Analysis of TIF financing downtown

[betts]

Analysis of increment financing shows some downtown projects meeting expectations, others falling short
The first analysis of developments benefiting from downtown's Tax Increment Financing district shows some are on target for fulfilling promises to pay back their allocations while others are expected to fall far short of original projections.

BY STEVE LACKMEYER Published: December 31, 2010

The first analysis of developments benefiting from downtown's Tax Increment Financing district shows some are on target for fulfilling promises to pay back their allocations, while others are expected to fall far short of original projections.

The following developments reflect allocations provided to recipients, the increment they projected their projects would generate compared to the actual amount of money expected to be paid back to the TIF:

Triangle (Brownstones at Maywood Park, 2nd Street Lofts)
Allocation: $7,350,000
Current increment: $9,984,128
Projected increment: $115,591,002
Projected payback: exceeds life of the district

Block 42
Allocation: $990,000
Current increment: $13,375,787
Projected increment: $14,320,836
Projected payback: seven years

The Hill
Allocation: $2,650,000
Current increment: $2,682,554
Projected increment: $48,779,225
Projected payback: exceeds life of the district

St. Anthony Hospital
Allocation: $650,000
Current increment: $5,643,458
Projected increment: $8,262,404
Projected payback: 13 years

Legacy at Arts Quarter
Allocation: $2.5 million
Current increment: $29,969,699
Projected increment: $29,136,912
Projected payback: 11 years

The report by Brent Bryant, Oklahoma City's economic development program manager, shows the Block 42 condominiums developed by Grant Humphreys are on track for the most immediate payback, while the Legacy at Arts Quarter apartments developed by Mike Henderson is set to pay back more than what was originally projected.



Read more: http://newsok.com/analysis-of-increm...#ixzz19hdHSSVS

[betts]

I'm going to comment on my own thread. While I realize that the city would like to generate massive returns on investments (it looks as if they were hoping for 1000% returns on most of these), in every instance the city has already received more than it invested, if I read these figures correctly. In this economy, it looks as if they're doing better than I have with my personal investments over the past several years.

Considering how raw these areas still are, considering the plummet our economy took, is this terrible? To my knowledge, the Hill is the only project that had a competing proposal and so, one could say it was possibly a mistake, although we have no way to definitively prove that's correct. I would assume these pieces of land were generating virtually no property taxes of significance prior. Wouldn't it be reasonable to see what the city generates over the next 10 years as new additions to the areas are made and we have a urban neighborhood? It's fun to criticize, but is anyone really sorry these developments exist? If they were all rental apartments (which I realize with the retrospectascope everyone is wishing had been built instead) wouldn't everyone be complaining about the lack of for sale units in the area?

Now, I would like to know what Ron Bradshaw and Pat Garrett did with their 7.35 million, since I don't see any mention of it in the article. If it's enabling them to sit on properties without lowering their prices to increase sales, I'm not happy about that.

[Spartan]

I forgot about these, I guess this sort of qualifies as our version of the Vision 2025 housing fund in some ways, our willingness to do a TIF for anyone who asks. The cool thing is in many cases the TIF helped pay for great projects that were intended for semi-public use.

Triangle TIF--funded the "Maywood Park" sculpture, the plaza looking down on Bricktown, and the streetscapes.
Legacy TIF--along with Rick Dowell, helped fund the Walker streetscape that we're now getting rid of.
St. Anthony TIF--helped fund major aesthetic improvements and it may have also funded streetscape?

What did The Hill and Block 42 use their money for?

[king183]

Can anyone provide a good/simple explanation or link about exactly how a TIF works? I swear I've read how they work several times, but I can never get it fully. I may just be making it more complicated than it really is.

[betts]

I forgot about these, I guess this sort of qualifies as our version of the Vision 2025 housing fund in some ways, our willingness to do a TIF for anyone who asks. The cool thing is in many cases the TIF helped pay for great projects that were intended for semi-public use.

Triangle TIF--funded the "Maywood Park" sculpture, the plaza looking down on Bricktown, and the streetscapes.

What did The Hill and Block 42 use their money for?

7.5 million seems a fair amount for the Maywood Park sculpture and the Plaza, especially since they aren't maintaining the Plaza very well, but they are both spaces I'm happy to have and definitely improve the area.

I can't think of any public spaces associated with either of those projects, although the Hill is nicely landscaped.

