Brian Reilly With two ….

Brian Reilly

With two large TIF districts on the verge of closing, the village of Dorchester can expect a sizable infusion of cash into its general fund just as it prepares to complete some street and utility projects next year.

That was the message from consultant Brian Reilly of Ehlers, Inc., a firm hired by the village board last week to provide financial advice on a variety of decisions facing the village.

“You’re really at a pivotal point of decision-making that will have some legacy impacts going forward,” Reilly told the board.

The village’s two TIF districts are nearing the end of their life cycles, he said, with the board having the option to close them next year. If that were to happen, Reilly said the property tax levy would see a one-time increase of 24 percent, or about $58,000, in 2023. By comparison, the levy is only set to go up by $388 in 2022, which is the amount allowable due to new construction.

Tax incremental financing (TIF) works by capturing all of the property value created by new construction in a designated area. Instead of distributing those property taxes to the local school district, county and village, the money is kept in a special fund to pay for infrastructure projects in that area.

Over the past 20-plus years, Dorchester’s two TIF districts have amassed over $17 million in new property value, so when those districts are closed, all of that value will be added to the normal tax base.

“You’re going to levy more dollars against a larger tax base,” Reilly told trustees. “So, you’re going to collect more revenue, but the tax rate is actually going to go down.”

As a result, if the village were to do nothing but close the TIF districts next year, most taxpayers would see a break in the amount of money owed to the village.

However, the village is also looking at having to borrow some money next year in order to complete projects on North and South Third Street and on North Front Street. Besides these street projects, the village is planning to upgrade a lift station and its sewer treatment plant.

The board approved a bidding schedule prepared by Cooper Engineering that calls for going out for bids over the next month and opening them on Dec. 16, with contracts being awarded as early as the board’s Jan. 5, 2022, meeting.

All together, Reilly said the village is planning to do about $3 million worth of work next year, and about $1.7 million of that will be considered general fund expenses. The remainder will be paid for by the water and sewer utilities.

The village has qualified for a $1 million Community Development Block Grant (CDBG) to help pay for the projects, but Reilly said the village’s general fund will still have to borrow $660,000 to pay for the street projects. A loan from the state trust fund would create an annual loan payment of $50,000 for the next 20 years, he said.

This would be considered general obligation debt, which is backed up by the village’s ability to collect taxes from residents. Reilly said the village has no existing general obligation debt, so it can borrow as much as $2.7 million.

With extra cash coming in from the closed TIF districts, Reilly said borrowing the $660,000 would add 95 cents per thousand dollars of property value onto the village’s mill rate, or an extra $95 per year for the owner of a $100,000 home. Without the TIF closures, he said the impact would be $1.39 per thousand, or $139 on a $100,000 home.

The water and sewer utilities will also need to take on additional debt in order to replace underground utility lines and upgrade the village’s sewer facilities.

Reilly said the water utility has enough revenue coming in to pay off additional debt, but the sewer utility does not.

“The sewer utility is operating at a deficit and needs to be addressed in some fashion,” he said.

The village board raised sewer rates in February, but that has not generated enough revenue to produce enough cash flow for the utility. Board members discussed the possibility of further rate increases at last month’s meeting.

Reilly said the village needs to do some careful financial planning as it takes on additional debt while reaping the benefits of its two long-standing TIF districts.

“This is not going to happen again for a very long time,” he said. “These districts have run well over 20 years — approaching 30 years in one circumstance — so this is more of a generational moment.”