RAPID CITY - Thursday night's debate about tax increment financing was more of an opportunity for mayoral candidates to restate their philsophies of how the economic development tool should be used.

Mayor Jim Shaw, Alderman Tom Johnson and developer Bill Freytag explained and defended the city's use of TIFs, and state Rep. Alan Hanks urged caution but said he is not against all TIFs.

Hanks and Freytag negotiated to set up the debate in response to an opinion column Freytag wrote for the Saturday edition of the Journal. In the column, Freytag criticized Hanks and Alderman Sam Kooiker for making negative comments about some of the city's TIFs and challenged them to a public debate.

Hanks and Kooiker accepted, though Kooiker bowed out of the event at the last minute.

Freytag said he refused to be held out as an evil developer who walked into city hall with his hand out. He defended the use of TIFs and tried to clear up misconceptions about the mayor's role in the process.

"The mayor's office does not hand out TIFs. The mayor has almost nothing to do with a TIF," he said.

The only role the mayor has is to break a city council tie vote solely on the boundary of the TIF district, he said.

In a TIF district, property-tax valuations remain frozen at a base value for a specified number of years. During that time, improvements are made that increase the property's value. Property owners continue to pay all of the taxes based on the higher value, but taxing entities, such as the city, receive taxes based on the original value.

The difference between the two - the increment - goes to pay off the cost of the improvements. After those costs are paid, local governments receive all of the property-tax revenue.

The city has approved 62 TIF districts, but less than 30 are still active. The total assessed value of property in TIFs is about $249 million; after development, the property in those TIFs is expected to be worth about $473 million. Proponents said the city's overall valuation has increased over the past several years, from $2.2 billion to $3.7 billion today, because of TIF projects.

Hanks emphasized repeatedly that TIFs are a wonderful tool if used properly.

"I'll say it 100 times if I have to. I believe in TIFs. What I don't believe in is the way we're stretching the rules," he said.

Hanks said the problem is with how TIFs are used. He said there are public costs and private costs in development. Hanks is concerned that over the past three years, the city has more frequently been allowing tax increment financing to pay for improvements that traditionally have been developers' responsibilities.

Hanks said he has heard concerns raised among legislators in Pierre about Rapid City's frequent use of TIFs and is afraid the Legislature might decide to take one of the city's best economic-development tools away.

"The entire state is complaining about how Rapid City is playing fast and loose with the rules on TIFs," he said. "The reason is the state aid formula spreads the cost of our TIFs statewide."

Alderman Tom Johnson told Hanks he can't tell people to not bring politics into the debate one minute then accuse the city of playing fast and loose the next.

"Alan, I don't think you're pro-TIFs as much as you're pro-Alan," Johnson said through a chorus of boos. "I think you've spun this for the campaign."

Johnson said the city won't lose TIFs if a state legislator doesn't continue to bring it up and make it happen. He said the Stoney Creek TIF is being used to turn a drainage ditch on a valuable corner into a tax-producing piece of property.

"We could have left it weeds and rocks and non-buildable, but that doesn't do anything whatsoever for the community," he said. "In 14 years (when the tax increment district pays off) you'll have a piece of property that produces real taxes - not for 10 years, not for 20 years, but forever."

Shaw said TIFs help stimulate economic activity. Economic development TIFs help create businesses, he said. Jobs are created in building the business and once it starts operating sales taxes are generated.

"We know we're going to get the property tax in the future when the TIF is paid off. It's kind of like money in the bank," Shaw said. "We have almost no other form of economic development incentive. If the TIF is upfronted by the developer, it's the developer's money, not the taxpayers'. You can't lose what you don't have. If it doesn't get built, there is no additional property tax or sales tax."

Contact Scott Aust at 394-8415 or scott.aust@rapidcityjournal.com