Demolition and “environmental renovation” (such as asbestos abatement) were not originally part of the city’s Tax Increment Financing (TIF) laws; mostly, TIF funds were used for public infrastructure, says Sue Hounsel of the city’s economic development office. But the laws “changed over time,” she says, and now bulldozing existing buildings as well as completing asbestos abatement and the like are “one of the eligible costs.”

That’s how Christon Company was able to secure TIF funding for demolition of the vacant retail buildings in Lake Highlands Plaza. Prescott Realty Group did the same when they knocked down all of the apartments that formerly stood on the 70-acre Lake Highlands Town Center property. Hounsel says TIF funding for demolition also has been used in TIF districts Downtown (the city has 18 TIF districts total).

As we discussed this morning, the city didn’t write either developer a check for $2.4 million (in Christon’s case) or $23 million (in Prescott’s) to bulldoze buildings or build infrastructure. The goal for both developers is to complete their projects and increase the property values so that they can be reimbursed by the resulting influx of property tax dollars. If that doesn’t happen, the developer has to eat the cost. The developer “can’t look to any [city] funds other than TIF funds for reimbursement,” Hounsel says.

So yes, it’s risky, but there’s always risk in development, as we’ve seen especially in recent years. And if a project takes off, a developer can save quite a chunk of change through TIF reimbursement, thanks to the city.

It’s fairly easy to see how TIF funds benefit an adjacent neighborhood — in Lake Highlands’ case, old apartments and vacant retail can be torn down to make way for something new (even though there isn’t neighborhood consensus that either the Town Center or the Walnut Hill-Audelia project will be able to aspire to their respective goals). But what does the city, and its taxpayers, have to show for it?

More after the jump …Let’s backtrack a bit. Here’s how the city describes Tax Increment Financing on its office of economic development website:

A Tax Increment Financing district is a special purpose district; a way for the City of Dallas to reinvest added tax revenue from new development back into the area where it originated. The TIF program is used to finance new public improvements in designated areas. The goal is to stimulate new private investment and thereby increase real estate values. Any increase in tax revenues (caused by new development and higher property values) is paid into a special TIF fund to finance improvements. Potential improvements include wider sidewalks, utilities, public landscaping, lighting,  environmental remediation, demolition, and historic façades etc.

Each TIF district in Dallas has a legal life of 30 years, meaning a developer has 30 years to request TIF funding, complete a project and increase the tax rolls enough to earn back the money the city pledged in TIF reimbursements. If the project doesn’t turn a tax profit within that time, the developer won’t be reimbursed, or at least not fully. The Skillman Corridor TIF District, created in 2006, has a total budget of roughly $49.6 million in reimbursements (keep in mind that those are present-day dollars).

So … (deep breath) is it the city’s goal to entice developers to create projects in the corridor that will result in increased property values yielding more than $49.6 million in property taxes?

“That’s ideal,” Hounsel says. If that desn’t happen, the city begins collecting on these projects in year 31, which will be 2036 for the Skillman TIF. Also, Hounsel says, “in most of our newer districts created since 2005, the city’s not participating at 100 percent of new revenue. Fifteen percent of new revenue goes to the general fund, and 85 percent of new revenue goes to the TIF fund to meet obligations.”