Something’s Missing in Mall Accord

When the County, Robinson Township, and the Montour School District signed off on a tax increment financing deal way back when (the feasibility study for the site was in August of 1999 and the time of approval was December 1999; even the mention of the "Kaufman’s Department Store" seems like a relic) they probably never thought going to court would be the way the mall and its peripheral development would arrive at the assessed value needed to retire the TIF bonds on time.

But that’s just what happened as the taxing bodies and the mall agreed to boost its assessment from $76 million to $108 million and retroactively for tax years 2010, 2011, and 2012 so to ensure the assessment throws off enough property taxes to pay the debt. It was mentioned in the article that the $108 million value will last until the "bonds are paid off". While the taxing bodies like the deal because it will accelerate the payoff they must be wondering (unless it is spelled out in the deal) what happens to the assessment once the payoff is over; after all, the TIF is sort of a "deferred gratification" model of development: some or all of a new development’s incremental taxes are diverted to pay off debt for that new development’s infrastructure or public costs and then, once the debt is retired, all of the incremental taxes flow back to the taxing bodies who agreed to the diversion in the first place.

Lots of questions, but this deal does not address a big one: why is the mall and its "peripheral development" still not producing the direct job count that was promised in the feasibility study?

By 2005, the study predicted that 5,455 direct jobs would have been produced by the anchors, the mall, three outlots, and the peripheral development. When the Allegheny County Redevelopment Authority completed its TIF evaluation in 2008 it showed the projected job count of 5,455 from the study and placed its current estimate at 3,811; about 1,644 jobs short of projections. The Authority noted "…180 acres remains undeveloped within the TIF district. Commercial activity on these parcels would bring the job creation figures closer to the projections". The same job count and rationale was repeated two years later in the Authority’s 2010 evaluation.

Perhaps the total has improved from the measurements the County took in 2010. That would be a positive for the taxing bodies that participated in the TIF and for the boosters of the project. The issue is that the feasibility study projected that 578 jobs would be produced each year from 2001 through 2005 on "peripheral development" on which "construction…will proceed immediately and continue until full buildout over the next four years (2005)". What happened?

No TIF, No Development?

There has been much debate about the proposed riverfront development in the Strip District. A URA request for proposals says the development will be part residential, part hotel, part office and commercial, and have a parking garage.

The company announced today that it won’t pursue a TIF anymore, noting the company "does not wish to participate in a financing program the community views negatively" and that it will self-finance the infrastructure improvements that would have been funded with the TIF.

Why the change of heart? Was the company worn down by trying to get financing? Pittsburgh City Council agenda notes show that motions to adopt a Lower Strip District Tax Increment Financing (TIF) plan and to set forth cooperation agreements with the URA, the County, and the Pittsburgh Schools were presented and withdrawn on nearly a weekly basis going back to late May of 2012.

Such a large development going forward without expecting some sort of subsidy is rare-the predictable by-product of handing out money to certain developments only to see others parroting the request. If a TIF were granted, the taxing bodies that opt to participate agree to redirect all or some of the incremental property taxes from their coffers to pay off debt issued to get the project off of the ground. Once the arrangement expires, usually it is a twenty year deal, they recapture all of the money from the property.

If the company holds true to its word, and it is not in line for nor seeking any other source of state or local subsidy, then there might be a lesson to be learned for those quick to hand out public dollars when asked and the strength of the "but for" criterion attached to TIF subsidies.

Plenty of TIF News to Go Around

Call it "the week that was" in news items related to projects on the drawing board, soon to get off of the ground, or those that failed to live up to promises. The common thread is that all of them somehow involve tax increment financing (TIF) as a funding tool. TIF allows development on a specified parcel (or parcels) of property to move forward by an authority issuing bonds for certain aspects of the project and then allowing, with the agreement of the taxing bodies where the development is located, that a good portion of anticipated taxes on the new more valuable development to be funneled to repaying the bonds instead of fully to the taxing bodies’ accounts.

We read of a failed development in North Versailles for townhomes and how the Mall at Robinson may not be throwing off enough money or produced enough corollary development (more retail?) to pay off debt; that the long-talked-about apartment village in Castle Shannon will go before Castle Shannon Borough and the Keystone Oaks School Board this month with one school official noting that the revenue split (75% for the bonds, 25% for the district) won’t bring a lot of dollars to the District, but they will get a lot of earned income tax dollars from people who will occupy the apartments (unless, of course, those prospective residents are already ling in the District and will simply move to the new location); the empty lot in uptown Mt. Lebanon, where the first swing and miss at development with a TIF came about a decade ago and is now in the hands of a second developer; a multi-use development in Sewickley; and, not to be left out, the Market Square development in Downtown Pittsburgh. We wrote an editorial in June about the resurgence of TIF in the area.

With these new developments, and a lot of ones already done over the years, are taxpayers getting significant benefits through the elimination of blight, the creation of new job opportunities, and increased tax value? If those questions are to be answered, don’t look to the Commonwealth: as we pointed out this year, the state hasn’t produced an evaluation on TIF even though it was a requirement in the 1990 law that permitted its use.

Some Hart Comment Surgery Needed

In his attempt to present the "real" facts in response to a Tribune Review commentary regarding North Shore parking, Mark Hart of the Steelers offers up a litany of purported benefits stemming from the efforts of the Pirates, Steelers and Continental Real Estate.

