TIF Projects Top $10 Billion

Tax increment financing is key to unlocking Kentucky’s urban economic development

By Abby Laub

ECONOMIC DEVELOPMENT

Ovation, a $1 billion mixed-use TIF project in Newport, will include retail and offices, as shown here in a rendering of the planned construction on Main Street.
Ovation, a $1 billion mixed-use TIF project in Newport, will include retail and offices, as shown here in a rendering of the planned construction on Main Street.

Signature projects around the state are making major impacts on the cities and regions in which they are located, and many are moving forward thanks to Tax Increment Finance (TIF) status through the Kentucky Cabinet for Economic Development. The cabinet website lists $10.1 billion in completed or planned investment in more than 35 TIF projects, nine of which went on the rolls in the past two years.

Almost 20 years after the first TIF pilot projects were launched, developers, investors and local municipalities are reaping the benefits of the program, which allows developers to apply a portion of newly generated taxes a project creates to pay for the public infrastructure elements required.

The cabinet lists the status of 16 projects as final and eligible to claim tax benefits of up to $2.3 billion over their 20- and 30-year TIF terms.

In Bowling Green at the Western Kentucky University Gateway, site of one of the state’s largest TIF zones, local entities have already received tens of millions of dollars from state coffers in tax increment payments since the TIF district was established in 2008. Payments are distributed to the county’s fiscal court, bond holders, banks and other investors in the property, which has transformed downtown Bowling Green.

Eleven years ago, the Bowling Green Area Chamber of Commerce building became the TIF’s first private investment on the dilapidated 277-acre site and Chamber President/CEO Ron Bunch noted the significant strides the city has made since then.


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“The TIF has been very important in a lot of different ways,” he said. “It connected the university with the health care cluster and created a building corridor that includes our downtown area. It’s been major for our community and has included a number of significant investments like SKyPAC (Southern Kentucky Performing Arts Center) and the stadium (the 4,559-seat Bowling Green Ballpark, home of minor league baseball’s Hot Rods). It’s revitalized the downtown core area. Now you’ve got a revitalized square, an amazing park right outside our window with international festivals and other activities.”

Some businesses that were outside the TIF moved within the boundaries to demonstrate their commitment to it, he said, and companies on the fringe of the zone have seen big benefits. He called the new area a “real beacon” that even attracts companies to the city’s industrial parks because of the improvements it’s made in the area’s quality of life.

“We’ve been nationally ranked in economic development for seven consecutive years, so we’ve been very successful in that,” Bunch said. “Every company has been impressed with that downtown investment. We get to show them right out our window some of the quality-of-life benefits.”

New construction continues happening in the zone, primarily mixed-use apartment and restaurant structures, with more to come.

It’s been so successful that, among many other awards, in 2014 the Warren County Downtown Economic Development Authority was named the winner of the 2014 Council of Development Finance Agencies (CDFA) Excellence in Tax Increment Finance Award for work on the WKU Gateway. Bowling Green also has been the fastest growing city in Kentucky since 2011. Gateway is the city’s only state TIF project.

Municipalities can create TIFs too

Bowling Green is not the only place that has benefited from TIF. Local municipalities can designate their own TIF zones on a smaller scale, but the state’s involvement ups the ante and provides a mutually beneficial arrangement for all parties.

“Tax Increment Financing has been a valuable tool for many local governments to assist in a variety economic development projects that would not have otherwise occurred, said J.D. Chaney, executive director and CEO of the Kentucky League of Cities, “especially in projects where the state has participated. ‘Local only’ TIFs, on the other hand, have been much more difficult to utilize because of the limitations on the taxing authority of local governments and their inability to capture sales taxes.” 

Tax Increment Financing is about economic development. The first step for all TIF programs is local designation. From there, TIF is a tool that public agencies use to finance needed infrastructure improvements for projects like sidewalks, parking, and sewers by earmarking future tax gains created by development. This future value improvement of a property is used to pay for the costs of the improvements when a developer takes this memorandum of understanding to investors, who would otherwise be leery to foot the bill. TIF is one of many incentive tools the state uses to create growth.

Other recent examples of massive TIF projects include the Paducah Downtown Riverfront Redevelopment Project, the Lexington Center Project, Phoenix Park/City Center (Lexington), the Northern Kentucky University Campus Gateway, Downtown Owensboro, The Summit at Fritz Farm (Lexington), Shelbyhurst Research and Technology Park (Louisville) and many others.

