, an assembly member and resident of the Park DuValle neighborhood, told WDRB it’s concerning that there are no revenue estimates for the TIF district, which would start next year and last until 2043.

“It's not fair to this community that not a financial projection has been presented,” she said. “It's not fair that we haven't been given information by them to help us understand what exactly this means for us for the next 20 years.”

When a TIF district is large and not related to a specific project, “there are many factors that influence tax revenues in both positive and negative directions,” said Pam Thomas, senior fellow at the progressive Kentucky Center for Economic Policy and a former legislative analyst.

Thomas said “it is much less likely that incremental revenues will be significant, especially from the income and sales taxes, because businesses come and go oftentimes for reasons unrelated to any development within the TIF footprint.”

Unlike other TIF districts in Kentucky that want to use state tax revenues, the West End zone doesn’t require an agreement with state government. That’s typically done by the Kentucky Cabinet for Economic Development, which helps determine which types of taxes are used and how much tax revenue applies.

The lack of an agreement is a “unique and concerning aspect,” Thomas says, because the bill creating the West End TIF isn’t clear about who decides which taxes the West End Opportunity Partnership ultimately will control.

The bill says the tax revenue used in the TIF district is from “one or more” of local property and occupational taxes; and “one or more” of state property, income and sales taxes.

The Kentucky Finance and Administration Cabinet interprets the law as requiring state property, income and sales taxes, spokeswoman Jill Midkiff said.

Meanwhile, nearly 15 months after Kentucky legislators approved the TIF and the West End Opportunity Partnership, other aspects of the new law remain unclear or in dispute.

For example, does the Metro Council have a voice in ultimately signing off on the TIF plan? It depends on who you ask.

The law says the West End partnership and the council must enter into an agreement known as a “local participation agreement” that would be passed in an ordinance. The agreement would specify which local taxes are involved, the benefit to the city and a “detailed summary” of the existing tax revenues in the TIF district.

David James

Democrat David James, president of the Louisville Metro Council and interim chair of the West End Opportunity Partnership.

James told WDRB that his understanding is the council’s involvement would occur when the partnership board has decided on individual projects. But, he added, that doesn’t necessarily need to happen every time the board selects a project.

“If there's a reason to go to the council, then the board would go to the council,” James said. “If there's not, there's no reason to.”

It’s unclear what types of agreements are required, said Jeff O’Brien, chief of the Louisville Forward economic development agency and a nonvoting member of the partnership board. He said city officials are working with Metro Council and the Jefferson County Attorney’s Office to determine whether there needs to be an overall agreement between the partnership board and the council.

And what about the type of agreement specified in the legislation?

O’Brien said the board will start looking into that once it hits a June 30 private fundraising deadline required by state law.

“That's kind of the first question that we've got to answer after we get the funding in place,” O’Brien said.

A final hour vote

The TIF idea began with “extensive community conversations” in the spring of 2019, then intensified in 2020, according to a timeline the West End Opportunity Partnership provided to potential donors and obtained by WDRB in an open records request.

Those documents say a “planning team” included James; Evon Smith of the OneWest organization; Keturah Herron of the ACLU of Kentucky (now a Democratic state legislator from Louisville); Nikki Lanier of the Federal Reserve Bank of Saint Louis’s Louisville branch; developer Steve Poe; and Craig Greenberg, now the Democratic nominee for Louisville mayor. 

Two TIF-related bills sponsored by Stivers, and Louisville Democrats Sens. Gerald Neal and Morgan McGarvey -- the Democratic nominee for the 3rd District U.S. Congressional House seat -- were filed in the Senate in late February 2021. Those didn’t advance.

Similar bills were introduced in the House around the same time. One of the bills, House Bill 587, whose lead sponsor was Republican state Rep. Ken Fleming, R-Louisville, was discussed at length during a joint meeting of the House and Senate budget committees on March 10. No vote was taken.

Neal, McGarvey, Fleming and Stivers spoke in favor of the proposal.

“We took maybe almost nine months, little short of nine months, of going through a process of asking questions,” Neal told the committee. “Asking questions in the community, asking questions of ourselves, looking to see what mechanisms that were available that could address maybe some of the answers to questions that were being raised.”

TIF opponents argue that there wasn’t broad enough buy-in from West End residents. Chanelle Helm, strategic core lead organizer with Black Lives Matter Louisville, questioned the true level of West End involvement during a March 3, 2021 online forum with Neal, McGarvey, Greenberg and others. For example, she argued that residents who would be most affected by the TIF plan didn’t even know about the legislation.

