(FOX19) - A judge ruled Monday the city broke the law when it took $5 million in TIF funding from 12 neighborhoods and used it to cover budget shortfalls in 2011.
The tax increment financing (TIF) program is used to invest in neighborhoods in an effort to raise property values and attract new businesses. When property values raise the property tax gains are put into a TIF fund to finance further development projects in that district.
"Judge Gorman issued his decision stating that what the city has been doing to balance it's budget since 2012 is contrary to Ohio law," said Attorney Joseph Braun.
Braun represents the developer of Madison Circle who says when the city borrowed $950,000 in TIF funding from Madisonville to meet budget shortfalls in 2011, he had to make up part of the difference. They argue the money should have never been borrowed from Madisonville or any other neighborhood and Braun says a Hamilton County judge agreed.
"The court has said the city can't steal from the neighborhoods anymore. They can't use their TIF accounts as a cookie jar that they can dip into anytime they have an expense they don't want to pay for," said Braun.
In June, a FOX19 investigation uncovered an internal memo suggesting due to a projected budget shortfall, the city should not repay the neighborhoods in 2015 as they said they would stating "this is an internal loan and as such, is not required to be repaid."
Interim Chief Council for the city Peter Stackpole says they had no idea borrowing those funds was against the law but always had full intentions of giving it back. Now the city must come up with $4 million dollars to repay those neighborhoods. It is a task Stackpole says likely won't affect the 2015 budget.
"He told us it was unlawful and we are not going to do it again. Nothing is final. There are appeals. The court process is very slow and it takes time for these things to work out so I don't think it is going to have any immediate impact on the city's budget at all," said Stackpole.
The court also ordered the developer to complete outstanding work for the project.
The city is expected to decide in the next few weeks whether or not they will appeal the judge's decision.