When the Spokane City Council agreed recently to form a special tax-increment financing district, it set into motion possible use of a fresh new way to raise more than half of the $42 million in public improvements eyed for the University District over the next 25 years.

The city hopes the move will attract new private development to the district.

"What we're trying to do is generate new growth and capture the new tax revenue from that new growth" to fund public improvements in the 770-acre area that comprises the proposed local revitalization financing district, says Teresa Brum, the city's business and development director.

The next step is for the city to submit an application to ask Washington state to approve the district formally, a process that could take up to 60 days and would commit the state to providing some of the money needed for the district, Brum says. If the district is approved, it would be the first in the state authorized under a new tax-increment funding tool passed by the Legislature last spring, she says.

The plan includes a commitment by the city of Spokane to allocate up to $650,000 a year for 25 years to the new revitalization district from part of the property taxes from new construction in the district, and for the state to chip in another $250,000 a year, for a total of up to $900,000 annually. Because it would take awhile for the city's contribution to reach $650,000 a year, the city estimates the new district would generate a total of $21.2 million over 25 years. The city hopes to leverage that money to attract at least another $20.9 million in federal grants during the 25 years to pay for projects in the district, Brum says.

"We could receive far more than that because state and local money ends up being seed money, so we can really grow our local money," she says.

The U-District local revitalization area the city agreed to create is bounded roughly by Sharp Avenue to the north, Interstate 90 to the south, Browne and Division streets to the west, and the James E. Keefe Bridge and a section of the Spokane River to the east. It is located just east of downtown and includes portions of the Logan, Riverside, and East Central neighborhoods.

The district is slightly larger than what has been described as the U-District, which encompasses the Riverpoint Campus, the Gonzaga University campus, and nearby areas.

Some of the first public projects that could be funded by the proposed revitalization district include $7 million in planned Division Street gateway improvements such as sidewalk repairs, improved pedestrian crossings, and aesthetic improvements, and a planned $5.2 million bicycle and pedestrian bridge over the BNSF Railway Co. tracks near Sprague Avenue.

Other planned projects include water and sewer improvements south of the railroad tracks and sidewalk, curb, and landscaping improvements around a planned hotel development along the Division-Ruby couplet just north of downtown on a block referred to as the Burgan's block.

Under the financing plan, the $250,000 a year that the state would commit to the district would by rule be used for debt servicing on bonds that would be sold to fund improvements in the district. The state's allocation would come from some of the state's 6.5 percent share of new sales-tax revenue generated within the district, says Rick Romero, Spokane's internal auditor.

Meanwhile, the $650,000 a year the city would commit to the district would be raised by diverting 75 percent of the property taxes collected from new construction in the district. If those new property-tax collections don't amount to $650,000, the city would make up the difference by diverting some of its share—about 0.85 percent—of any new sales-tax revenues collected in the district.

The other 25 percent of the city's share of property taxes generated by new construction in the district would continue to go to the city's general fund, from which it would be allocated as part of the city's budget process, Romero says.

The city expects to have enough sales- and property-tax growth in the district to reach its $650,000 cap over the next five years, Romero says. It's required to at least match the state's $250,000 contribution, but can count money from other sources that is spent in the district, such as through already planned street bond projects, toward that requirement, he says.

Spokane County opted out of the local revitalization financing district, but still will coordinate with the city on participating in projects on a case-by-case basis, Romero says.

Brum says setting a specific amount to be committed to the district makes planning projects easier.

"The council chose to limit our participation over 25 years, so we set a specific dollar amount that we know will be designated to the University District," she says.

The diverted tax revenue can only come from new development; property taxes from a business moving from another area into the district can't be included, she says.

"It doesn't impact current revenue," Brum says.

Among the types of projects that would generate revenue for the district would be the proposed $15 million to $20 million hotel and event center project being planned north of downtown by Burgans Block LLC, of Spokane. That developer has submitted a letter of intent to the city to seek local revitalization financing to help pay for public improvements around its development. Brum says the city also has had interest from other private developers, including Denver-based NexCore Group LP, which plans to develop a 60,000-square-foot medical building on the Riverpoint Campus in the first phase of an anticipated three-phase development.

The type of tax-increment financing the district would use differs from other tax-increment financing already in use here because it brings into play three different funding sources—property taxes generated from new construction in the district, new local sales-tax revenue generated within the district, and the state's share of sales tax generated there. By contrast, a conventional tax-increment financing district includes only new property taxes generated within a district.

Because state dollars for the program are limited, the application process is competitive. Spokane's U-District, however, was included in the legislation as a demonstration project, along with several other proposed districts around the state, so it won't have to compete with other proposed districts for its share of the state's $2.25 million annual allocation for such districts, says Brum. Spokane will be approved provided it meets the requirements and submits its complete application by the deadline, Brum says.

She says bill sponsors state Sens. Chris Marr and Lisa Brown were instrumental in including Spokane's U-District in the list of demonstration projects that won't have to compete for funding.