What’s a TIRZ & Why Should I Care?

The two TIRZs (TIRZ #1 and TIRZ #2) in McKinney consist of the airport, most of the 5 between 380 and the 75, the downtown area, Gateway, and the surrounding areas of each—essentially, TIRZ #1 or TIRZ #2 envelope and surround nearly all of McKinney’s current business/commercial focal points or potential focal points. If any of us are imagining that any economic activity in the TIRZ areas will equal more revenue for the city or a lower property tax burden, we would be mistaken, unless we’re willing to wait 20 or more years.

A TIRZ is a Tax Increment Reinvestment Zone. A TIRZ takes any property tax and sales tax revenue over a base amount from a base year and reinvests the additional revenue back into only the TIRZ area. This can be a very good arrangement for the TIRZ if it works. However, the rest of the city picks up the tab for the cost of the new growth without tangible benefits for many decades.

Bryant, TX has a great information page on their website about TIRZs with the pros and cons of this sort of area specific reinvestment zone:

“There are some drawbacks to utilizing a TIRZ. Probably the most notable drawback is that fact that all of your property taxes, above and beyond your “base tax value” number, go into the TIRZ. Wait a second! Didn’t we just say that was a good thing? Well, yes, and no. For the TIRZ, it’s great. But for the rest of the City there are other things to consider. There are City support services, such as the police and fire departments, that the City has to pay for out of its general fund. And the property taxes that the growing, and increasingly valuable, TIRZ is creating aren’t going into the general fund to help pay for those departments and services.”

Here’s an example:
The 9 Acre Development is the talk of McKinney lately. The 9 Acre Development is going to bring more residents, businesses, and retail to the downtown area so it has to be a good thing, right?

The 9 Acre Development is located in the TIRZ #1. The 9 Acre Development will be a win for the TIRZ #1 only. If it is still around and successful in 2040 when the TIRZ #1 is set to expire, maybe then the entire city of McKinney will benefit.
If we need more police, fire, city planners, and any other city employees due to growth in that area, the funding will not come from the TIRZ, it will come from the general fund (which is us).

https://www.mckinneytexas.org/1508/Nine-Acre-Development
http://www.mckinneytexas.org/ArchiveCenter/ViewFile/Item/1232

Why should I care?

We want a successful city with a good balance of residential and commercial. Because of that, citizens welcome any and all plans to bring commercial business to the city. This is why many support the redevelopment of downtown, the Gateway development, the Airport development, and the 9 Acre Development. Heck, many are even excited for this new Restaurant Row we keep hearing about. We’re game for anything if it’ll help bring our taxes down by balancing our tax burden.  

Our tax burden will not be eased for decades if any of the growth our city needs takes place in TIRZ #1 and TIRZ #2.

Every year in TIRZ #1 and TIRZ #2—regardless of property tax appraisal growth, increased sales tax generated, increased populations due to new developments, new commercial or business development—only a base amount of property tax and sales tax will be given to the city’s General Fund.

A TIRZ is another mechanism of money generation for the city that may or may not be a good idea. Yes, our eyes glaze over from all this confusing money stuff. We need to learn about it and see all the ways that pet projects get funding or we’re just chumps.

Here are links articles that highlight some ways a TIRZ can be problematic: http://www.chron.com/opinion/editorials/article/Not-so-super-TIRZ-5645382.php
http://www.houstonpress.com/news/how-houston-uses-the-tirz-system-to-benefit-high-dollar-areas-and-ignore-poorer-neighborhoods-7497253

http://www.mysanantonio.com/news/article/Good-idea-gone-bad-868530.php

How does a TIRZ work?

An area is defined for reinvestment/investment. A board is created (made up mostly of City Council in this case). A base year and level of taxes is established. Predictions are made as to how much property tax and sales tax revenue the TIRZ will raise over a very big time period. TIRZ projects that will use the extra money are drawn up. The TIRZ collects money. It’s always good for a TIRZ to pick a bad year as its base level when the property taxes and sales tax were not particularly good.

TIRZ #1 – see map
TIRZ #1 will not expire until 2040. It is about 947 acres. As the table shows, the same base amount is given to the General Fund every year. The bold amounts are what the General Fund would have gotten in revenue growth had we not had a TIRZ.

	2010 Base Property Tax to GF	2010 Base Sales & Use Tax to GF	TIRZ #1 ONLY Property Tax	TIRZ #1 ONLY Sales & Use Tax
2011	$1,223,602	$1,396,598	$	$
2011-12	same	same	$4,875	$438,176
2012-13	same	same	$67,770	$406,544
2013-14	same	same	$446,956	$1,037,166
2014-15	same	same	$45,372	$1,285,133
2015-16	same	same	$428,036*	$1,336,537*
2016-17	same	same	$647,800**	$1,349,389**

*EOY estimates
**Proposed budget

According to the TIRZ #1, they have over $7 M in there so far for various TIRZ #1 projects.

Even though this money is saved only for TIRZ #1 and TIRZ #1 can take out bonds, we were asked to float the bond to pay for the parking garage as a city. The parking garage location was in TIRZ #1.

TIRZ #2 – Airport see map
Airport and area around it is about 3,617 acres. It is set to expire in 2040, but it can be easily continued for much longer and I’ve heard that is the plan.
At this point, TIRZ #2 is only supposed to pay for a $40 M roadway project plus $1 M in administration fees. This is why the General Fund/we are paying for everything else related to the airport. Once again, we get the base amount and the TIRZ gets the bold that we would be getting without the TIRZ.

	2010 Base Property Tax to GF	2010 Base Sales & Use Tax to GF	TIRZ #2 ONLY Property Tax	TIRZ #2 ONLY Sales & Use Tax
2011	~$684,645	$493,222	$	$
2011-12	same	same	$92,682	$228,046
2012-13	same	same	$49,072	$282,011
2013-14	same	same	$80,510	$412,991
2014-15	same	same	$7,292	$298,108
2015-16	same	same	$100,637*	$313,013*
2016-17	same	same	$156,500**	$313,013**

*EOY estimate
**Proposed budget

Even though TIRZ #2 gives the base property, sales, and use taxes above to the General Fund, the city gives a large chunk of it back to the Airport each year to run the airport since it isn’t in any way ready to do so on its own.

An average of $600,000 a year is taken from the General Fund/us and given to the Airport Fund on top of the TIRZ #2. There are also yearly supplemental purchases of airport equipment that come from the General Fund. There are also Airport related Capital Improvement Projects.

Even though the city created a TIRZ #2 and it has bonding capabilities, McKinney residents were asked in 2015 to pass a bond to buy more land for the Airport. Instead, all that TIRZ money is being saved for a road.

This document was edited to reflect totals from CAFRs.

For more information:


http://www.mckinneytexas.org/1222/What-is-a-TIRZ

Fund Reports http://mckinney.legistar.com/Calendar.aspx  or see https://www.mckinneytexas.org/Archive.aspx?AMID=40