Today in the Argus Leader, they did a story about the Washington Square developers applying for a $4.6 million dollar TIF. They contend they deserve the TIF based on the fact that they will provide FREE public parking of 189 spaces (at night and weekends ONLY).
This is where the TIF funding does not add up. As of right now they pay about $7K a year in property taxes, after the project is completed they assume the property tax bill will be $500K per year. What they don’t tell you is when you subtract the TIF rebate value from that tax bill, the government entities will NOT be receiving these taxes until 9 years after the project is completed (around 2025-26).
We can talk tax benefits all we want, but when we don’t provide TIF’s and private investors figure out how to build these projects with their own money (remember last year we had record building permits with NO TIF’s issued), the community benefits from the property taxes immediately after the project is completed, not 8-9 years later.
Last year half those permits were roof replacements, so not a true indicator that it’s builder/developer nirvana just yet.
Also, the idea behind TIF’s is to level the playing field for investors on projects like this that would be much cheaper to build on the edge of town and more horizontal than vertical (ex RMB’s stuff)
Building downtown presents a new set of challenges, least of which should be are you on the right or wrong side of the Mayor’s office.
Not quite Sy, the roofing permits helped the city break the record, but even without them, the city would have been fine.
As for level playing field, if Washington Square was actually providing affordable housing and retail DT, I would have a change of heart. I told friends tonight, if I could invest in housing DT I would build a building entirely of studio apartments. Young people living DT really just want a place to shit, shower and shave, they realize the night life outside of their living spaces is what makes DT, not the $1.3 million dollar penthouses with hot tubs.
On the one hand I think there may be some legitimate use for a TIF in certain situations, for example where you have true blight. True blight might be pretty hard to find in our fair city (at least compared to other larger urban areas).
That being said, my major issue with TIFs, including what I perceive locally, is that the standards by which they are proposed and approved seems to be so arbitrary and subjective.
The first issue is the fact that the administration and community development may be picking and choosing which TIF applications will even see the light of day. That alone gives me concern it is subjective and could be affected by personal grievances or favoritism of politicians towards certain developers and/or projects. For example, what if a proposal is for something a politician doesn’t like, say a casino. It may never even get a public vetting.
The next issue is the ones I have seen in recent years have been all over the map in terms of the reasoning for why they really deserved a TIF. Can anyone tell me why green field out at the Sanford Sports Complex required a TIF? I still have no idea. Besides of course it may have been a favored entity and/or project by local politicians.
The third reason is that many times I’m not really sure a project cannot happen without a TIF. Any developer simply has to say if I don’t get a TIF, the project won’t happen. Is it really true? We really have no idea. But they say it, and from that they may get a subsidy for their private development. Sure I get the incremental property tax increase benefits the government entities eventually, but again we’re assuming the project wouldn’t have happened without it. An analogy may be in order – on the city board I serve on its not uncommon for an applicant to tell us if you don’t approve this our project won’t or can’t happen. Many times we deny it, and invariably within a month or two they are moving dirt. We’re always told this is the only way it can be done, and invariably there is a plan B they have in their pocket in case we deny their proposal. How do we know that without the TIF the project won’t get done. Most times we probably don’t know.
So while I can maybe see a use for them, I’m inclined to be against them because it just seems way to subjective and easily abused and possibly used by government officials to enrich favored private individuals and entities.
I guess if we could somehow come up with firm objective standards, with a lot of transparency from beginning to end, I could get more excited about it. I guess it seems like another form of crony capitalism where politicians can grant special privileges to favored entities.
Greg, I like to compare TIF’s to low-flow toilets. Let’ say your toilet takes a crap, maybe that isn’t such a great analogy, but you get my reasoning. You go to the hardware store, and the salesperson says, “Hey, the city will give you a partial refund on your new shitter if you buy a low-flow.” You have an option at that point. You can buy the the low-flow, and get a discount, or you can buy the turbo-jet and not. Developers operate the same way. They can concoct some story about how they are stroking our balls, and if that falls thru, they build anyway, and turbo jet.
Two great quotes that nailed it:
Sy – “Building downtown presents a new set of challenges, least of which should be are you on the right or wrong side of the Mayor’s office.”
Greg – “The first issue is the fact that the administration and community development may be picking and choosing which TIF applications will even see the light of day. That alone gives me concern it is subjective and could be affected by personal grievances or favoritism …”
We saw this last month with the 8 entities (several for-profit businesses) handpicked by the administration for the city’s workforce development grants. And I guarantee you’ll see the same outcome next month with the RFP on the new mixed-use parking ramp.
Personally, I want to see Washington Square happen – and a think a TIF there makes a lot more sense than the ones given to the Sanford Complex and Costco.
There are a lot of moving parts in weighing the benefit of TIF, but in the end the city’s interest in TIF is in ensuring that the project that’s ultimately completed on the site is at the highest and best use.
It’s fair to say that, to date, the market hasn’t shown much interest in that site absent some type of gap financing. If it were, the site would have been redeveloped years ago. And like it or not, “let the market decide on its own” often slows or stops altogether a community’s larger vision for redevelopment.
I’m not discouraging skepticism – I always think it’s fair to ask questions – but it’s also unrealistic to imply that private investors will be happy to take no return or a negative return on their money in the first years of a project. They won’t. They’ll just do what Sy has suggested; they’ll invest in projects on the edge of town with cheaper up-front costs and less site work involved where they can get their money back faster.
So yes, private investors *can* do this on their own. The end result would be smaller projects, in most cases below highest and best use, that ultimately adds less to the community’s property tax base. The thing about redeveloping a parcel is that a community typically gets one kick at the can and one kick only. Once a parcel is no long a parking lot, low-rise office/retail, a warehouse, etc., costs of subsequent efforts to get to highest and best use go through the roof. So it’s easy to understand why municipalities would prefer to get it right the first time even if it means deferring tax revenue for the early years of the project.
L3wis, you’re ignoring the market economics. Sure, I bet Houwmans would love to build 50 studios there that are aimed at the working class millennials but they can’t make a return at $700 a month per unit on the construction costs of the ramp plus the nicer quality build they want to do (steel, glass, stone etc) If they put up a plywood box with some fake stone accents it will look & feel cheap, and it may not even make it past planning & zoning, plus you will hear it every time your neighbor takes a crap and flushes the toilet, low flow or turbo.
Banks won’t loan on something that shows that much potential downside. They’d prefer rows of townhomes in the cornfields between here and Harrisburg. So yes, that project as designed won’t happen without the TIF. Since Dodd Frank it’s much more difficult to get financing and as Greg pointed out it’s also much more difficult to get City Hall on board for reasons unknown.