Policy Recommendations to Balance Concerns and Maximize Local Investment Benefit from Louisville's Tax Increment Financing (TIF) District. By Justin Avert, edited by Samuel Kessler.
In March 2021, the Kentucky General Assembly passed House Bill 321 authorizing the creation of a tax increment financing (TIF) district within the West End of Louisville. Designed to spur community-wide economic development, it established an innovative public-private nonprofit partnership.
Known as the West End Opportunity Partnership (WEOP), this 21-seat board would have sole control over any fund disbursement. Funds can be used towards a broad array of investments including small business loans, financing affordable housing units, home improvements, etc. Once the WEOP board raises $10 million in donations from private-public sources, the state will match another $10 million, and the City of Louisville has already pledged $10 million—bringing the total to $30 million -- a major investment where improved vitality is needed.
Though innovative, by attempting to overcome a number of issues with otherwise standard TIF's lacking a local role in investment making, residents within the economic district have expressed opposition to the TIF. Namely, skepticism towards the board and whether neighborhoods would have had an advisory vs direct role, and fears of displacement/gentrification at the prospect of large-scale commercial & residential developments. The Historically Black Neighborhood Assembly (a group composed of residents of the West End neighborhoods) was an initial driver of opposition, leading a campaign titled “#StoptheWestEndTIF” which garnered 425 signatures. State Senator Gerald Neal, bipartisan HB 321’s leading sponsor, has noted that this district is not a panacea to the issues that led to the historic divestment of the West End, however the board of 21 individuals has full discretion over the projects that will shape West Louisville and its 62,000 residents.
Where concerns lie in implementation, the text of the law clearly establishes the purposes of the public-private partnership -- to ensure projects include the employment of area residents, both in short-term construction jobs and long-term employment in businesses locating within the development area, ensure that all housing projects include the creation of housing that is deemed affordable in accordance with federal guidelines for low-income families, and bounds the board to the Kentucky Open Meetings Act to name a few).The law also grants the WEOP board sole responsibility for its operations, where residents play an advisory role.
To continually improve the success of the TIF in avoiding undue gentrification, and likewise to continually improve the --- reaching a a mutual-gains with TIF implementation may improve outcomes intended by the spirit of the WEOP legislation, which adjustments to the TIF legislation and surrounding policies could support to that end. Resolving potential conflict between the TIF and participation of residents may lie in amendments to this legislation to boost stronger community input & trust within the bill, further addressing sources of distrust and likewise increasing direct investment in local business.
Thus, the CPC Center for Rights, Liberties, and Equity, developed initial recommendations in 2022 encourage community involvement in dealing with this public entity, and likewise improve the WEOP's investment success as a public entity.
UPDATE - This release was originally written in early 2023. Further recommendations by CPI's team were formed following a Congressional Summit, connecing not only with the staff of the KY delegation but also with key staff under Sen. Booker (NJ) who were involved in creating Federal Qualified Opportunity Zones, which have faced similar challenges in successful implementation from the lens of communities economically served. This summit paper is published in the Commonwealth Policy Papers, where as of 2024, some recommendations namely lien releases have been put in place by Louisville metro. Some of these measures may also align with comprehensive analysis noted in the summit paper produced by local economists analyzing the TIF district. Synthesizing discussions and policy analysis following CPI's 2022-23 Congressional Summit yielded the following recommendations:
Local Level (Metro Louisville)
• Pursuant to the KRS 99.727(5) and Metro Ord. No. 11-2003, tax delinquency diversion
program for blighted property, all blighted property within the boundaries of this TIF
within the 20 year period should automatically be designated as enrolled under the
diversion program
• Develop new initiatives to work proactively with existing business & homeowners to
remedy code violations and facilitate lien releases
• Promote innovative measures to further reduce local costs of living to residents in the
TIF district
• Develop new guidelines to assist board investment and encourage board investment
in the establishment of new funds to support residential mobility for TIF residents
• Develop a new engagement and mentorship program between the WEOP board,
local business supported by the TIF in the west end, students of JCPS schools in and
around the district seeking exposure to business, and students of local colleges seeking
exposure to business and investment management
State Level
The following amendments are recommended to the provisions over the TIF, notwithstanding
amendments to these ends made to-date:
• Amend KRS 99.727 (5), adding an exception for purchase by or for the purposes of
investment under the West-End Opportunity Partnership directed by the to afford
capability of purchasing blighted properties enrolled in lien diversion
• Expand the Low-Income Housing Tax Credit (LITECH) program within TIF districts and
make refundable within TIF districts
• Extend refundable tax credit for increases in property taxes above the frozen 2021 rate
to renters who make up 60 percent of West Louisville residents
• Conduct an open hearing upon authorization & final approval for any site of a
minimum threshold or group of sites selected by the WEOP board for investment. An
open hearing provisions should not be written in such a way that creates undue
administrative burden.
