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Fw: [howard-citizen] TIFs & Downtown financing

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  • Allen Dyer
    Re: [howard-citizen] TIFs & Downtown financingTIF??? doesn t sound like a public education issue BUT IT IS. in spite of the mostly closed door approach to the
    Message 1 of 1 , Sep 17, 2008
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      Re: [howard-citizen] TIFs & Downtown financing
      TIF???  doesn't sound like a public education issue BUT IT IS.
      in spite of the mostly closed door approach to the planning for downtown columbia,
      the scuttlebutt is that tax incremental financing (TIF) may be a part of "the stew" when
      the full plan finally becomes public.  TIF's and how they work is about as easy to understand
      as the wonderful financing devices favored by FORMER wall street firms.
      regardless, some effort to get a grasp on the possible impact of TIF on the future
      of howard county public schools is important.  as noted below by joel yesley,
      TIFs can freeze the funding that is available to schools and libraries.
      boring stuff but, 10 years from now, new howard county families will appreciate
      the effort today's families spend trying to keep track of what's going on with
      howard county finances.
      allen dyer
      ----- Original Message -----
      Sent: Wednesday, September 17, 2008 4:08 PM
      Subject: Re: [howard-citizen] TIFs & Downtown financing

      This is a good question that gets at the issue of equity--who are the potential beneficiaries and losers once a TIF District is created.  I have some exposure to this issue from having worked in the Maryland Dept. of Planning over a recent 5 year period.  Although the dept's major responsibility was in the area of encouraging local jurisdictions to limit sprawl in their development plans (i.e., discourage large lot zoning in rural areas), the emphasis shifted under the Ehrlich Administration from preserving open spaces to actively encouraging infill development in older urbanized areas.  As the staff economist, I was directed to research the effectiveness of some economic development tools used by counties in the state, including TIF.
      Most jurisdictions across the nation have mandated that areas eligible for designation as TIF Districts must be characterized by urban blight, where it is not likely that the private sector would choose to invest without some kind of government subsidy.  The reason is that the tool is much more likely to be effective in increasing the general tax base of the jurisdiction over the long haul under those conditions.  If the development is likely to happen anyway (without the TIF), opponents can argue that the entire county is losing out on potential tax revenues from new development since the TIF restricts the use of these revenues to paying off the bond holders whose money was used to finance the supporting public infrastructure.  School and other taxing districts (e.g., library, park) with jurisdiction in the TIF Area are more likely to oppose the use of TIFs in these circumstances because the effect would be to freeze their revenues for perhaps 20 years until the bondholders are paid off. This is less of a problem, though, to the extent that the TIF area comprises a smaller proportion of the overall jurisdiction and tax base.
      The equity issue would arise if the general public is forced to subsize any increase in the cost of providing public services within a TIF District without having access to any additional revenues resulting from increased property values within the district for several years.  This situation would occur if a TIF District generates expensive added public operating costs that exceed the base year's revenue available for general purpose spending.  This problem can be avoided, however, if the TIF is used to promote commercial, retail, or upscale condo apartment residential development that won't impose heavy demands for public services.  The use of TIFs may therefore not be the best way to win the support of the general population in the county for promoting the goal of affordable housing.
      In addition, the creation of a Downtown Columbia TIF District may enable the county to support a denser scale of development than would otherwise be feasible, given current financial constraints.  Any resulting secondary or ripple impacts on the physical infrastructure located outside of the TIF that necessitated offsite improvements would not be financed by the direct beneficiaries of the development but rather the general taxpayer in the county.  The general taxpayer would also have to pay higher property taxes than if the TIF was not used and the development of downtown Columbia occurred anyway (because the total tax base would increase by a smaller amount at least over the initial 20 years or so with the TIF), even assuming the same scale of development under both scenarios. 
      Perhaps you have gained some appreciation of why the TIF issue can be highly controversial.  For this reason, Baltimore City avoided the use of this tool until quite recently because of concerns that the designated districts would "steal" development away from needier and more deserving sections of the city.  The reason is that the chances of a TIF becoming self-financing are directly related to the general financial prospects of an area, which limits their potential where redevelopment may be most needed.  If not administered with a fair hand, TIFs can increase geographic factionalism within a political jurisdiction.  When their are strict limits on the scope of permitted development (APFO and housing caps) in the overall area as is the case with Howard County, the designation of an area (such as DT Columbia) which is not generally perceived as being a "basket case" as a TIF Zone could be highly controversial.
      Joel Yesley 
      ----- Original Message -----
      Sent: Tuesday, September 16, 2008 11:43 AM
      Subject: Re: [howard-citizen] TIFs & Downtown financing

      A very good question has been asked - see red text below.  As I understand it, under TIFs cost of intrastructure would be shifted from the developer to the county which would fund it out of future increased revenues.  How does this compare with current developers' responsibilities under APFO, etc?  Would this really mainly be promoting private development/density at public cost?  Perhaps it has some use for public buildings, parks though.
      Bridget Mugane

      This is a quick summary of my personal understanding (possibly imperfect) of a presentation today by members of the County Office of Finance and Office of Law.  They explained Tax Incremental Financing (TIFs).  This is a private/public partnership to fund specific projects to enable them to be done if they are consistent with the General Plan.  There are no TIFs yet in Howard County, but GGP's revitalization of Downtown is an obvious candidate; the speakers declined to speculate on this.
      Here is how a TIF works.  The county issues bonds to fund needed infrastructure or other costs to enable a private development project which otherwise could not go forward for lack of sufficient capital.  In Baltimore City TIFs have been used for townhome and condo housing to promote downtown gentrification and revitalization.  Another example is Arundel Mills Mall, which does not fall into those categories but which is no doubt perceived as bringing in business and increased revenues.  Construction of public buildings or playgrounds are other possible uses of TIFs.
      The developer/owner builds the structures with its own funds.  
      Bridget: This I don’t understand. If developer builds with own funds, why do we need bonds? Or is it only the infrastructure that he would normally be required to provide (as Rouse has for 40 years) is paid for by the bonds? Does the state delegation need to pass a law to enable this to happen? Please answer personally.

      The increased revenue (property tax, taxes on commerce) is used by the county to pay off the bonds for the infrastructure.  During an initial period of 3-7 years or so, the developer may pay a special tax if increased revenues do not yet cover cost of servicing interest on the bonds.
      The current downturn in the stock market and general economy are likely to delay TIFs because investors who buy bonds, are currently skeptical.  The bonds are sold on the open market but are not backed by the full faith and credit of the county and could affect the rating of other bonds.
      In establishing a TIF under state law, the county has to very carefully determine if the project will result in enough increased revenues to pay off the principal of the bonds; those revenues are dedicated to paying off the bonds.  If not, taxes might have to be raised for the general public.  (I wonder if the county will consider downstream costs such as highway improvements.)  TIFs run with the land; if the property is sold, the new owner takes on responsibility for any TIF special tax; this includes residents of those homes.  In case of bankruptcy, the county has a lien and could sell the land, as the first in line.  However, the county would first pursue other alternatives such as restructuring the debt or finding another buyer.
      For big projects, the TIFs would be in tranches (new TIF for each phase).
      The foregoing is my personal layperson's understanding; it should be verified before relying on it.  It would be appreciated if others could provide similar quick summaries when they attend interesting meetings.
      Bridget Mugane, President

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