Dover’s City Council voted this week to allow the city to use a new financial instrument to subsidize redevelopment efforts — the latest bid to draw private development to the capital’s struggling downtown.
Dover received permission from the General Assembly in 2017 to issue Tax Increment Financing bonds, which effectively front-load future property tax revenue increases from a designated area – Dover’s downtown, for example – to pay for redevelopment. If the redevelopment raises property values in the designated area, the increase in property tax revenues pays back the bond. Dover's City Council, however, waited until this month to give itself the authority to issue the bonds.
City Manager David Hugg says that the new financing tool could be "the most important step" in drawing new investment to downtown Dover.
Because of an exception in state law written specifically for Dover, if the city doesn’t secure the increase in property tax revenue needed to pay back the bonds the city’s credit rating won’t be impacted.
“Because they aren’t supported by the credit or assets of the city, the city isn’t obligated to repay those bonds," he told the Council in a meeting in late November. "The risk is on the developer or redeveloper for the amount of money that’s obligated to the bonds.”
Tax increment financing has been a popular tool for financing development across the country for decades. In cities where it has been used most extensively — like Chicago — the strategy faces criticism for siphoning revenue from normal increases in property values into redevelopment projects without flexibility to spend that revenue on new priorities.
University of Chicago Public Policy Professor James Merriman, the author of a 2018 report on flaws in the implementation of tax increment financing nationwide, says the tactic has also has a tendency to spark conflicts between municipalities and school districts.
“It’s the municipal government – typically city governments – that can declare the [tax increment financing district], but overlying governments, and particularly school districts, are giving up part of their revenue, so typically you get school districts fighting with cities," he said.
But Hugg says the city’s new tax increment financing ordinance would require permission from county and school district partners before diverting revenue from their coffers to subsidize redevelopment projects.
Dover’s City Council has not yet designated an area for redevelopment that will use the new financing tactic, but the downtown core is the most likely candidate.
