City Council will consider a PUD (planned unit development) document and developer's agreement at the June 9th council meeting. At the special meeting we decided to have the City's TIF attorney, John Danos, begin the process of preparing documents to consider a rebate TIF.
Council has heard from citizens and at least one council member that a TIF is unnecessary for this project. I disagree and would cite two pieces of evidence to support my thoughts. One would be the NDC Gap Financing Report we received. The other would be what is happening around us.
The City of Iowa City recently announced the awarding of a contract to CA Ventures to developed the city-owned property at the old St. Pat's school site. Much was made of the fact that this development would NOT receive any TIF funding. This 1.1 acre parcel will be home to a 15 story condominium tower AND a 14 story hotel tower.
Here is some of what the March 23, 2015 Press Citizen story had to say:
The proposed building, called RISE at Riverfront Crossings, is a $102.5 million, nearly 560,000-square-foot project that includes two towers: a 15-story residential tower and a 14-story, 152-room hotel. Designs for the towers include 127 one-bedroom units, 149 two-bedroom units and 44 three-bedroom units. Designs also include more than 23,000 square feet of office space and 6,000 square feet of retail space.
Davidson said Core Campus, which proposed HUB at Iowa City, was named an alternate preferred developer, in case an agreement cannot be made. Plans for HUB at Iowa City include a 15-story mixed-use building with 31 efficiency units, 75 one-bedroom, 83 two-bedroom and 161 three-bedroom units. Plans also include a 153-room hotel, 4,000 square feet of retail space and 20,000 square feet of office space.
Davidson said that although the two projects are similar, the mix of housing options offered by CA Ventures project, particularly the one- and two-bedroom units, made the project more desirable.
"(RISE at Riverfront Crossings) housing options include about 90 percent one- and two-bedroom units, and almost half of Core Campus' units are three-bedroom," Davidson said. "Usually when we hear three-bedroom units, we think of college roommates living together, and we'd like to make the residential space more available."
CA Ventures has offered the city $6.5 million for the almost 60,000-square-foot property, $1.5 million more than Core Campus' offer. Neither project currently requires tax increment financing assistance from the city.
Davidson said, due to the developer's interest, construction could begin at the site as early as this year.
"The developers are trying to stay on track with the (University of Iowa's) plans to expand," he said.
This parcel, is one fourth the size of the St. Andrew site. To get a quality development, that is not focused on student housing, it has to have a mass that is much larger than what has been approved on the St. Andrew site. It is also important to note the yellow highlight I used to show what real student housing looks like. A predominance of 2 bedroom units is NOT a student property. Also students want to be close to downtown, the east campus and other students. A west side site would not do that. The last sentence of the above article is important, as UIHC expands we need to be ready to bear the pressure of increased housing needs due to expanded hospital staffing.I also want to remind people what TIF expert Peter Fisher had to say when he spoke to council on April 28th. Here is a link to my write up on that: A Closer Look at TIF. We are following the recommendations he made at this meeting.
This project remains high quality project with 104 units, and 5 story and 3 story buildings. By contrast the RISE project is 320 residential units and 152 hotel units. I don't think our town is willing to double or triple the size of the project in order to not have a TIF request.
The current TIF request is 40% of what was asked for in 2010. I have consistently told this developer to bring in a high quality project and if there is to be gap funding that the city's participation be modest. A rebate TIF that is equal to 10% of the projected valuation while not exposing the City to any risk, meets that criteria.
I don't think the problem is that using TIF is risky (at least that's not MY problem with it). As I said in an email to the council the other day, the problem is that using TIF for this project constitutes misuse of TIF funds. TIF is designed for redevelopment in low income/blighted areas, or to reverse declines in property values. This project is not aimed at revitalizing low income or declining neighborhoods. Property values in UH are going up, if anything.
ReplyDeleteI append below a quote from the report from the nonprofit Iowa Policy Project, "Tax Incremental Funding: A Case Study of Johnson County" (You can find the full document here, and I urge people to give it a good read: http://www.iowafiscal.org/2011docs/111121-TIF-JC.pdf). Peter Fisher is the author, and I do NOT agree that UH's proposal is in line with his recommendations. After reading this report I cannot see how he would favor ANY use of TIF funds for this site.