[flintysooner]

As I understand it the allocation is the amount provided for the project. The current increment I think is the current tax valuation although I'm not certain of the precise computation. The projected increment is the valuation at the completion of the project. The projected payback is, of course, the time estimated to recover the provided funds given the increase of value in the district occasioned by the project.

[betts]

Ah, that makes more sense. However, the city does get aesthetic improvements for the public from their money if it's not going to help with funding of the project, but rather, adjacent public spaces. And, I think at some point things in the area will pick up significantly, allowing the city a decent return on its money. It's just not going to be a quick fix in this economy. One of the reasons Block 42 is close is because most of the condos and townhouses are sold. The same will eventually be true of the others and property tax revenues will increase significantly.

[Steve]

Now, I would like to know what Ron Bradshaw and Pat Garrett did with their 7.35 million, since I don't see any mention of it in the article. If it's enabling them to sit on properties without lowering their prices to increase sales, I'm not happy about that.

Streets, sidewalks, pocket park (with sculpture), lighting, street furniture, utility lines.

[betts]

That's even better. I really like the street furniture, love the fact that the utility lines are buried, use the pocket parks all the time and, of course, the sidewalks. Hopefully things will improve and the city will recoup its' investment sooner than it hopes.

[Spartan]

Yeah, the Maywood TIF was worth every penny and those guys really did the community and their tenants a service with how they chose to spend their money. I'd say The Hill and Block 42 squandered it (if I recall, they spent their allocation partly on the "square" inside it which has free WiFi, and The Hill is doing absolutely nothing public-oriented at all because this is Edmond urbanism, afterall), although that's great if Block 42 is going to repay the fastest.

[Kerry]

What did The Hill and Block 42 use their money for?

For Grant Humphreys, the TIF covered a critical gap in funding development of the Block 42 condominiums at NE 4 and Central.

“Block 42 would not have happened if not for the TIF investment the city made,” Humphreys said. “When you're looking at downtown development with costs as high as they were for Block 42, it just doesn't work without that gap financing.”

Humphreys said the majority of the $990,000 allocated for his project paid for a fountain, plaza, landscaping and a pavilion enjoyed by residents and open to the surrounding neighborhood.

“We've used it for outdoor movies and events,” Humphreys said. “It's a place for neighbors to connect and have impromptu parties.”

This read a lot worse than it probably is but I am not sure I would be saying how the tax dollars paid for a location for residents to watch outdoor movies and have impromptu parties.

[Patrick]

Can anyone provide a good/simple explanation or link about exactly how a TIF works? I swear I've read how they work several times, but I can never get it fully. I may just be making it more complicated than it really is.

Tax money from building the project (i.e., taxes on purchases of materials, etc.) goes back into the project for additions like sculptures, plazas, or whatever is agreed upon. The tax money goes to the city, but essentially is redistributed back to the developer to build whatever is agreed upon in the project. It's a way to encourage development in a TIF district by using some public financing.

[Spartan]

This read a lot worse than it probably is but I am not sure I would be saying how the tax dollars paid for a location for residents to watch outdoor movies and have impromptu parties.

The developers can use it for whatever they want, it's for the purpose of small public improvements in the area. It is highly encouraged that they direct it toward something with public use potential.. would have been better to try and figure out something with anti-urban 4th Street, since the courtyard isn't really the best open space I've ever seen..

[Kerry]

FYI - Disney World is in a TIF district called Reedy Creek.

http://www.rcid.org/index.cfm

[Larry OKC]

Can anyone provide a good/simple explanation or link about exactly how a TIF works? I swear I've read how they work several times, but I can never get it fully. I may just be making it more complicated than it really is.

From the same article linked at the beginning of the thread:

A tax increment finance district, also known as a TIF, allows a city, town or county to use tax money generated by a new development to pay for public improvements in the development area. Improvements associated with redevelopment projects can be supported by bonds, with the debt to be repaid by money generated within the TIF district.

This goes along with what I have read before. Essentially, TIF money is borrowed money that is paid back with anticipated increased property taxes at some future date (from what I understand, similar to bond issues).

That takes care of the simple part, now it gets a bit more complicated...

Supposedly, by Oklahoma law, the money used from a TIF district MUST be spent ONLY within that TIF district (for the above stated public improvements). This protects money from one area being spent in another area I guess. Or the developer from using TIF money to subsidize their project in some way.

