Redevelopment officials plan to use about $15 million in Tax Increment Financing (TIF) money to pay off a series of bonds early, which is expected to save the city $2.5 million and remove certain requirements from one of the city’s TIF districts.
The Columbus Redevelopment Commission approved a resolution on Monday to pay off and retire a series of bonds using funds from the Cummins, Inc. Allocation Area. The expense will also need to be approved by Columbus City Council, said Bruce Donaldson with Barnes & Thornburg.
“This is a proposal relating to the 2009 bonds that were issued for a Cummins project where Cummins purchased their own bond,” said Donaldson. “We created a standalone, separate allocation area, TIF allocation area, to encompass the Cummins plant, to help facilitate an expansion, a lot of improvements, a lot of new equipment.”
TIF districts allow the commission to siphon off increasing property taxes in an area to fund projects intended to benefit the community.
This particular TIF has “overperformed” what was originally projected and accumulated a great deal of funds, said Donaldson.
“The bonds are written such that regardless of what fund balance we have, we cannot use anything above and beyond payoff,” said Commission President Al Roszczyk. “So even though we have more than enough money in the fund to pay the balance, we’re not allowed to use any of those excess funds currently, correct?”
Donaldson confirmed that this is correct. He also noted that a couple of years ago, the commission used the TIF to help fund the overpass project, but only with Cummins’ permission.
“Conversely, once the bonds are paid off, then that limitation goes away,” said Andrew Lanam with Stifel Financial Corp. “… You’re still limited to using TIF funds for TIF fund purposes, but you have more control over what those funds can be used for.”
The bond documents also state that Cummins must approve any early payoff of the bonds, so city officials have reached a proposed agreement with the company on a payoff price, said Donaldson.
Without early payoff, the bonds would not reach final maturity until 2031. Lanam said that the remaining payments scheduled from Feb. 1, 2023 to Feb. 1, 2031 total $17.485 million.
However, as stated in the approved resolution, Cummins — which is the owner of all outstanding 2009 bonds — has agreed to accept a payment price “discounted to the pay-off date at a discount rate” of 4%.
Assuming the early payoff takes place on Feb. 1, 2023, the new cost is estimated to be approximately $15.029 million, which saves the city about $2.5 million, said Lanam. This would reduce the TIF’s fund balance to about $5 million.
Lanam added that the exact price could change if the payoff date is delayed.
“We’ll have to go to city council in January, and then we will work with Cummins’ counsel to make sure any necessary documents are drafted and signed off on,” he said. “So we hope and expect to be able to pay them off February 1, but if there was a slight delay, that number could change a little bit.”