Quote (two paragraphs):
"TIF was originally conceived as a kind of bootstraps financing method, where a city could undertake a redevelopment project in a declining area, in the hopes of catalyzing private development and reversing a decline in property values. The increased tax base in the area would, it was hoped, generate enough revenue to allow the city to recover its costs; to encourage cities to undertake risky projects in low income and blighted areas, the city was allowed to scoop off the additional school and county taxes as well until its investment was repaid.
"TIF as used in Iowa no longer bears much resemblance to this model. It has been allowed to degenerate to the point that many cities view a TIF area as a perpetual cash cow to finance a wide range of city operations, from lawn mowing and street repairs to hiring lobbyists and consultants. In most cases it has nothing to do with revitalizing low income or declining neighborhoods. It is used to build hotels that lose money and compete with unsubsidized hotels in the same area, to entice retail stores to relocate from neighboring communities, and simply to get other people to pay for a community center or street improvements."
Use of TIF as proposed by the UH seems unethical to me (though not unlawful - evidently other cities in Johnson County are using it inappropriately as well). Mike says that the purpose is to "To get a quality development that is not focused on student housing". That's not how TIF is supposed to be used. Nor is it appropriate to use it to discourage a larger development in that space, whether folks want to prevent such a thing or not. If protectionism is the goal, the city should find another way to do it that doesn't take money out of the tax base.
I also disagree that it is necessary to use TIF. Another quote from that same document:
"Businesses that serve the demands of local markets for housing or for goods and services are driven by local market conditions. If demand is sufficient, firms will build more stores or houses to meet that demand, and financial institutions will provide the financing."
So…IF the area is worth developing, THEN a developer should be able to get private financing to develop the land (and TIF is therefore unnecessary). On the other hand, IF the area is not worth developing, THEN providing TIF funds to develop is a poor investment by the city (and TIF is therefore a waste of taxpayer money and we may not get that money back).
I don't personally care one way or the other whether UH develops that land (although I think that decision should be largely left up to the community members who live closest to the property). However, the use of TIF in this case is both improper and unnecessary.
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ReplyDeleteI understand your points, Andrew, but as you say, the legal use of TIF has expanded from its original use. In his presentation to us, Peter Fisher did give guidelines for responsible TIF use which we are following. A project could be built on the St. Andrew site that would not require TIF, that project would not include commercial property which adds benefit to all residents of town, or a community center, which will also benefit residents. I originally supported using TIF to pay for a community center, but Fisher recommends against using TIF for tax exempt propterties. So we will likely bond for that. A non-TIF project would either be much lower end student oriented housing (which would compete with Grandview and likely diminish their value) or of such a mass and scale that it would truly not fit into our community. I hope this helps to better clarify my position, and explain why a TIF would be appropriate. To see the PowerPoint from Dr. Fisher's presentation here is the link from the City's website:
ReplyDeletehttp://university-heights.org/BuildZoneSanit/OUP/15/TIFUnivHeights.pptx
I knew I'd need to read this over and add what I was thinking but didn't put down last night. We are a land-locked community without many opportunities for re-development. Our regular budget is tight and we have few areas in our budget in which we have complete control due to having to contract with other municipalities for most services. This project has been forecast to have a conservative value at completion of $30 million. Our entire city's taxable valuation is roughly $100 million. A 30% increase in our tax base would allow us to remain a viable independent entity. I believe that meets the criteria of economic development set in TIF legislation. The other factor always in the back of my mind is that if this project doesn't proceed, the UI still has their right of first refusal agreement with the church. Given what I've listed above I don't want that property to remain off the tax rolls, which could well happen.
ReplyDeleteMy argument was not that it is illegal for UH to use TIF for this project, but that it is unethical and unnecessary. This is not the type of use for which what TIF is intended, and UH does not need to use TIF for that space to be developed.