“In the big picture, by being able to redevelop large pieces of land … it’s a quality of life improvement,” said Jack Mazurak, communications director at the Kentucky Cabinet for Economic Development (KYCED). “It makes it a more compelling place to live and work. [Signature projects] tend to be projects that are place-making types of projects and help cities attract residents by making them the best versions of themselves.”

TIF helps bridge funding gaps

In Newport, which has prime riverfront property overlooking Cincinnati, the state and local government-sponsored TIF project located at the confluence of the Licking and Ohio Rivers is known simply as Ovation.

The $1 billion mixed-use development being done by Covington-based real estate development giant Corporex is forecasted to generate 6,700 jobs and $1.7 billion in annual economic impact upon completion. The site is under active construction. Corporex has a history of successfully transforming previously undervalued neighborhoods in Northern Kentucky. Ovation was slated as a TIF zone back in 2007 and has gone through multiple reiterations. It was among the first state TIFs and has weathered both a recession and a long wait for key infrastructure like the extension of Kentucky Route 9. The road is one of Northern Kentucky’s most important logistical features and it now passes right in front of Ovation’s door. 

In the Ovation agreement between the City of Newport, Campbell County and the state, a 30-year term was settled upon,  meaning Corporex as the investor will collect tax increments until the year 2047. Corporex Managing Director Tom Banta said in a River City News article that per the agreement, Corporex would have to see investment of $200 million at the site before any TIF funds are recouped. Corporex is investing $70 million of its own money rather than relying on bonds.

The layers required for TIF designation are complex, and Mazurak noted that outside consultants hammer out all of the large and minute details surrounding the tax revenue projections and more. But the value lies in the ability that TIF creates for a developer to more successfully secure loans and bonds for a project.

“Without TIFs and that investment in infrastructure, a lot of these projects just couldn’t happen,” said KYCED communications specialist Brandon Mattingly. “A developer just came in to do a parking garage and they had to complete a sewer system, and they can’t foot that bill. TIF makes these big projects available and helps bridge that gap.”

For an area to be designated as a TIF zone, the state can either designate it as such or they can be approached by a developer. TIF at the local level has a different set of guidelines depending on each municipality, but for a state TIF to be established, the development must first get local TIF designation and be on previously underdeveloped or blighted land with a 30-year maximum term. Net new tax revenue must be created.

Kylee Palmer, program manager in the KYCED’s Department for Financial Services, added that each TIF arrangement is different and the state has more than 30 TIF projects funded or with the potential to receive increments at the state level. The state’s primary incentive lies in the TIF program’s ability to boost economic growth.

“Ten to 15 years down the road, we see that investment and say, ‘That worked,’” she said.

For some, TIF isn’t the answer. It can be a complicated process, and the state will often point businesses to other incentive programs. Every state TIF program houses multiple companies, and the increment is not available until a developer has met an agreed-upon minimum capital investment.

In Louisville, the 230 acres known as Shelby Campus at the University of Louisville is part of the ShelbyHurst Research and Technology Park that earned TIF approval at the end of 2014 and is still adding buildings. The TIF district is expected to pull in hundreds of millions of dollars over the 30-year agreement. It includes academic and research facilities, and when complete will have more than 1.5 million s.f. of modern office space managed, developed and leased by NTS Development Co., in partnership with the UofL Foundation.

One notable tenant is BrightSpring Health Services, formerly known as ResCare Inc. It is the nation’s largest provider of both health and human services. ResCare has been headquartered in Louisville since 1974 and has more than 45,000 employees in 42 states, including 1,900 in Kentucky.

Ground was broken in 2018 on Louisville’s newest TIF area, the Butchertown Stadium District. Fifth Third Bank will lead the syndication of the $55 million professional soccer stadium.

The 11,300-seat stadium is scheduled to open this year. Louisville City secured $21.7 million in TIF financing at the end of May 2018, which will flow back to the club over the course of its 20-year TIF. The TIF was a key component to obtaining the bank financing. The project is centered around the stadium and also includes hotels, office space and supportive retail, entertainment and dining options.

LouCity Executive Vice President Brad Estes called the project “legacy work that will leave a permanent impression on our city.”


Abby Laub is a correspondent for The Lane Report. She can be reached at [email protected]

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