Various Developers Receive Major Tax Relief at University Village Shopping Center
When it comes to developing land in a city, the expenses can often be through the roof. Adding to that, certain properties require that developers make improvements to the infrastructure around their development.
Depending on the project, government entities are allowed to give tax breaks to reimburse some of the money developers spend on infrastructure upgrades. Entities like the Downtown Development Authority, the Urban Renewal Authority, or the Economic Development Office can approve various tax breaks and incentives to aid development within the city.
However, the process for these incentives can be quite complex. To reward a tax break as an incentive for development, there are several criteria that must be met depending on what city entity is giving the incentive.
In Colorado Springs, some major developments have received tax break incentives. The type of incentive and monetary amount change depending on what needs to be done to the city’s infrastructure for the particular development.
University Village Received a Sales Tax Increment for 23 Years
According to city Resolution Number 91-07, when the University Village shopping center was developed over a decade ago, the development received a 100 percent annual sales tax increment through the Urban Renewal Authority for a period of 23 years. Therefore, the city does not receive sales tax from any of the businesses in the shopping center for 23 years or up to $98.8 million.
According to Jariah Walker, Executive Director of the city’s Urban Renewal Authority, a developer can get a sales tax increment for new taxes that get generated after a development is built. The money is then used to refund the developer for making public improvements in and around the developed area.
But, for a development to get approved for a tax increment break, all entities who receive taxes from the property have to agree that the improvements are worth it. The taxing entities must think that the improvements made are worth not receiving more sales tax revenue for the development.
“In order to get it, the developer has to build what we tell them to build,” Walker said. “And then on top of that, they have to submit receipts for everything they paid for that go towards the improvements that we wanted to be built. And then we have a third-party engineer come in to certify to make sure that those costs are industry standard. And then we pay them as those new net taxes are collected. Really all we are doing is asking to rebate the developer for the public improvements that we tell them to build. And they must spend all of those costs on the front end to get them done.”
He said that sometimes the developers see the money they spent on improvements come back fast. But, in other cases, it could take years for what they spent to be recouped if it ever even happens.
He said that the city can only allow general fund dollars to go toward an Urban Renewal Area. In Colorado Springs, 2 percent of the sales tax goes into the general fund so they can allocate that 2 percent to a developer. The county can allocate up to 1 percent of sales tax.
Other Developments Have Also Received Tax Break Incentives
The Polaris Point Urban Renewal Area (URA) where Bass Pro Shops is located has also received a sales tax increment. “Essentially the big public improvement on that was connecting Powers Boulevard to I-25 and the bridges,” Walker said. “The city council at that point in time created the URA and pledged the sales tax increment to it. So those dollars are only allowed to go towards those public improvements.”
He said that many of the improvements like connecting Powers to I-25 are mutually beneficial. “Obviously the developer wants to see that connected to drive retail,” Walker explained. “And the city and county want to see it connected because it created some access issues and it is better for emergency vehicles.”
When the Scheels store was developed, the developers did not receive a tax break as an URA but it did receive a 1 percent temporary reduction in city sales tax for 25 years through the city’s Economic Development Office which will equate to just over $16 million over 25 years. The deal was worked out with the Economic Development Office to incentivize Scheels to locate in Colorado Springs.
When a large store like Scheels looks for cities to expand in, it looks for municipalities that will incentivize them to come. The city council then has the option to accept the incentive or not depending on if they feel the new location is beneficial to the community.
A URA on the other hand, must go through the school district, the library district, the county, the water district and the city. “And then on top of that, there has to be blight that’s found on the area via state statute,” Walker said. “The Urban Renewal is a much stricter process. They have to go through a bunch of different public entities to even be able to be a URA. Whereas a sales tax agreement is something that the city does on its own under its own purview for certain developments.”
He said that the Downtown Development Authority (DDA) and the Urban Renewal Authority are the only two entities that can award tax increment financing (TIF). However, the DDA can give the portion of sales tax that they get from the business in the DDA region.
The DDA can award TIFs based on whether the development will benefit businesses in the area. But, a developer cannot get TIFs from both the DDA and URA.
Overall, Walker said that the tax relief given to URAs is well-vetted by all of the taxing entities. Developments in the future can be eligible for similar tax breaks if they pass certain criteria and make needed improvements to city infrastructure.
