Sibson to take Mitchell's tax increment district complaints before SD audit committee

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May 30—MITCHELL — Mitchell resident Steve Sibson is taking Mitchell's increment tax districts before a state legislative committee, raising concerns that the number of tax districts in the city lacks proper scrutiny and may not follow state approval procedures.
On May 19, Sibson gave the city council an update on his conversations with the South Dakota Department of Revenue, particularly with regard to TID No. 41.
According to previous discussions, increment districts no longer have to be pre-approved by the revenue department before going before a city council or county commission. However, Sibson shared that this was not the case, and that Mitchell was receiving special treatment because of the volume of TIDs the city has.
"When I brought up the push back on that requirement for a pre-approved submission as to classification type, I was told that is still in place," Sibson said. "It seems like the Department of Revenue is rubber stamping what we're doing here."
The Mitchell Republic reached out to the South Dakota Department of Revenue to confirm Sibson's statements to the council, but the department had not responded by the time this article was published.
During its May 19 regular meeting, the Mitchell City Council approved a developer agreement for Tax Increment District (TID) No. 41 for affordable housing and street construction, and also approved a developer agreement for TID No. 42 to expand the Dale's A1 Transmission service building on South Burr Street.
The council previously approved the creation and project plans of these tax districts on May 5.
TID No. 41 includes two projects, which Sibson took as an issue to the revenue department.
In particular, the TID No. 41 agreement lays out what will happen to increment-generated tax funds once the affordable housing units are completed, specifically the construction of Mattie Street.
Sibson raised concerns with the revenue department that property owners along Mattie Street, some of whom are outside of Mitchell city limits in Davison County, will be taxed to complete Mattie Street.
The city's response is that they don't know if that will happen yet.
City Attorney Justin Johnson told the Mitchell Republic that the city won't know how much of the Mattie Street construction can be supported by TID No. 41 until the apartments have been built and the property values have been established.
In the coming years, if the council decides to construct Mattie Street without enough support from TID No. 41, then the rest of the project will have to be paid for somehow, according to Johnson.
"It's possible that part of it could be done by special assessment, which neighboring properties would be responsible for," Johnson said.
If TID No. 41 covers part of the cost of constructing Mattie Street, property owners along Mattie Street would likely be paying less than if there was no tax district at all, Johnson noted.
If there were no tax district funds available and the council decided to move forward, assessments for those properties along Mattie Street would cover the whole construction cost of Mattie Street.
In other words, if TID No. 41 doesn't pay for all of the construction costs and the city doesn't pay for it out of general funds, Mattie Street property owners are on the hook to complete the road.
The boundaries of Mattie Street are within the Mitchell city limits. However, only the right of way for the street is within the city limits while the properties on either side of Mattie Street on the south side are outside of the city limits.
A tax increment is only generated from property within the boundaries of the TID, but no tax funds will be generated from the street itself, which is a right-of-way, and therefore tax-exempt, according to Mitchell Finance Officer Michelle Bathke.
If a special assessment were levied against property owners, then even those property owners outside of city limits would be liable for paying a share of the burden to finish construction of Mattie Street to East Havens Avenue.
In addition to the city potentially raising a tax levy against individual property owners along Mattie Street, the status of TID No. 41 may result in a special levy to maintain tax funds for the Mitchell School District.
According to Sibson, the city of Brookings passed a TID that required a special assessment in the amount of $470,000, which taxpayers had to pay. Sibson raised concern with Davison County auditors that the same thing could happen in Mitchell.
TID No. 41 was passed to fund Paul Groeneweg's Woods Apartments, a proposed 70-unit complex with two-and-three-bedroom apartments across 12 buildings, which Sibson found no fault with. It is estimated that the developer's infrastructure will be covered by TID No. 41 at an estimated $2.28 million in tax funds.
However, Sibson had problems with the city including street construction as a separate project on the same TID. A violation of TID rules, according to Sibson's research.
This TID is unique in that it also has a plan to construct the area of Mattie Street south of First Avenue and north of East Havens Avenue, including intersections, with a projected $2.02 million in tax funds.
This is not the first TID to seek to complete a portion of Mattie Street. In 2012, TID No. 17 was introduced to cover the construction cost of a portion of Mattie Street, but ultimately failed to complete the task.
TID No. 17 was paid off in nine years and resulted in $12,849,130 of assessed value growth when it was dissolved, according to City Administrator Stephanie Ellwein.
At the time TID No. 17 was approved in 2012, it was estimated that $200,000 would be raised toward the construction of roughly 450 feet of Mattie Street. TID No. 17 included five phases, with the last phase being Mattie Street's road, sewer and water installation. This would have connected the area of Mattie Street between East Birch Avenue and Charles Avenue, but would not have connected to East Havens Avenue.
TIDs have four kinds of classifications with the Department of Revenue — local, industrial, economic development and affordable housing.
Previously, Sibson told the council he was concerned about the Mattie Street project, that if it included a local TID classification then it would be denied at the state level for tax reimbursement for the school district.
In a local TID, projects usually benefit the local government instead of having a regional or statewide benefit,
according to the Department of Revenue.
Local TID projects are subject to a special levy protection for school districts by the county auditor. This means that even if a local TID is passed, it may result in additional levies on all property in the Mitchell School District, not just those properties within the TID boundaries.
"This is not just about the city of Mitchell. This is statewide concerning how our property taxes are being impacted by things like this," Sibson told the council.
A revenue department employee offered Sibson the opinion to refer TID No. 41 to a vote of the people, which Sibson told the council he would not do.
Instead, Sibson is tackling the issue at the state level by addressing legislative committees directly. Sibson said he would take the issue to the South Dakota Government Operations and Audit Committee, which is made up of a mix of senators and representatives.
"I just want to give the city council a heads up that if some things come up at the state level about this particular project, I don't want it to be me giving the city of Mitchell a black eye for doing something that's going on statewide," Sibson said.