Columbia City Council members moved forward Wednesday with plans for two controversial tax districts amid growing concerns the proposal will result in rate increases for water and sewer customers.
Council voted 5-1 Wednesday to schedule a public hearing in November on the two districts, one of which would cover USC's Innovista research campus and the other, north and east Columbia. Councilman Kirkman Finlay voted no. Councilman Daniel Rickenmann was absent.
The proposal calls for the city to borrow money against future growth in property taxes in those areas - a process known as tax increment financing.
The city would spend the money on improvements in the tax districts, such as buildings, sidewalks, curb cuts, parking and streetlights. The city would then use the property taxes from new private development attracted there to pay off the loans.
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The Innovista tax district calls for loans of up to a total of $150 million, mostly to pay for a planned waterfront park. The north and east Columbia tax district calls for loans of up to $40 million to pay for some unnamed development projects.
Wednesday's vote does not commit the city to borrowing that much money. And it doesn't create the districts. It just notifies the public that that's how much money it might eventually want to borrow, if it chooses to - and only if it decides to approve the districts.
Critics say that to borrow the money, the city will have to use its cash-rich water and sewer fund as a backstop for the loan, a process that could force the city to raise its rates to keep its strong bond rating.
But supporters of the plan say it is a great way to encourage development in some of the city's poor areas, where developers are often wary of building new projects. It is the way the now-bustling Vista got its start, for example.
Councilman Sam Davis, who supports the plan, said it's too soon to talk about its impact on the water and sewer system, that those issues can be worked out later.
"We're not going to spend $40 million in one day," Davis said. "If we don't have the capacity, knowledge, wisdom and commitment to do this - then we don't need to be here."
The city's bond rating determines what interest rate it can get when it borrows money. The better the bond rating, the better the interest rate.
To have a good bond rating, the city has to have enough cash in its account to cover its debts. The standard the city tries to keep is a 2 to 1 ratio. In other words, if the city's payment on a loan one year is $15 million, the city makes sure it has at least $30 million in its account to cover it.
But the city already has other plans for the water and sewer fund.
The city plans to spend $300 million over the next three years to upgrade its aging water and sewer system. Of that money, it plans to borrow about $275 million. But to keep the 2 to 1 ratio, council members had to increase the revenue in the water and sewer fund.
In 2006, council members approved a 25 percent water and sewer rate increase to be phased in over five years - about a 5 percent increase each year.
If the city uses the water and sewer fund to backstop loans from the new tax districts, that could throw off the city's ratio.
The city then would have two options: delay the improvements to the water and sewer system or raise rates to add more money to the fund.
"That is why I voted no," Finlay said. "I would have been happy to do a smaller, more directed (tax district)."
Interim city manager Steve Gantt said the city already has borrowed $81 million against the water and sewer fund this year.
That money will most likely be used to upgrade the city's wastewater treatment plant, replace and repair portions of a 54-inch sewer line in north Columbia and replace a sewer pump on Broad River Road that has been clogged by debris from prison inmates at various institutions along that road.
Gantt said the $100 million loan planned for next year will repair or replace some of the city's 67 sewer pumps and upgrade the system so it can provide service to some areas along Garners Ferry Road.
Councilwoman Tameika Isaac Devine, who supports the tax district, said she is working with city staff to identify other ways to back up the loans.
One idea, she said, would be to have the University of South Carolina provide the backup for the Innovista loans.
Or the north and east Columbia tax district loans could be broken up into smaller pieces over time that would not require a backstop.
"We're going to have to take small bites of it and start with certain projects and then see how things go," she said. "We can still go forward."
City Council members are hoping members of Richland County Council and the Richland District 1 school board will join the tax districts and agree to defer the taxes in the targeted areas.
If not, the city would have less money available and City Council would have to decide whether it makes sense to go forward with the plan anyway and do smaller projects.