Smith07/26 12:35 PM
Here’s how a TIF package works:
(Tax-Increment Financing)
Assuming that the newspaper is not making a mistake, and the developer is not misleading the community, we have to assume that this story implies that the $125 million quoted as market value is really the value of the 45 acres as is, including the existing buildings. The city and county receives taxes based on the current $125 million value. If the developer delivers this project, the taxes generated by the 45 acres and the new development will be based on $800 million instead of the current $125 million. This gives an extra $675 million to the tax base, which if property taxes are $1.069 per $100 of value (2006 Wake County & Raleigh millage rate), this would increase the taxes received by the county and the city by ~$7.2 million annually.
This $7.2 million would be recognized as an income stream by a bank, insurance company, pension fund, or other financial institution. The financial firm then issues a bond, guaranteed by the city, that essentially is a loan being paid back by the additional $7.2 million annual tax increase. The city then gives the bond (essentially, “loan proceeds”) to the developer to help make their project financially feasible. Because it is “public” money, the developer typically uses it on items such as infrastructure or affordable housing, items that can be perceived as being desired and useful to the community. In this case, the TIF proceeds would be used to finance the parking garage, which would be open to public, but most likely to be used by the office workers and local shoppers, which may or may not represent the demographic makeup of Raleigh as a whole.
If all Kane is asking for is $75 million, and the numbers quoted in the story are true, not all of the $7.2 million in additional annual tax receipts will be used to finance the $75 million bond. I personally think everyone would win in this situation, the developer gets $75 million in money that he doesn’t have to repay, the city / county gets more tax revenues, the immediate rich community of North Hills gets new development, and Raleigh as a whole gets a more productive and dense use in North Hills. All growth is somewhat detrimental to the community through increased pollution, traffic congestion, and rising prices - but dense mixed-use development is the least strenuous type of growth. This project is also adaptive re-use of an old low-density development, therefore the city already has some infrastructure serving the site.
I do not believe the developer’s comment about the city and county receiving an extra $550 million in revenue that could fund 15 to 20 schools and 2,700 permanent jobs. At the additional $7.2 million in annual tax revenue, it would take 76 years to generate $550 million. Employing the full $7.2 million to finance debt, the City / County could only issue ~$120 million at best. The developer must have been referring to the increase in tax base, or the reporter may have misinterpreted him.
Cities can shift more of the risk to the developer by holding the development firm on the line for any shortfall in tax revenues. This would help prevent the developer from over-exaggerating the financial windfall the city would receive and makes sure the firm finishes the project in a timely fashion.
TIF financing is also being used in Chapel Hill at the Rosemary Parking Deck, in Miami at Midtown Miami (a former polluted railyard downtown that is now a 4 million sf mixed-use development), in Bridgeport Connecticut at an old polluted steelyard, and in the District of Columbia to promote development in economically blighted neighborhoods. Without TIF financing, many of these projects would not be financially feasible and the goals of the community could not be achieved through the private sector alone.
John Kane is working to develop the 45 acres across Six Forks from the North Hills mall. In doing this he is asking for $80 million in bonds to be funded through tax revenue generated at the development. He says our $80 million will enable an $800 million dollar development as opposed to a $125 million dollar “strip mall.“ In explaining the city’s options, John Kane offered:
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