Another Harsh Lesson about TIFs for Retail

In the late 1990s and early 2000s, tax increment financing (TIF) became an oft-used financing scheme for local governments to use on development projects they wished to pursue.  This was viewed as a way to repurpose property by using the future value of incremental tax payments to pay off a redevelopment bond.  However, we warned at that time in our Policy Briefs (Volume 4, Number 3 and Volume 6, Number 48) that a TIF should not be used to subsidize retail projects.  Our logic was simple: retail is an industry with little or no multiplier effect.  Furthermore retail tends to do nothing more than shift dollars from one part of the community to another as shoppers pursue the newest strip malls and outlets leaving older ones to struggle.

 

The way a TIF works is simple. Suppose for example the local government taxing bodies wish to develop a parcel of property that is currently generating $100,000 in tax revenues.  It is believed that once developed and repurposed, it will then generate $200,000 in tax revenues—providing an increment of $100,000.  An authority (usually a redevelopment authority) then issues a bond in the appropriate amount to fund needed infrastructure and other site improvements to proceed with the project.  Once the project has been completed and tax revenues reach $200,000 the taxing body will still keep the original amount ($100,000) but can use the increment (the additional $100,000), or any part thereof, to pay off the TIF bond that was issued.

 

Taxing bodies regard this financing option as relatively “risk free”.  However, if the project fails to live up to its projections, someone has to pay for the bonds that were issued.  One such backstop is the Pennsylvania Department of Community and Economic Development which administers the TIF Guarantee Program providing up to $5 million per project.  Otherwise the bonds become the responsibility of the authority issuing them.

 

One decade ago, in September 2006, we wrote a Policy Brief (Volume 6, Number 48) that discussed the Pittsburgh Mills mall project and the $50 million TIF the developer had received as part of a financial assistance package.  The mall had opened in 2005 and we noted in that Brief its impact was being felt as local businesses had closed blaming a loss of customers to the mall.  But we also said the following:  “But none of this is to suggest that Pittsburgh Mills is booming.  It still deals with the same constraints facing the region in the way of sluggish population growth and the necessary redirection of limited disposable income.  A planned go-cart track never materialized and its upscale bowling alley attraction has already announced it will close.”

 

That quote proved to be quite prophetic as the mall and the entire development struggled to hold onto tenants.  According to recent local news articles, the mall is currently only 58 percent occupied, which is down from 65 percent from just last fall.  In 2012 it was reportedly occupied at 85 percent.

 

And of course the high vacancy rates have affected its market value.  While the entire project was built for $350 million, the mall itself was built for $226 million.  The mall had a market value reportedly at $190 million in 2006—more than half the value of the whole development.  According to news articles, its value plummeted to $30.8 million in February 2016 and by the end of August that value sank even further to $11 million.  In fact, the mortgage holder of the mall foreclosed last November.

 

So what does this mean for the TIF project?

 

Looking at the assessed values for the project, the pre-development value (2002) of the entire 340 acre area was $1.3 million and the property tax revenue collected by Allegheny County ($6,242), Frazer Township ($2,063) and Deer Lakes School District ($30,613) totaled $38,918.  These values became the base revenues that each taxing body would continue to collect after the development through the TIF package.  They also agreed to keep a portion of any increment to the property taxes at a rate of 25 percent (Allegheny County and Frazer Twp.) and 20 percent (Deer Lakes SD).

 

Records show that the assessed value of the parcels in the area after development reached $215.13 million.  The mall’s assessed value was $127.97 million.  In 2006 the County’s millage rate was 4.69 and thus they collected $1,008,943 in property taxes on the development.  Frazer Township (1.55 mills) collected $333,446 while Deer Lakes School District (23 mills) collected $4,947,908.  The total property tax collection from the three taxing bodies came in at $6,290,298.  Less the base amount ($38,918), the incremental property tax revenues were $6,251,379.  As mentioned above each taxing body elected to retain some of the increment ($1,316,980) which left $4,934,399 to be placed in the TIF fund to repay the bonds.  According to the debt service schedule, payments that year (2006) were only $2,729,850.  Adding administrative costs of $581,312 (comprised of an annual public safety payment to Frazer Township ($500,000) and other fees) raised the payment to over $3.31 million.  So at that point the increment was more than enough to pay the annual debt service and administration costs.