“Across the board there is a lot of community engagement that should be taking place,” she said this week.

On the last day of the legislative session -- March 30, 2021 -- the Senate added the TIF provisions to unrelated House bills that were awaiting action in their chamber, approved them and sent them back to the House.

The House took up the bills as a midnight deadline loomed for the General Assembly to complete its work for the session. The legislation that set the parameters of the TIF district, and established the board to oversee it, passed at 11:24 p.m. A companion funding bill passed 10 minutes later, at 11:34 p.m.

Eight representatives from Jefferson County, including Republicans and Democrats, voted against the omnibus TIF bill.

Rep. Jerry Miller, R-Eastwood, said he didn’t support it because it was added to other legislation at the “last minute.”

“I didn't consider I had enough time to review it,” he said. “Plus, I just questioned whether the whole thing was vetted.”

Another Republican, Rep. James Nemes of Louisville, cited several reasons for his vote against the bill, including the lack of an independent analysis of the TIF district. But he also said he was thinking of the only vote he regrets: Backing a $15 million investment on an unnamed economic development project in 2017 as that session was ending.

The project, later revealed to be an aluminum mill planned for eastern Kentucky by Braidy Industries, has yet to reap any benefit for the state. Construction still hasn’t started, and lawmakers have sought to recoup their money.

“I didn't want to make that mistake again,” Nemes said. “And so that was on my mind.”

Democratic Rep. McKenzie Cantrell of Louisville voted against the bill creating the TIF, but, once it had passed, she supported the related bill authorizing $10 million in state funding.

She also said the Braidy vote informed her decision. “It made me really wary of somebody coming to you late at night and saying, ‘We need to do this,’” she said.

She acknowledged she wasn’t aware that the bill didn’t require a consultant’s report or other state scrutiny and said she believes there was a “big information gap” in the state legislature about how the West End TIF would work.

Rep. Attica Scott, a Democrat from Louisville whose district includes areas in the West End TIF district, long has been a critic of the plan. She said there was “nothing really substantive around the large size of this particular TIF and how different it was from others--except concern from residents, which is valid, because they didn't know enough.”

“Enough wasn't shared with them for them to really have an informed conversation, unfortunately,” Scott said.  

The conservative Bluegrass Institute for Public Policy Solutions had called on the legislature to revisit the TIF issue during the 2022 session, but that didn’t happen.

“The process was short changed,” said Andrew McNeill, an institute policy fellow. “It has created a lot of skepticism, a lot of cynicism, a lot of questions about the role of developers in writing the legislation and potentially shaping it to their benefit. The neighborhood groups in the West End have every reason to have felt as if they were left out the process.”

What’s next

Meanwhile, the West End Opportunity Partnership Board has continued to meet and take action even as it isn’t fully established.

The TIF law requires the 21-member board to represent specific groups and neighborhoods, but several seats remain open. The Park Hill neighborhood isn’t yet represented, and the Federal Reserve Bank in Louisville rescinded its seat on the board earlier this year.

State lawmakers didn’t adjust the law when they met in 2022.

“There have been some changes, as you know, on the board and so forth,” Fleming, the Louisville state representative who carried the TIF bills in the House, said earlier this month. “I believe that there will be probably some tweaks and some modifications to that.”

In the Senate, Stivers also said that “at some point in time the legislation can be modified.”

Gardner, the TIF opponent and member of the Historically Black Neighborhood Assembly, said the partnership board is not acting like a “law-abiding” organization. Residents fighting the TIF have raised residency concerns about one of the neighborhood representatives on the board and argued that it has skirted Kentucky's open meetings and open records requirements. 

“I don't think it's a good message to send to West End nonprofits who are not breaking the law that this body can do exactly that and still be granted money that that is just a huge amount of money that West End nonprofits could be putting into work today,” she said.

For now, the West End Opportunity Partnership says it has received commitments for $7.1 million of $10 million in private funding needed to obtain state money by a June 30 deadline. That would unlock $10 million in state funds, joining a Metro Louisville pledge of $10 million.

James, the board chair, declined to say last Friday how much had been raised.  

If you have information about this story or any story you think the WDRB Investigates Team should look into, you can email us at investigate@wdrb.com or call the WDRB Investigates line at 502-322-1297.

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