City leaders and financial consultants presented an update Tuesday on the City of Owensboro’s two tax increment financing (TIF) districts, outlining how the program is spurring development in key areas while facing hurdles from slower-than-expected growth and changes in state tax policy.
During a Board of Commissioners meeting, Finance Director Angela Waninger gave a “TIF 101” presentation, breaking down the basics of how the program works and how it’s performing in Owensboro’s Downtown and Gateway Commons districts.
What is a TIF?
In simple terms, a TIF allows a city to use new tax revenue created by development in a designated area to pay for public improvements like roads, sewers, or parking garages. The “increment” is the difference between the amount of tax collected before development and the amount collected after. That increase is used to repay the city or developers for those upfront public investments.
Waninger explained it this way: If a property was generating $100 in taxes before development and $1,000 after, the $900 difference is the increment. The state and city keep 20% and contribute 80% to a TIF fund that can be used for specific projects within the district. “Ultimately, TIFs make it possible to finance infrastructure needed to prompt economic development,” Waninger said.
The incremental revenues can come from several state and local tax sources. At the state level, this includes:
- Sales tax
- Ad valorem (property) tax
- Individual income/withholding tax (IIT)
Locally, she said the city captures increases from payroll, property, and net profits license taxes.
Owensboro has two state-approved “mixed-use” TIF districts:
- Downtown Riverfront TIF, established in 2016, with a maximum $24.5 million in eligible reimbursements.
- Gateway Commons TIF, also established in 2016, with up to $20.5 million in reimbursements.
Both operate under 20-year agreements that were activated in 2018 with the Kentucky Cabinet for Economic Development.
Downtown TIF slower to develop
Casey Bolton, a partner with Commonwealth Economics, said about $89 million has been invested in the downtown district since its launch, well short of the $153.9 million originally projected. Of that, $55 million came from private investment and $33 million from public infrastructure.
To date, the city has received just over $3 million in state increment for the downtown TIF, with $21.4 million left to recoup. That total includes approximately:
- $2.1 million from state income tax withholdings
- $799,000 from sales tax
- $122,000 from property tax
Those figures align with a chart presented showing that the largest share of revenue so far has come from office and employment-related activity downtown.
Waninger said the downtown TIF revenues are being used for bond payments related to the parking garage and the Bluegrass Music Hall of Fame & Museum, along with decorative bridge lighting. The city is the sole recipient of proceeds in this district.
Bolton said tax revenues rebounded in 2023, with nearly $780,000 in new increment generated, compared to $448,000 the year before.
“COVID took a big hit on a lot of activity, particularly in downtown,” Bolton said, noting delays in hotel construction and fewer large events. The third downtown hotel, originally projected to be the single largest revenue generator, is now set to open this July.
Without improvement, the downtown district is currently on pace to recoup about $16.2 million over the full 20-year period — roughly two-thirds of the original cap. However, Bolton said new projects expected in 2025 may improve the outlook.
Gateway Commons progressing more steadily
The Gateway Commons area — home to retailers, restaurants, and a movie theater—has generated nearly $6 million in state reimbursements to date. Waninger said those funds are divided among the developer, the Regional Water Resource Agency (RWRA), and the city itself. Under the city’s master development agreement, 65% of proceeds go to the developer, 22% to RWRA, and 13% to the city, with 2% withheld for administrative costs.
This district was projected to spur nearly $199 million in investment, and so far, about $75 million has been reported. Unlike downtown, Gateway has a much lower tax baseline — initially $34,808 in 2015 — making it easier to generate incremental revenue.
The breakdown of the $5.95 million generated so far includes:
- $4.6 million from sales tax
- $1 million from income tax withholdings
- $311,000 from property tax
Bolton said annual revenue continues to grow, with more than $1.65 million in incremental revenue generated in 2023 alone.
“This project is on pace to reach its $20.5 million state cap before the 2038 deadline, potentially as early as 2031 if current trends continue,” Bolton said.
Recent legislation could limit future returns
A major concern raised during the presentation was the effect of ongoing reductions to Kentucky’s state income tax rate. Brett Antle, a partner at Commonwealth Economics, walked through several pieces of legislation that could affect Owensboro’s TIFs moving forward.
House Bill 8, passed in 2022, established a formula to gradually phase out Kentucky’s individual income tax if the state meets specific financial benchmarks. The rate dropped from 5% in 2022 to 4.5% in 2023, then to 4% in 2024, and is expected to fall to 3.5% in 2026.
House Bill 775, adopted in 2025, relaxed those benchmarks further, making future cuts even easier to trigger — potentially in smaller increments as low as 0.1%.
Because the “base year” of TIF tax calculations assumes the higher 5% rate, these cuts mean Owensboro has to overcome the same baseline with a shrinking revenue stream.
To help cities weather the impact, House Bill 360 created a temporary “modifier” to adjust the increment calculation as if the 5% rate were still in place. The modifier was initially applied to 2023 and 2024 and later extended through 2026 under HB8. According to Antle, making the modifier permanent is critical to the financial health of TIF districts across Kentucky.
New test ties payouts to actual investment
Commissioners were also informed about a new policy change from the Kentucky Economic Development Finance Authority (KEDFA), which added a third test when determining how much a TIF district can receive.
In addition to caps based on the original award or the actual amount spent, KEDFA now applies a “percent of completion” test. This ties the state’s payout to how much capital investment has actually occurred, regardless of projections. While this test doesn’t apply to older agreements unless modified, both Owensboro TIFs have been updated to include it.
For more information, residents can visit owensboro.org and access the interactive district map.
