Simplified: The City of Sioux Falls is updating its tax reduction programs with a targeted focus at encouraging developers to build affordable housing projects, as well as mixed-use buildings to fit more people and businesses in the city's central neighborhoods.

Why it matters

  • The city has used tax reduction programs for decades, but recent changes in state law essentially nullified an existing neighborhood tax reduction program. That meant it was time to re-evaluate and figure out a new way to use lower taxes as a way to attract development.
  • On Tuesday, the City Council took its first vote advancing a proposal to create two new tax breaks – one focused on affordable housing projects and another focused on creating density in certain central neighborhoods.
  • The programs essentially allow developers to pay a discounted tax rate for the first seven years after construction is completed. For example, a project valued at $10 million would only pay taxes on $2.5 million of that valuation the first year.
"We wanted to make sure we were rewriting our programs to reflect the current needs and wants of our community," Business Development Coordinator Dustin Powers said.

Tell me more about the proposed tax breaks

Both programs are structured similarly in that projects have certain requirements that must be met, and that the projects' tax bills will rise gradually over seven years.

  • Requirements include a total taxable valuation of at least $500,000 when it's all said and done.

For the affordable housing program:

  • Projects have to fit certain criteria to be considered affordable. For example, one option to qualify would be ensuring 25% of units must be capped at or below "fair market rent" as defined by the federal government.
  • These tax breaks could also be available to projects that already qualify for low income housing tax credits at the state level.
"This just provides another tool in our tool box to help incentivize those affordable housing projects," Powers said, noting that this alone likely won't be enough to subsidize an affordable housing project.

For the program targeting density:

  • Projects have to fit within the city's new Midtown Mixed-Use zoning form – an option approved by the City Council last year to encourage taller buildings in central neighborhoods.
    • The idea here is that buildings will be a minimum of three stories and have a mix of housing, offices and retail space.

What happens next?

The City Council is expected to take a final vote on both tax reduction programs next week.