The most salient point is the claim that, "The money this development has returned to the City far exceeds the investment of public dollars that helped to fuel this growth." The development referred to includes two sports venues, a hotel, office buildings, and a concert venue all of which, it is claimed, have created thousands of new jobs. Mr. Hart also states "that through the efforts of many, including limited support from the public, we have taken an area that held only Three Rivers Stadium and a plot of vacant land-and completely transformed it into a destination area".

Limited public support? Total state, local and Federal tax dollars to build new stadiums and reconfigure the street patterns is close $400 million. The return on the $125 million in claimed private development will never come close to paying back the taxpayers. Total real estate taxes will run about $3 million per year assuming the property is valued close to the development costs. The office buildings referred to did not significantly add new jobs; they were predominantly employees who were moved from other parts of the City. New restaurants are not necessarily producing net jobs or income. Much of their business is likely being taken from other restaurants in the City and County.

Moreover, the Hart comment claims the North Shore transformation is producing millions in amusement taxes, parking taxes, real estate taxes and payroll taxes. Sorry. Three Rivers Stadium was also producing amusement taxes and parking taxes. Mr. Hart needs to show how much additional amusement and parking tax can be attributed to the new stadiums over and above what would have been collected if games were still in that facility. Then too, he needs to take into account the fact that several acres of the near North Shore are now taken up with a tax exempt baseball park that was previously occupied by taxable or potentially taxable property.

As is too often the case, Mr. Hart looks only at what can be seen and does not take into account the unseen: Taxable development that could have occurred absent the new ballparks, the removal of taxable property from the tax rolls, and the opportunity cost for taxpayers for the hundreds of millions spent to build non-taxable facilities.

Finally, it should be noted that absent the two new stadiums, the extraordinary wasteful use of $535 million to build the North Shore connector would never have happened-a project that has not a ghost of a chance to repay the taxpayers for their investment.

City Council Blows Smoke

Pittsburgh City Council is considering introducing another bill designed to handcuff developers who receive City subsidies. While the latter certainly gets no sympathy from us, this measure will only serve to drive up the cost of developments and thus the amount of the corresponding taxpayer provided subsidy.

The legislation, sponsored by four members of Council, would mandate that all contractors in City-subsidized projects use "air-friendly" vehicles and reduce water runoff through the use of green measures such as garden roofs and rain gardens. Air-friendly vehicles would be those using low-sulfur diesel and have filters installed to catch air particulates. All of this increases the cost of developments which will either prevent the development from taking place or increase the cost to taxpayers who underwrite such ventures.

One councilman claims that this measure is critical in advancing Pittsburgh’s economy. According to the Councilman companies are balking at moving to the City because of bad water and air quality. Surely it has nothing to do with the burdensome taxes and regulations that are routinely imposed on companies—a fact which is lost on these Council members.

If anything, Pittsburgh’s water and air quality has been rapidly improving as evidenced by the national fishing tournaments being staged on our rivers. The one air quality report that places the region in a negative light has been factually disputed by not only the Allegheny Institute, but by the County’s health department and also by the liberal leaning editorial board at one local paper.

Sadly, something that does need cleaning up is the thinking process of City Council. When will they get serious about reducing taxes and lowering spending, thus truly making Pittsburgh more attractive to businesses and actually advancing the City’s economy.

A Bird in the Hand…

After years of complaining about the lack of a grocery store in the Hill District, it appeared that residents were finally getting their wish. A proposal for a grand shopping center, anchored by a full service grocery store with all the bells and whistles like a dry cleaner and bakery, was to be built in their neighborhood. This development won favor with residents over an alternate plan of a more modest grocer that would have met the needs of the residents despite the lack of extras. Most in the community chose the new development over the basic grocery store which could have been built quickly. They summarily dismissed the "bird in hand". But more than a year later, the full scale grocer has backed out of the deal and now residents are left looking for the "birds in the bush".

Local grocer Kuhn’s was to be the main tenant of a grand development scheme with a plaza, restaurants, and retail space-all for a projected price of $24 million. But with only $2 million in community benefits grant money (as of a result of an agreement with the Pittsburgh Penguins and their new arena) to get started, this project was to rely on public subsidies to close the remaining gap. National grocer Save-A-Lot was not only smaller in scale, just a grocery store, but would have been built mostly with private money (in addition to the $2 million in community grant money).

It’s very easy to be swayed by promises of quick revitalization, especially when the taxpayer picks up the tab. But many times these grand schemes are not as solid as proposed. Many fail to live up to promises. Sometimes slow, incremental progress is the best way to go-especially when it is done with private money from an established firm.

With the community benefits agreement set to expire soon, the $2 million in seed money could be in doubt. It’s not clear why Kuhn’s backed out of the deal, but developers claim they will proceed as soon as they find a replacement. But how long will that take? When will the residents of the Hill District finally get the grocery store they need? This is a classic case of directed economic development failing the people instead of helping.

Another Blow Against City-County Mergers

Advocates of a city-county merger between Pittsburgh and Allegheny County constantly tout the economic development benefits they promise are sure to follow. It is claimed that consolidating City and County economic development agencies will make it easier to attract new firms. Of course they offer no credible evidence this will happen or that it has happened in other city-county mergers. But why let minor details such as convincing arguments or evidence stand in the way?

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