ReplyDeleteI don't think you are correct that the "legal use of TIF has expanded from its original use. Recent misuse of TIF for entities in Johnson County isn't a result of expansion of the law, its a result of selective interpretation of the law. Rather, as Peter Fisher says:
"[the ability of cities to divert future tax revenues]...combined with the looseness of Iowa’s TIF law, creates strong incentives for cities to overuse and abuse TIF."
You also suggest that TIF is intended for "economic development", and imply that any project resulting in "economic development" is therefore appropriate for TIF. But development funded by a bank or another third party will also result in economic development. I'll cite another three paragraphs from Tiffin's report, and again make the strong suggestion that readers of your take a careful look at the entire document.
"It is important to understand that TIF is not synonymous with economic development incentives. TIF is merely a financing mechanism. Cities can and do promote economic redevelopment and job creation in a variety of ways; cities can build facilities to accommodate private projects, they can provide tax abatements for both residential and non‐residential property, and they can issue bonds to finance infrastructure, all without TIF. But TIF has become the mechanism of choice to finance economic development incentives in part because TIF creates the illusion that such incentives are costless, and in part because TIF in actuality shifts costs to other taxpayers. Furthermore, much (perhaps the majority) of TIF revenue is not used to incentivize development at all, but rather to finance routine city infrastructure spending that otherwise could be financed with city bonds, retired entirely by city taxpayers, or charged to developers.
It is often asserted that TIF is costless to taxpayers because the increment in revenue would never have happened without TIF. The taxes that are diverted are taxes that would not have existed but for TIF, so goes the argument, so no taxpayer is the worse off. This is the TIF illusion. It might be true that the development project would not have occurred without some city investment; most projects of any scale require city investments in streets, sidewalks, water and sewer extensions and the like. And it is probably the case that some private investment projects would not have happened without tax rebates or other incentives (though this surely occurs much less often than public officials commonly believe). But none of that requires TIF — which, remember, is just a way of financing such things, an alternative to city bonds or ordinary tax abatements. Thus it is rarely true that TIF is costless to non‐city taxpayers; it is the financing mechanism of choice for many cities precisely because it does spread costs to others.
Some might counter‐argue that without TIF the city wouldn’t have chosen to finance the project at all, depriving the schools and the county of future tax base. Would the City of Coralville have forgone the opportunity to have the Coral Ridge Mall if the city investment in roads and other improvements had to come from city bonds instead of TIF revenues? Of course not. The Mall would have generated sufficient new property taxes to repay such bonds in a short period of time, and it was a very viable project needing no incentives. Would a city provide incentives to a private project that can’t obtain private financing and is not viable without city subsidy, if the city couldn’t use TIF? Perhaps it would, but if not, that would be for the best. In such cases, the financial market has determined that the project is not viable, and taxpayers would be saved from paying for a losing deal."
I'll add that I'd appreciate clarification of the following from you, "A non-TIF project would either be much lower end student oriented housing (which would compete with Grandview and likely diminish their value) or of such a mass and scale that it would truly not fit into our community." What does this have to do with TIF funding? Again, TIF is not designed as a way to block certain unwanted development alternatives. It's a financing mechanism specifically designed for low income or blighted areas experiencing declines in property values. That it has been misused by others should not make it OK for UH to do the same.
ReplyDeleteAndrew, I'll certainlyagree about Peter Fisher's analysis of Iowa's TIF law and how it has been applied,. My wording choice of "expanded" was not correct.
ReplyDeleteI also know that other options, specifically a tax abatement, would in my opinion be worse. This project will generate revenue to the city and other entities, especially bond revenue and PPEL funds for the school district even during the TIF period. An abatement would mean the property would not be re-assessed until completion of the project. That would deny revenue to any entities.
To answer your clarification question, I was not trying to block other alternatives, I was trying to point out that projects that might not require TIF would also likely face as much opposition or more than the curent project.
I appreciate the opportunity we've had to talk about this, I know that you fully understand how TIF works and I do understand your point regarding TIF misuse by others. We disagree in that I think our use of TIF in this case is warranted and will be done is the most appropriate manner possible, as described by Peter Fisher himself.