The Devon TIF was carved out of an already existing TIF and has been described as consisting of only the Devon property itself. This brings up an interesting question, while laudable and well intentioned, is it even legal for Devon to insist that the Devon TIF be spent on all of Downtown (Project 180) since the vast majority of the money is being spent outside of the borders of the Devon property?

Or is this one of the reasons for the borrowing of the money at least twice to get around the legal ban? Devon is loaning the City the TIF amount up front, which is to be paid back with interest by the TIF itself, which in turn is borrowed money that gets paid back by the anticipated increase in property taxes.

These "creative financing/accounting" moves are reminding me of what the state is doing with the $16M of stimulus money that went to school districts (there was a ban on using it to pay off debt or something and redirected to pay for text books, but most school districts had already purchased their text books and think it got redirected again to go towards payroll). A convoluted shell gain of sorts.

[Patrick]

The money from Devon is being spent in the same "TIF district". I think as long as the money stays within the district, it doesn't matter whose property the money is spent on. I could be wrong though.

[Larry OKC]

No, the Devon TIF district is composed of the only the Devon property itself (carved out of an already existing TIF district). Some of the money is being spent in the Devon district, but the vast majority falls outside of it (and probably outside the already existing TIF district but don't know where the various district boundaries lie).

[onthestrip]

Tax money from building the project (i.e., taxes on purchases of materials, etc.) goes back into the project for additions like sculptures, plazas, or whatever is agreed upon. The tax money goes to the city, but essentially is redistributed back to the developer to build whatever is agreed upon in the project. It's a way to encourage development in a TIF district by using some public financing.

I believe it has nothing to do with sales tax on building materials and everything to do with ad velorem tax (property tax). The increased ad valorem money that the new develoment will bring in over the near future (25 years in the case of Devon tower i think) is what is put into the project.

The devon tower is supposed to bring in $180 mil more in property tax over next 25 years than the old parking garage would have, therefore $180 mil is being spent on improvements in that tif district, which they made to cover most of downtown. Thanks Devon!

[Kerry]

No, the Devon TIF district is composed of the only the Devon property itself (carved out of an already existing TIF district). Some of the money is being spent in the Devon district, but the vast majority falls outside of it (and probably outside the already existing TIF district but don't know where the various district boundaries lie).

Here is the answer to your question Larry.

http://findarticles.com/p/articles/m...g=content;col1

Reynolds also questioned whether money generated within a TIF district can be spent on development outside the district. None of the funds generated will directly benefit the Devon property. Batchelor said the state statutes require only that the district be created in relation to a specific project plan; the boundaries of such projects are not proscribed.

I guess that means that the money can be spent on whatever public improvements the people paying into the TIF want it to pay for as long as they can show the TIF district benefits from it, and in this case, the only entity paying in is Devon. Devon could use their TIF money to pay for improvments in Ardmore if they can show the OKC TIF district directly benefits (although that would be a tough sell). IT could also me that the project exists first, with the TIF boundary being created second. In that light, project 180 could have been funded using a TIF district created at the new Oklahoma Outlet Mall (but local property owners would have protested).

[Spartan]

Just awarded a little over $1 million to Richard McKowns.

[Larry OKC]

Kerry, thanks for the link/info. It does contradict the info I saw and without either article citing the actual law(s), it is hard to say which is correct. The time when Devon is exempt looks like it is 5 years. Your link seems to contradict the sales tax issue that someone else brought up. The info i had read mentioned the construction related sales tax but seemed to be separate from the TIF financing. guess the only way we will know which is correct is if someone challenges it (much like the original MAPS or recent MAPS 3 ballot).

Along the same lines as the Council can spend MAPS 3 money on anything they want (as long as it fits into the vague and all inclusive definition of "capital improvement"). But have actually heard City leaders say "oh no, we can't spend MAPS 3 money on _____________, that isn't what was on the ballot" type of thing. Obviously, they never read the ballot since it isn't there...LOL

[Kerry]

Along the same lines as the Council can spend MAPS 3 money on anything they want (as long as it fits into the vague and all inclusive definition of "capital improvement"). But have actually heard City leaders say "oh no, we can't spend MAPS 3 money on _____________, that isn't what was on the ballot" type of thing. Obviously, they never read the ballot since it isn't there...LOL

They are probably talking about the 'trust ballot'. While the actual language of the bill doesn't specify what the money has to be spent on, it was very clear from the beginning what the projects were. We had a similar vote here in Jax several years ago called the Better Jacksonville Plan. It was 1/2 cent sales tax over 20 years and like the MAPS3 ballot, they couldn't specify the projects. However, the City didn't identify anything beyond a few general ideas to spend the money on but the citizens were told it would transform the city.