 

In 2016, the development’s assessed value had increased by 10.4 percent to $237.59 million.  The mall’s assessed value increased eight percent to $138.36 million.  Although millage rates had changed, Allegheny County (4.73 mills) collected $1,123,804, Frazer Township (1.42 mills) collected $337,379, and Deer Lakes (21.953 mills) collected $5,215,831 for a total of $6,677,014—a 6.14 percent increase over the 2006 amount.  Once again, removing the base ($38,918) and the percent of the increment each taxing body elected to retain ($1.4 million) left $5,237,833 for debt service ($4.9 million) and administration expenses on the TIF bond (roughly $5.4 million).  As can be seen, the increment to the property taxes collected falls a bit short of what is required.  However in years where there was an excess collection, it was placed into a TIF fund presumably to cover any years in which there was a shortfall.

 

But the important point here is the struggling mall and its’ assessed value versus its market value, along with other establishments which have already closed, leaving vacant structures.

 

As mentioned above the reported market value of the mall is currently $11 million—well below its’ assessed value of $138.4 million.  What if the mall’s owner appeals its property assessment?  What if the assessed value drops to $50 million?  The assessed value of the entire project falls from $237.59 to $149.23 million.  Keep in mind that the free standing Sears store (2016 assessed value of $7.5 million) closed as has a Smokey Bones restaurant ($1.94 million).  This would drop the assessed value of the project even further if the property owners appeal.

 

If we assume an assessed value of $149.23 million, the property taxes collected from the three combined taxing bodies would fall from $6,677,014 to $4,193,802—a decline of $2,483,212.  Less the base revenue amount and the amount of the increment retained by the taxing bodies, the funds left for the debt service obligation plus administrative expenses would be $3,278,434.  According to the debt service schedule, that amount alone is just more than $5 million for next year and is to rise gradually to $5,660,160 in the payoff year of 2023.  According to the Redevelopment Authority of Allegheny County’s financial audit, for period ending December 31, 2015, the amount outstanding on the TIF bonds is $33,155,000.  With the mall being placed into foreclosure and other ancillary establishments closing, the ability to repay the TIF bonds comes into question.  And even worse, the tax revenue of Frazier and Deer Lakes schools will take a major hit.  Not Good.

 

This just calls into stark relief the problem with subsidizing retail ventures. The Lazarus debacle should not be forgotten either.  For the first few years Pittsburgh Mills appeared to be a success.  But vacancies became an issue early and plagued the mall over the last few years.  Now the mall has been foreclosed and its market value has plummeted to just $11 million.  If the assessments are lowered to reflect the market value of the mall, the ability to repay the TIF bonds will be in doubt.   How this saga will play out remains to be seen.  But is should serve as a warning to development officials seeking to go down this road again.

Redeveloping the Lower Hill

Late in the summer, the Mayor of Pittsburgh announced that he wanted to establish the largest ever Tax Increment Financing district (TIF) in the City of Pittsburgh’s history.  The proposed TIF will stretch from the Lower Hill through the Upper Hill to the City’s Oakland neighborhood—in all seven neighborhoods are anticipating benefits.

 

The centerpiece of this TIF project will be a plan for the redevelopment of the 28 acre parcel of land where the Civic Arena once stood—a plan that was finally agreed upon by all parties involved, including the Pittsburgh Penguins, the Hill District community, and local government leaders.   According to the spokesperson for the Urban Redevelopment Authority (URA), formal resolutions of Intent to Participate will be sent to the three taxing bodies involved beginning in November.  If approved, which is a strong possibility since the Mayor and County Executive pushed for the plan, a TIF Committee will be formed and the TIF Plan will be created.  They are forecasting this to be completed sometime mid-2015.

