What is Urban Renewal and what impacts does it have on the City of Klamath Falls? Below are answers to some of the most frequently asked questions we receive.
What is Urban Renewal?
Urban renewal is a state-sanctioned public financing tool used by over 70 Oregon cities and counties. Using a mechanism called Tax Increment Financing (or TIF), urban renewal directs property taxes on growth in assessed value within an established urban renewal area toward projects that will improve conditions in that area. The driving idea behind urban renewal is that the extra investment, and the expectation of investment, in the urban renewal area generates growth that would not have occurred but for that investment. This extra growth is what funds urban renewal projects, and ultimately provides additional tax revenues to taxing jurisdictions and the City as a whole.
What are the benefits of Urban Renewal?
To qualify for urban renewal, an area must be identified as blighted (which can mean, among other things, underdeveloped, under performing, dangerous, deteriorated, and lacking adequate infrastructure). Through direct investment, urban renewal can help change a blighted portion of a city into a valuable and productive contributor to the local economy. This will help a city in multiple ways. A more vibrant area will draw business, create jobs, and stimulate the local economy. Increased property values will boost local tax rolls after the urban renewal area expires.
How does Urban Renewal funding work?
Urban renewal is funded through Tax Increment Financing. When an urban renewal area is established, the County Assessor determines the current assessed value of all property within the area, and freezes that tax base. Whatever property tax revenue local jurisdictions receive from this frozen base is the same amount they will receive on a yearly basis until the urban renewal area is terminated. As property values increase above this frozen base, all tax revenues from increases in permanent rates are directed to projects within the urban renewal area. For new urban renewal areas, local option levies are not collected by the urban renewal agency. Assessed values can increase yearly at the 3% maximum allowed amount by state statute, or by more than this if new development occurs within the area. This increase above the frozen base is also called the “increment.” When the urban renewal area expires, the frozen base also expires, and the local taxing jurisdictions resume receiving taxes on the full assessed value of the area.
What are the steps for creating an Urban Renewal area?
An urban renewal area is created through a process that includes property owner/community input, notice to impacted taxing jurisdictions, a presentation to the County, and review by a city’s Planning Commission and City Council. The City Council hearing notice must be sent to all postal patrons, utility customers, or voters within the City. Adoption of a plan must be with a non-emergency ordinance by the City Council that does not go into effect for 30 days after adoption. The plan, together with an accompanying urban renewal report, identifies the goals of the urban renewal area and projects to be funded with TIF, describes how the area complies with statutory requirements for blight, projects tax increment revenues, and identifies a maximum amount of debt an urban renewal area can incur, among other topics.
What are the criteria for creating an Urban Renewal area?
To create an urban renewal area, blight has to be found in the area. Blight is fully defined in the Oregon Revised Statutes 457, and generally can be described as areas which are underdeveloped, under performing, dangerous, deteriorated, and lacking adequate infrastructure.
Who administers an Urban Renewal area?
An Urban Renewal Agency administers the urban renewal plan, and this agency is established by the City Council. In many cities the City Council serves as the board of the Urban Renewal Agency (URA).
Does Urban Renewal increase property taxes?
No, urban renewal does not increase property taxes; it simply allows for the reallocation of growth on taxes to the urban renewal agency rather than the overlapping taxing districts. Taxpayers in Klamath Falls will see urban renewal as a line item on their tax statements whether or not they own property inside of an urban renewal area, a situation that can cause some confusion. This line item does not represent an extra charge, or result in a larger tax bill than would otherwise occur; instead, it represents a division of tax dollars, collected from all properties in an amount that equals the growth on taxes inside the urban renewal district. When urban renewal ends, general property taxes will not decrease; they will just be reallocated to all taxing jurisdictions.
Does Urban Renewal have a financial effect on the taxing jurisdictions?
Yes, urban renewal will have a financial effect on local taxing jurisdictions, but the impact is different for schools than other districts. The Klamath Falls City School District and the Southern Oregon Education Service District are not directly affected by the tax increment financing as under current school funding law, property tax revenues are combined with State School Fund revenues to achieve per-student funding targets. Under this system, property taxes foregone because of the use of tax increment financing are replaced, as determined by a funding formula at the State level with State School Fund revenues. Other taxing districts may experience fiscal impacts that limit their total revenue capacity while the urban renewal area is in place. While the urban renewal area is active, a taxing jurisdiction’s revenue from that area will be frozen, and will not increase until revenue-sharing is triggered. So, while an urban renewal area is active, taxing jurisdictions will not receive as much money as they would otherwise have received. In essence, the taxing districts forego some revenue in exchange for a greater total property tax base and revenue capacity as a result of urban renewal investments. The goal of urban renewal is to spur development that would not have occurred but for urban renewal, so when the urban renewal area expires, taxing jurisdictions can expect to receive more tax revenues than they would have had the urban renewal area never existed at all. In 2009, the Oregon legislature passed HB 3056, which enacted what is known as “revenue sharing”. Revenue sharing requires urban renewal agencies to share increment when certain thresholds are met. The thresholds are tied to the area’s “maximum indebtedness”, or the limit on the amount of debt that the agency can incur in an area. The revenue sharing legislation means that successful urban renewal investments begin creating returns for overlapping taxing districts in advance of an urban renewal area’s expiration.