City council approves sending east Blaine taxing district study to state for feedback

In a narrow 4-3 vote, Blaine City Council approved sending a study on creating an east Blaine taxing district to the Washington state treasurer for feedback. The taxing district, known as a tax-increment financing district (TIF), could help the city fund $3.5 million worth of infrastructure needed to develop the east Blaine subdivisions of East Harbor Hills and Grandis Pond. 

The city’s approval of sending the TIF study to the state does not guarantee that a TIF district will be established. The state has 90 days to review the study and is expected to return its feedback by May. Council will then need to consider the state’s recommendations and vote whether it wants to establish a TIF district before June 1, per state requirements. If council is unable to make the decision by June 1, it will need to wait another year to establish the district.

In fall 2021, former city manager Michael Jones first brought TIF to city council’s attention after the Washington state legislature passed a law allowing cities, ports and counties to establish TIF districts earlier that year. TIF can be used as a financial tool to fund publicly owned infrastructure needed for planned developments in areas that historically haven’t had much economic development. 

“We believe without infrastructure, very little development would happen in the area,” said Bob Stowe, the city’s TIF consultant who conducted the study, during a February 22 special meeting on TIF. 

TIF guidelines

Taxing districts typically collect the previous year’s levy, the annual 1 percent levy increase and new construction costs. TIF allows an additional amount to be added that would go to the city’s general fund for the city to take out loans or bonds to fund the east Blaine infrastructure. No other taxing districts besides the city would receive the TIF revenue; however, they could benefit from additional tax revenue the development would ultimately bring.

TIF districts cannot last longer than 25 years and the boundaries can’t change, according to state requirements. There can’t be more than two active TIF areas and they can’t overlap. 

Using the 2023 levy rates, $3.63 of the $8.72 total levy would be available to repay the city’s infrastructure debt, according to city documents. The TIF district would cover 833 acres with an expected 1,442 homes and 50,000 square feet of commercial space. 

Stowe said he looked at three scenarios on how the east Blaine housing development may occur using different project scopes and timeframes. If council decides to create an ordinance establishing TIF later this spring, the city can only collect up to the TIF revenue amount identified in the ordinance. This means if council determines it only wants to borrow $3.5 million from the TIF area, it cannot borrow more, even if the TIF area can generate more revenue. The TIF area ends when the city has paid off its debt. 

The city originally was considering borrowing $7 million through TIF but lowered it to $3.5 million, which is a quarter of the total $14 million estimated for new east Blaine infrastructure. The city has already secured $1 million from the state and Whatcom County, split evenly, for infrastructure and may be able to use an additional $500,000 in Covid-19 stimulus money, city manager Michael Harmon said. 

Stowe told councilmembers February 22 the state would recommend how much it believed the city should borrow but the amount was ultimately up to council. 

“It’s up to you in terms of what you believe you should issue debt for and how much you should issue it for,” Stowe said. 

Impact on city taxpayers 

In theory, TIF should only financially impact people living in the designated TIF area. TIF would allow the city to borrow money from expected increases in property tax revenues in the new east Blaine subdivisions to pay for electrical, sewer, water and roadway improvements. 

However, all of the city’s taxpayers may be impacted by TIF if development is slower than anticipated or doesn’t occur at all. The city and developers Skip and Katie Jansen, of East Harbor Hills, and Ken Hertz, of Grandis Pond, would split the cost of the TIF debt if development is slow. Harmon said that a gap in when the city begins incurring debt and when the city begins seeing TIF funds as development progresses is expected in the first few years.

The city would need to pay the debt with its general fund reserves, which is currently around $4 million (the city is projecting using $1 million of its reserves to balance its general fund in 2023 so that number could decrease). If the general fund can’t be used to make a payment on the debt, then the city would likely raise utility rates and borrow the money from the utility funds, city finance director Daniel Heverling said. He added the city has about a year’s worth of money in the utility funds before it would need to raise rates.

The city is asking the state to review whether it would be fiscally responsible to take out $3.5 million in loans or bonds to be paid back through TIF revenue. If the city took on that debt, it would incur about $255,000 to $290,000 additional expenses annually, depending on interest rates. Each utility customer would need to pay about $33 per year to cover the city’s debt, or about $2.25 per month, if TIF revenue did not immediately cover the borrowed money. 

“When the loan is paid off, does anybody believe the city would reduce that utility back?” councilmember Garth Baldwin asked on February 22. He added the city is already behind on raising rates and that taxpayers are still paying off the city’s state-of-the-art Lighthouse Point Water Reclamation Facility. 

Council debate

TIF has only recently become an issue of debate for city council. Discussions on TIF geared up last November as council held a study session on the funding tool, before approving a $75,000 contract in December with Stowe Development and Strategies to conduct the analysis of the east Blaine area that would be sent to the state. 

The city, the Jansens and Hertz had agreed to split the cost of Stowe’s $75,000 contract evenly three ways but a contract with the developers had not been prepared by December. Council was slated to vote on the contract during its February 13 meeting but tabled approving the contract because some councilmembers raised concerns that the $75,000 contract was too costly, despite Stowe having already spent over a month working on the study. 

Councilmembers seemed confused on what they were voting on and councilmember Richard May directed city staff to ask Stowe to halt work until city council had more time to discuss TIF. In part, council wanted Harmon, who was away at the time, to provide recommendations because he had used TIF to buy down the costs of Sky Ridge, an affordable housing development and large sports complex in Spearfish, South Dakota. (While TIF was recently passed in Washington, it’s been a funding tool across the U.S. for years.) 

Heverling warned councilmembers that the February 27 council meeting was the absolute latest they could vote on sending the TIF study to the state because the state needed 90 days for review. 

Council held the February 22 special meeting to ask Stowe questions regarding TIF. Stowe has been a major consultant on proposed or active TIF projects throughout the state, including Pasco, Kirkland, Chelan, College Place, Lakewood and Yakima. 

The city had already incurred $63,000 of Stowe’s $75,000 contract, May said during the meeting.

Councilmembers discussed their earlier confusion on the financial contract with the developers they were supposed to vote on February 13. Councilmember Rhyan Lopez stated he thought council had already approved the developer contract and this was an additional $75,000, while councilmember Garth Baldwin asked why the contract with the developers wasn’t signed. 

Councilmember Mike Hill said he supported having the option for the TIF district because it would help development, which he said was needed to improve the city budget.

“[Michael] Jones is the one that started this and he thought this would be a real good thing for the city, and it will be. It’s an opportunity. We don’t have to use it, or we can use it,” Hill said. “[The developers] are trying to help us, not hurt us. Every time we make a move it seems like we’re road-blocking these guys.”

Councilmember Eric Davidson voiced his reservation on the TIF district, saying he didn’t believe the city had explored the option enough, to which Baldwin agreed. May said council would ultimately decide how much debt the city would take on, if it decided to create a TIF district. 

“You will have ample time to argue whatever limit you think should be the highest amount,” May said. “The likely one we’re being presented has shrunk greatly. We want to bite off what we can chew. The figures being most seriously looked at right now are rather modest.”

Mayor Mary Lou Steward suggested councilmembers use the next few months to look at the successes and failures of TIF districts in other states. May agreed.

After the special February 22 meeting, council briefly discussed TIF before taking two separate votes on it during its February 27 meeting. In a 7-0 vote, council approved the financial contract with the developers. Council then voted 4-3 for the city to send Stowe’s TIF study to the state for recommendations. Councilmembers Baldwin, Davidson and Kerena Higgins voted in opposition. 

This article was updated to correct which east Blaine subdivisions were included in the proposed TIF boundary area.