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Owensboro TIF consultants warn individual income tax cuts could shrink reimbursements; staff urges continued state relief
Summary
City staff and consultants told the Owensboro Board of Commissioners on April 15 that recent cuts to Kentucky’s individual income tax and other state law changes threaten to reduce reimbursements to Owensboro’s downtown Riverfront and Gateway Commons TIFs unless a state “modifier” or another statutory fix is continued.
Angela (last name not stated), a city finance official, gave the commission a Tax Increment Financing (TIF) primer on April 15 and introduced consultants from Commonwealth Economics who presented a status update for Owensboro's downtown Riverfront and Gateway Commons TIF districts and described the effect of recent state tax law changes.
Casey Bolton, partner at Commonwealth Economics, said the Riverfront TIF was created in late 2016 and activated in January 2018 under a 20-year agreement; it has a state cap of $24.5 million in reimbursable state tax revenues. Bolton said the original application contemplated roughly $153.9 million in total capital investment; to date the city has reported about $89.3 million in investment, with approximately $33.6 million of the planned public infrastructure spent and $55.6 million of private investment reported so far.
Bolton said the Gateway Commons TIF was also approved in 2016 and activated in 2018 with a state award cap of roughly $20.57 million; the project has reported about $75 million of total investment to date and approximately $35 million spent on infrastructure. Angela said the city has transferred incremental local revenues into the respective TIF funds: $2.7 million to the downtown TIF fund and $2.0 million to the Gateway TIF fund (incremental amounts moved from the general fund). She also said the city has received $3,042,900 from the state for the downtown TIF and $5,955,006.79 for gateway through tax year 2023; the Gateway distribution has been split among a developer, the regional water authority and the city under existing agreements.
Consultants warned that reductions in the state's individual income tax rate, enacted under recent legislation, reduce the gross tax base used in the TIF increment calculation and could sharply reduce state reimbursements unless a statutory "modifier" is continued. Brett Antle, a Commonwealth Economics partner who helped develop the modifier calculation, said the General Assembly adopted measures beginning with House Bill 8 in 2022 to reduce the individual income tax rate in stages; House Bill 360 in 2023 created a temporary individual income tax modifier to adjust TIF-held income-tax revenues back toward amounts that would have been generated at the previous 5% rate for 2023 and 2024; House Bill 775 in 2025 relaxed the fiscal triggers that can produce further rate reductions.
Antle showed a municipal example in which removing the modifier would have reduced the city’s individual-income-tax rebate for 2023 from $567,007.68 to $432,000 (a roughly 17% reduction compared with the actual amount received with the modifier). He also presented a hypothetical where, with a lower statewide rate, the same revenue base could yield a roughly 52% lower rebate for a year without the modifier — a scenario he said would be particularly damaging to districts concentrated on withholding-based revenues like the Riverfront TIF.
Consultants and city staff described practical challenges in reconciling Department of Revenue distributions with city records. Angela and the consultants said the state provides limited line-item detail, making it difficult to determine which businesses or tax types account for differences between city estimates and Department of Revenue payments. Bolton and company said they had identified and successfully corrected some errors in the past but urged continued dialog with state agencies. Consultants urged local leaders to press state lawmakers to make the modifier permanent to protect existing TIF awards.
During Q&A, Commissioner Glenn asked whether a TIF agreement can be amended; Angela said the city's agreements have been amended twice and that boundary or payment terms can change only with state concurrence. Commissioner Sam asked how tax-code changes will affect TIF revenues; consultants said the modifier and continued monitoring of state law changes will determine impact and recommended pursuing a permanent remedy at the state level. Residents and elected officials in other Kentucky cities with TIFs, including Bowling Green and Louisville, are monitoring similar issues, the consultants said.
No formal vote was taken on legislative advocacy at the meeting; the discussion closed with an offer from consultants to assist further and with a request that staff follow up with any technical questions.