We are half way through the tax and it is a boondoggle. No one knows where the money is going with every council member promising to spend it in their districts. There have been some much need improvements and some total unaccountability. If the OKC City Council doesn't stick to the original projects, and only those projects, you will not see a MAPS IV.

[warreng88]

Just awarded a little over $1 million to Richard McKowns.

Here is the JR article on that:

Oklahoma City Council OKs $1.25M for housing in TIF district
By Brian Brus
Journal Record
Oklahoma City reporter - Contact 405-278-2837
Posted: 08:46 PM Tuesday, January 4, 2011

OKLAHOMA CITY – City Council members approved funding about $1.25 million for residential development in a tax increment finance district near downtown Tuesday.

The tax increment finance district, or TIF, will focus on the Center City Residential project, which is between NE Second Street, NE Third Street, Walnut Avenue and Oklahoma Avenue, about 2.6 acres just north of Bricktown.

The full $18 million project headed by Richard McKown is expected to be completed by mid-2012. It will involve about 230 single-family residential units and related commercial property, he said.

A TIF funds projects that may otherwise be unaffordable, borrowing against future tax revenues expected from increased economic development in a defined area. One of the main ways to do that is for a government agency to provide funding upfront and recoup the investment from tax increments later.

In the case of Center City Residential, Oklahoma City won’t provide the funds until after the developer completes the job and reaches a minimum threshold – 40 percent of the units occupied – expected in 2014. At that point the developer can use the funds in a number of ways, including paying down debt and building out the project further. Then the city government will be repaid through county tax assessments.

“We decided to take a more conservative approach and be more performance-based this time,” said Brent Bryant, the city’s economic program development manager. “We only allocated budget to it, not funding right away.”

The project will be funded through a TIF known as Downtown/MAPS Tax Increment District No. 2, so named because it was established in 2000 about the same time that Metropolitan Area Projects tax revenues were being established. About $30 million was borrowed from local banks and earmarked for economic development via projects such as the Skirvin Hilton Hotel, The Hill condominiums and the St. Anthony Hospital medical office.

McKown said the way the Center City Residential TIF funding request was structured reduces the municipal government’s investment risk. Current TIF-backed projects have payoffs ranging from seven years to well beyond the life of the district.

“We are not asking for that funding to be released to us until we’ve paid the first year’s taxes as the new assessed value,” McKown told council members.

When asked to describe the nature of the development, McKown said the target market is single people, not age or race specific. Rental rates will be between $850 per month to $1,500 for the high-end units.

“It’s a very nice project we’re building. It’s an efficient project,” he said. “Many of the apartment units are not very large – they’re nice and spacious and open; there’s no wasted space. They’re excellent. But they’re not that expensive relative to a lot of the for-sale property that’s been built.”

McKown said new urban construction is prohibitively expensive, about 20 percent more so than an equivalent suburban development.

Council members Skip Kelly and Pete White said the project highlights an area that’s been underserved for many years and will enhance the Deep Deuce district by its proximity.

A formal economic development agreement with the developer will be considered by the Oklahoma City Economic Development Trust in March.

[betts]

McKown said new urban construction is prohibitively expensive, about 20 percent more so than an equivalent suburban development.

Which perhaps explains why it's almost always more expensive to live downtown in cities when strictly looking at price per square foot. It's also harder to compare apples to apples, since rather than being spread out over a large area, each distinct development occupies a narrow footprint. That means both price and materials used in construction can vary widely from project to project, rather than neighborhood to neighborhood. No one questions why Nichols Hills property is more expensive than Brookhaven per square foot, despite the fact that they are relatively close geographically, because each is a distinct neighborhood. In urban construction, each building is its own distinct neighborhood. But it also explains why average price per square foot over an urban area like downtown Dallas may not truly delineate what is available at what price.

[shane453]

If you break down $18,000,000 across 228 units, you get about $80,000 per unit, on average, for the whole development. I'm glad these will be rentals, but if a project can be built at this price I would love to see some more for-sale units in the 90-120k range, and it seems like that would be doable. while still making a healthy profit.