 

The redevelopment project will be placed in the hands of the Pittsburgh Penguins as per an agreement which awarded them their new home in 2007.  Naturally, the officials and community leaders involved are lauding this plan as they are projecting that a twenty year TIF from this development will generate a minimum of $22 million to perhaps as much as $50 million to be used for public improvements in the other six neighborhoods.  The problem for analysts is that it is unknown as yet how much of the TIF funds will be used on the original 28 acre site.  And, the total amount of TIF borrowing has not been specified and the details of the plan have yet to be released to the public—but should be before the taxing bodies agree to participate.  Presumably, total TIF borrowing will be above $50 million.

 

According to the URA, who will be involved in the project, the TIF proceeds will help with “public improvements in support of commercial and/or residential development”, along with housing in the area, both for sale and rental properties, property stabilization to repair and preserve structures, and neighborhood parking solutions.  In a full length report from 1999, Report 99-06, we wrote, “a TIF project allows for “public improvements in a slated area (to be) financed by the increase in property taxes generated by private development.”  It is used in a blighted area where property tax receipts are flat or declining.  A bond is issued for the project.  As the development takes place, property values rise as do the subsequent property tax revenues.

 

In order for the TIF to proceed, a government body must issue a bond for the specified plan amount.  That is, the money is borrowed up front and repaid over time from the increment in tax revenue. However, if the development fails to generate enough of an increment in property taxes to satisfy the debt issue, taxpayers could then be on the hook for the bonds, or bond insurance would pay, resulting in a down grade of the issuing body’s credit rating. Either way the sponsoring government would suffer from the default. The Department of Community and Economic Development does offer a guarantee program for TIFs that guarantees $5 million per project.  However, this program is not available for projects located within cities of the first or second class, thereby excluding Pittsburgh.

 

One glaring example of a City TIF project gone awry comes to mind—the Lazarus department store.  As was noted in our 1999 report, the Lazarus project failed to deliver the promised increase in property taxes.  Of course, fifteen years later, Lazarus is sadly but a distant memory for most Pittsburghers and development officials.

 

But of course the Lower Hill development is different from the Lazarus project, especially in the scope of the project.  It encompasses property that has not been paying property taxes as the Civic Arena was owned by the City-County Sports and Exhibition Authority.  Thus, there isn’t a base amount of property taxes being collected.  Instead the agreement entered into by government and community leaders is that the resulting property taxes generated from the development will be split between the taxing bodies (35 percent) and the bond repayment (65 percent).  While highly doubtful, it is still possible that one or more of these bodies, school district, City, or County, will decline to participate—most likely it would be the school board since, as mentioned above, the Mayor and Executive were involved in the negotiations.  However, the County did decline to participate in a retail/residential development in Mt. Lebanon, which never got off the ground and the municipality relied on DCED’s guarantee program, i.e. the taxpayers, for reimbursement.  Indeed, the County had taken a position not to involve itself in residential TIFs several years earlier.

 

But does the project meet the letter of the TIF law?  According to the TIF law, the project’s main intent should be to remove blighted areas.  The Lower Hill, Crawford Roberts, the Bluff, and Greater Crawford Roberts districts were designated as blighted years ago and, under the original Urban Redevelopment Law of 1945, that designation has not been removed (Act 35 of 2006, which amends that law, set a twenty year time limit on such a designation going forward).  Secondly, TIFs have a “but for” requirement.  That is, the project would not be financially viable without the TIF funds.  With real estate overlooking the Downtown area, it is hard to believe that a private developer would not jump at the chance to develop these 28 acres without government subsidies.  Finally, and perhaps most importantly, TIFs were envisioned to be used primarily as a means to promote developments targeting high value added, high multiplier activities and jobs such as manufacturing that could create family sustaining jobs for the community, renew blighted areas with economic vitality and generate ample long term benefits to justify the taxpayers’ investment—not for retail and residential development, which is the crux of the Lower Hill plan.

 

For the residential portion of this plan there is a further complication for the TIF, or at least the size of the TIF.  The previous mayoral administration created tax incentives to lure residents into the Golden Triangle.   There are three programs from which potential buyers can take advantage; whether or not they will be extended to condos/residences in the Lower Hill will have to be determined, but on the URA website they acknowledge “parcels that developers choose to use the abatement or economic stimulus program on would have to be removed from the TIF district, removing potential TIF proceeds and requiring formal action by all three taxing bodies.”

