Delaware

Dover City Council votes to allow use of a new financing strategy for redevelopment

Dover City Council this week voted to allow the city to use a new financial instrument to subsidize refurbishment efforts – the latest offering to channel private development into the capital’s struggling inner city.

Dover was authorized by the General Assembly in 2017 to issue Tax Increase Funding Bonds, which effectively anticipate future increases in property tax revenue from a specific area – such as downtown Dover – to fund redevelopment. If the redevelopment increases the property value in the designated area, the increase in property tax revenue will pay back the bond. However, Dover City Council waited until this month to give itself the power to issue the bonds.

City Manager David Hugg says the new funding instrument could be “the most important step” in attracting new investment to Dover’s city centre.

Due to an exception in state law written specifically for Dover, the city’s creditworthiness will not be adversely affected if the city fails to secure the increase in property tax revenue needed to repay the bonds.

“Because they are not supported by loans or city assets, the city has no obligation to repay these bonds,” he told the council at a late November meeting. “The risk lies with the developer or remediation company. The amount of money is tied to the bonds.”

Tax increase funding has been a popular vehicle for funding development across the country for decades. In cities where it has been used most extensively — like Chicago — the strategy has been criticized for diverting revenues from normal property appreciation into redevelopment projects without the flexibility to spend those revenues on new priorities.

James Merriman, a professor of public policy at the University of Chicago, author of a 2018 report on shortcomings in the statewide implementation of tax-raising funding, says the tactic also tends to spark conflicts between municipalities and school districts.

“It is local government – ​​usually city governments – that can explain that [tax increment financing district]but overlying governments, and school districts in particular, are giving up some of their revenue, so school districts usually struggle with cities,” he said.

However, Hugg says the city’s new tax ordinance to fund tax increases would require approval from county and school district partners before they divert proceeds from their coffers to subsidize redevelopment projects.

Dover City Council has not yet designated an area for redevelopment that will use the new funding tactic, but the core of the inner city is the most likely candidate.

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