Periodically we look at the long term debt of the city and see if there are opportunities to make a change that benefits the finances of the city. Recently that effort was done concerning a couple of issues. The first involved the Tax Increment District 1. This district was established about 24 years ago with intended development to occur along the frontage road, most of which occurred in the area of Sherburne Avenue and Highway 10. There was also development that occurred along Bank Street as part of the original district. Tax Increment takes the value before development and freezes it at that rate and when development occurs a new value is determined. The property owner pays taxes just like any other property but the “increment” between the before and after value creates a tax that is collected separately and used for economic development purposes.
As development occurred the city collected increment to offset costs associated with public improvements. The area of benefit expanded in 1994 to include a larger improvement district and as debt was incurred the proceeds of this district were pledged to debt service for the 1996A Tax Increment Bonds.
As time progressed and revenues were collected the city recognized that these bonds could be called as adequate revenues were available to pay off the debt. As there were sufficient revenues to address the debt the need to continue the Tax Increment District was unnecessary. Dealing with that the city decertified the Tax Increment District which places the property within that district out side of a tax increment district becoming part of the entire tax base of the city.
With the early payment of the bonds the city was able to reduce the required levy to met bond requirements recognizing an impact of approximately $35,000 per year. The city also saves in interest expense over the remaining life of the original issue for the bonds that will be paid off. These bonds also had assessment income pledged to debt service so with the bond paid, that revenue comes to the general fund until the assessments are paid in full.
Managing debt service involves more than making payments and keeping the books. The benefits of periodic reviews of debt service seem to be apparent with this example. The tax payers of the City of Becker become the winners when these actions are taken.