 

Keeping in mind that since public money will be used, prevailing wages will have to be paid on the entire project.  Prevailing wages will increase the labor cost of the project significantly above what market wages would cost.  A recent study conducted on behalf of the New York State Economic Development Council noted that statewide the average increase in project costs due to prevailing wages was 36 percent with a range of 23 to 52 percent in the state’s metro regions.  While, the Pittsburgh percentage of increased costs has not been determined through detailed study, it seems reasonable to believe it is at least 20 percent, which would put the cost extra cost of the forecast $400 million in construction on the site at $80 million.

 

As mentioned earlier, the original intent of TIF was not to support retail or residential development, but rather manufacturing or other high value, high multiplier projects.  The City has not had much success with retail TIFs; Lazarus, immediately comes to mind, and even the Southside Works has had its struggles with retail as several stores have turned over in its short existence.  Interestingly and somewhat ominously, the economic analysis completed on behalf of the team, commented that “retail provides a challenging environment” and that on-site residents “do not typically generate demand for substantial new retail space.”  So why are they so eager to go down this path?  This 28 acre site represents a great opportunity for the City of Pittsburgh.  The best thing government officials can do is get out of the way.  The team was already provided an excessively sweet deal by getting development rights to this area.  Let them pay market value for the lots and develop them as they see fit—and use their own money, not taxpayer money.

Has the Mt. Lebanon TIF Saga Finally Ended?

For more than a decade developers have been attempting to develop a prime piece of real estate on the corner of Bower Hill Road and Washington Road in Mt. Lebanon.  The parcel, once owned by Mt. Lebanon’s Parking Authority, appears to have run out of proposals—more accurately, funding—and will sit vacant a while longer.

 

The Institute has followed the iterations of projects for quite some time (Policy Briefs, Volume 7, Number 10 and Volume 10, Number 17).  In 2002, the proposal was to build high-end condos at the site, when private funding was not forthcoming, that developer withdrew.  A new developer, Zamagias Properties, stepped in with a new plan in 2006—60 high end condos with 9,000 square feet of retail space.  The twist this time was the appearance of a tax-increment financing (TIF) package.  The municipality and school district accepted the TIF, but the County—who helped broker the TIF—did not.  Once again the private financing did not materialize and changes were made to the plan which increased the number of condos and retail footage to 72 and 14,000 respectively.  A new TIF of $6.1 million was approved, and again the County declined participation.

 

In the latest effort the TIF was used to back a $3.69 million loan from the Department of Community and Economic Development’s Commonwealth Financing Authority (CFA).  It was claimed at the time that the public money would unlock private financing.  Of course this was in 2007 just before the financial collapse and the start of the great recession.  Once again the private money, based on selling 25 percent of the units, did not appear and the project was scrapped by early 2010.

 

Zamagias’ most recent development proposal for the site, townhouses, was denied by the township’s zoning board when the developer sought exemptions from part of the zoning code.  According to a news report, the developer went into default in early 2013 on the CFA’s loans used to acquire the property.  The State and its taxpayers are left picking up $1.78 million in loan guarantees while in a supreme irony the developer gets to keep the land.

 

This was clearly a terrible and misguided misuse of the TIF development tool.  First, TIF’s are to be used for blighted areas.  By any measure this corner of Mt. Lebanon did not meet any reasonable definition of blight as laid out in the state law.  Second, TIF’s have a “but for” requirement.  That is to say the project would not be financially viable without the TIF funds.  Such a requirement was never put forth by the municipality.  Third, TIF’s were never intended to be used for residential and retail developments.  TIF’s were intended for high value added, high multiplier activities such as manufacturing that could create new jobs for the community and generate enough benefits to justify taxpayer investment.

 

Furthermore, if a TIF is granted, the project becomes subject to the state’s prevailing wage law.  This implies that the price of labor becomes the union rate which can increase the labor costs of the project by up to 30 percent.  The value of the TIF can easily be consumed by the higher wage costs.