• Any announcements made by the WEOP board relating to development or
investment must be in public circulation for a minimum 10-day period
• In addition to considering linkage fees between business development and residential
areas, direct that the board with create a separate fund to be managed by the board to
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support residential mobility and mitigating unintended impact of future residential
property value increase, and, increase the rate of state fund matching above 1:1 towards
the general WEOP in matching contributions given to WEOP directed towards this
separate fund.
• Improved public disclosure:
• Prior to the disbursement of funds at the disposal of the WEOP, the board
should issue a statement on publicly identify broad targets (I.e., 20-year target) of
the desired economic development level with each particular investment and the
target impact in the district (e.g. Grow the local equivalent of GDP or commercial
revenue by 150%). Statements should be issued within reason to a degree that also
avoids administrative burden.
• Considering the above targets, a study of each investment or group of
investments be conducted which considered whether increase in property value or
gentrification would occur in association with an investment of a minimum value or
group of investments in a particular area within the TIF at a minimum value
• Should such a study reveal that gentrification would occur with the investment,
the board may then disclose actions or other investments intended to reduce
gentrification to a justifiably minimal level (see federal level recommendations)
• Methods for which the gentrified population will either be indirectly
compensated (increase in local economic interdependence) or directly
compensated (if the indirect benefit is not clear) must be a part of the study
• The board should show the disclosures in a single report accessible and
readable by the public no less than 185 days (about 6 months) prior to the first
investment—excludes preliminary reports from this requirement
• Clarify that board members are to hold limited liability
Federal Level
• Non-profit groups like the WEOP board appointed to oversee business development
in disadvantaged low-income areas or federally designated Qualified Opportunity Zones
(West Louisville and portions of downtown Louisville received FQOZ designation in 2019)
must register under a new chapter of the 501c Code. Any groups under this chapter of
code would be subject to brief and reasonable disclosure requirements, which may also
be drafted by a designated secretary of the board. Type of disclosure would be for
federal legislators to decide, however, the state level comprehensive disclosure
requirements previously recommended can be viewed as an example
• Mirror the state-level tax credit to homeowners in QOZ’s
• The US Department of Housing and Urban Development must set up clearly
compliable guidelines for the largest threshold of gentrification that is considered
unnecessary per residential population density of any development area, per the
disclosure items suggested below
• Federal support to ensure lower rental costs of buildings constructed under HUD
standards located within local or state tax development districts, or federal QOZ’s
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• Establishment of a federal fund under the US Department of Housing and Urban
Development, where private entities may contribute in exchange for a new tax credit, and
the fund is disbursed to compensate cases of development associated property value
increase for private property of an initial maximum value, and other housing categories.
Sources - Avert, Justin and Kessler, Samuel C () "Maximize “West End Opportunity” in America: Alternative policy options to address perceived drawbacks of Tax Increment Financing (TIF) & Opportunity Zones," Commonwealth Policy Papers: Vol. 2: Iss. 2023, Article 1. Available at: https://ir.library.louisville.edu/cpp/vol2/iss2023/1