 

This episode should stand as an example to other municipalities who wish to venture into the economic development business.  Presumably, none of the projects presented were economically viable by private sector standards, therefore the public sector should have been very wary about getting on board.  Surely, there are developers who can devise viable plans for the site with no need for public funding.

 

Since the developer defaulted on state backed loans, yet still owns the property, any tax generated by any new development on that site now goes to the state to pay off the debt at least until the original TIF designation on the property expires in 2027.  The municipality and school district will not reap any benefits unless the property is developed and throws off significant tax revenues. Had the municipality simply sold the parcel off to the highest bidder and used the zoning process to guide development, they would already be enjoying an expanded tax base instead of staring at a still vacant lot on their main thoroughfare.

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?

LTV Site Redevelopment Edging Toward Reality?

Recent announcements from the URA and the RIDC indicate that progress is being made on the long and winding road toward a redevelopment of the LTV Hazelwood site that was idled in the late 1990s just before LTV filed for bankruptcy. The 178 acre site was purchased by a consortium of foundations calling itself Almono for nearly $10 million in 2002 after a squabble with the Mayor who wanted to use eminent domain to acquire the site.  The Mayor relented after the foundations agreed to hire a private developer. 

 

Bear in mind that a Philadelphia company had attempted to gain approval to construct a new coke plant and electricity generating facility on the site. Of course, that effort was denied because of concerns that coke production would pose an environmental setback for the City.  The refusal of taxing bodies to approve a KOZ designation for the site did not help. 

 

In 2003, a preliminary plan was laid out that called for 1,000 housing units, half a million to a million square feet of office and research space along with retail, trails and a sports complex.  The plan faced serious obstacles beginning with the estimated $200 million that would be needed to prepare the land for new development.  Raising that sum presented a daunting prospect. On top of that was the issue of the route the Mon-Fayette Expressway would take and how that might affect the site.

 

Moving ahead to early 2005, the LTV site redevelopment was still mostly on the drawing boards.  At that time the preliminary proposed plan was projected to cost $399 million. The state gave the URA a $6 million grant to be used for infrastructure work at the site. No master developer had been chosen at the time.  

 

There was a moment of excitement in 2009 when Bombardier Transportation announced it would seek approval to build a people mover test track on the LTV site.   That plan was suspended in 2010. The Bombardier test facility would have joined the CMU’s Robotic vehicle test facility that had arrived a couple of years earlier.

 

Fast forward to December 2011. The project manager announced the effort to facilitate development was finally going to move forward. Fund raising to build new infrastructure at the 178 acre site had begun. A first phase of $25 million would seek funds from a variety of sources including Federal and state coffers.  The possibility of the Mon-Fayette Expressway coming into the area would no longer deter the site’s redevelopment. In a follow up news report in April 2012, it was stated that $60 would be needed for the infrastructure work to be completed, with only $15 million raised to date.  Note: that figure is considerably lower than the $200 million estimate in 2003. It could reflect spending in the interim such as the $6 million from 2005. Then too, because of the massive in- fill of dirt from the North Shore Connector project, the land had been leveled and raised above the flood plain.

 

Apparently, efforts to raise the needed funds through grants were not as successful as hoped so the URA has put together a tax increment package to present to the City, County and Pittsburgh School District for approval.  Note that Almono’s plan now calls for a $900 million mixed use development (it was $399 million in 2005) with 1,200 housing units and two million square feet of office and research space.   

 

The proposed TIF would raise $80 to $90 million to pay for utilities, roads and other improvements on the site-well above the $60 million estimate of last April. But to the credit of Almono and its partner at RIDC, the TIF would use an innovative approach wherein Almono would loan the developer funds needed to carry out the infrastructure improvements and would be paid back from the incrementally higher tax revenue generated by the developments on the site. Under the proposal, 65 percent of the tax increment (the amount the tax revenue after development exceeds the tax revenue currently collected) would go to service the debt with taxing bodies retaining 35 percent.  In the event the development fails to produce adequate revenue to retire the debt, Almono would absorb the loss.  

 

This does not mean tax dollars are not being used for the project.  The TIF will require collection of taxes to repay the loan.  That is to say, the owner (Almono) is still asking for taxes to be spent on infrastructure as happens with all TIFs.  They could have just put the money up for infrastructure without the TIF in hopes that its earnings from the development-sales or lease of properties-would more than justify the investment.  However, it will be argued that because the taxing bodies, especially the City, stand to gain so much from a successful redevelopment, they ought to have some skin in the game and thereby reduce the risk being undertaken by Almono.  

 

The question must be asked: Would the redevelopment project not occur but for the TIF? That has been the standard test as to whether or not a TIF is justified. It needs to be asked. And that raises the next question. Could this redevelopment have been done in smaller pieces instead of attempting the entire 178 acres at the same time?  By adopting the all-at-once strategy, the number and scope of issues that must be dealt with have been multiplied many fold and made more difficult to resolve. 

 

Still, after all these years since acquiring the site, Almono has put forth a singularly innovative approach  to the use of TIF and one which other developers might agree to employ. After all, if the payoff from a proposed project is as big as developers are wont to predict, they should be comfortable with loaning the project money that could be recouped from a tax increment financing package-thereby sharing in the risk associated with its projections.

 

In short, has the LTV site redevelopment effort finally reached a point of inevitability where plans will definitely be implemented?  Depending on a lot of details that presumably still need to be worked out, it appears the odds have improved significantly. 

 

 

**Information cited in this Brief taken from numerous newspaper accounts covering the last twelve years of activity involving the LTV Hazelwood site.

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.

Why No State Reports on the TIF Program?

“The Department of Commerce, in cooperation with other State agencies and local governments, shall make a comprehensive report to the Governor and the General Assembly every two years commencing January 1, 1992, as to the social, economic, and financial effects and impact of tax increment financing projects.” –53 PS 6930.10, Tax Increment Financing Act

 

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Airport Area Deep with TIFs

On the heels of yesterday’s editorial on the resurgence of activity for tax increment financing, Allegheny County Council is scheduled to debate the merits of moving forward with five TIF plans this week, four of them in the airport area.

The op-ed pointed out the qualities of the best TIF projects and from the documentation in the papers for Council it seems that all four airport-area projects will be warehouse/office/flex space and the proceeds of the financing will be directed toward infrastructure, such as environmental remediation, roads, and water, storm, and sewer projects.

The projects are expected to add about 1.8 million square feet in space at total build out. Of course, the use of tax increment financing requires the utilization of prevailing wages, which will add to the price tag of the construction.

What’s a Six-Letter Word for Handout?

The City’s Planning Commission has declared a section of land (176 acres altogether) next to the Summerset Park home development blighted. Doing so allows for the City and its related entities, along with the County and the Pittsburgh Schools to sign off on a tax increment financing package for the developer.

Only officials want to redefine the term because, of course, nothing says move to a housing development like a blighted area. The Commission chairman said in a newspaper article that "the term blight is the wrong term…I think it’s really an area in need of redevelopment."

That’s what previous planning officials, redevelopment advocates, and elected officials said when the Summerset project began over a decade ago. By now, with 256 high-priced homes built and more planned on the now blighted area, the public should expect that the time for subsidies and special tax treatment would be over.

But that’s not the case, since a URA official noted that the TIF package will be necessary since the state’s help through the Redevelopment Assistance Capital Program-which provided close to $18 million to the development-is likely dried up. What the official did not note is that during the 20 year life of a tax increment package part or all of the incremental taxes won’t go to pay for the public services necessitated by new homes, families, vehicles, etc. but will go to pay off the debt to build the new high-priced homes.

In fact, the new phase of development might be in line for an $11 million loan from PENNVEST, which is another arrow in the state’s development quiver.

Remember that lots for the new development were once decided by a lottery. The Mayor at the time noted that the housing plan was "going against the popular misconception that people don’t want to live in the city". As recently as 2008 an official of the development company indicated "we’ve continued to have steady interest and good sales despite the economic downturn…we sell about two units each month just as we’ve been doing for years. I currently have a list of over 20 perspective buyers from around the region who want to move into the city." So when does the public get to opt out as a silent development partner?