Tax Breaks for AAC Worked So Well the First Time, Let's Do More!

So hard to keep up. Last week The Dallas Morning News said in an editorial that the special tax-break district around the American Airlines Center basketball arena has been a major success.

I thought most of it had been repo'd by a bunch of krauts.

The News said in its editorial, "the Sports Arena TIF has been very successful: Since the late 1990s, when the area was a virtual wasteland, there has been a more than 2,000 percent increase in property values."

Jen Sorensen

Wow. And here I remembered reading in 2009 that an outfit called US Treuhand based in Hamburg, Germany, had repo'd most of the developed portions of the project from Hillwood, the Fort Worth company run by Ross Perot Jr. (And by the way, I can use the term kraut because I have a German surname myself, so it's self-deprecation, not bigotry. Ha.)

Time out. You might be asking yourself: What the hell is this even about? Excellent question.

Tax breaks.

We need to go back to the concept of the tax-break district, which, of course, is not what they call it, because people don't like to advertise the fact that they're getting big tax breaks. So it's called a "reinvestment zone" or "tax increment finance district" (TIF).

Works like this. You buy a bare lot. You intend to build a new house. The city will require you to put in new curbs, sidewalks, driveway, plumbing out to the alley and also pay for inspections and stuff. Pretty hefty tab. Let's say in your case it's going to add up to about 20 grand.

You say, "I will pay for all that stuff, and I will also pay my taxes to the city. But let's create a reinvestment zone around my house. The city will collect taxes from me for X many years. When those taxes reach a total of $20,000, the city will give me back all that money to repay me for the infrastructure I had to put in."

Suhweeeet! Why don't you do that? Oh, I forgot. Because you can't do it. They don't have reinvestment zones for people like you. You just need to pay your taxes and shut up about it. Reinvestment zones are for people like Ross Perot Jr.

The thinking is that reinvestment zones give a Ross Perot Jr. the incentive he needs to invest in an area that would never see investment otherwise.

That raises a question: Why would we want somebody to invest in an area that would never see investment otherwise?

Why not encourage them to invest in an area where everybody else is investing, so they can help create even more action there, drive up property values and increase tax collections for the city?

As far as I can tell, the theory of reinvestment zones doesn't stretch out that far. I've never seen a single soul put a sharp pencil to it and ask the question, "Are we net ahead on any of this?"

Instead they say, "Shiny new buildings! Shiny new buildings!" People applaud, peasants form circles in fields and dance, end of questions.

So, anyway, the News announced that the Sports Arena TIF has been a huge success, which I found surprising, because of the deal with the ... uh, Teutons. And I will tell you in minute why any of this was even up for discussion (grasp purse firmly or put hand on wallet while waiting).

I looked at the 2008 annual report for the Sports Arena TIF, a year before the contretemps with the short-for-Geralds, and compared it with the annual report for 2011. The first thing that struck me was the arena itself.

Valued in 2008 at $400 million — about what it took to build it — the arena was valued in the 2011 report at only $184 million and change. It appears to have lost almost 54 percent of its worth in a mere three years.

But maybe that was a fluke. I looked at the W Hotel and Victory residences development. That was down 42 percent in the same period. The Victory Plaza buildings, which still seem to be owned by Hillwood, are down 60 percent in value in three years.

If this is success, we should all hope never to achieve it.

In fact, I finally gave up trying to dope it out by individual properties and jumped ahead to the summaries in both reports.

In 2008, the total value of all taxable property in the Sports Arena TIF was $574,257,867. In 2011 it was $405,477,911. That's a dive in value of 29 percent.

Tough times, you say. Everybody's been hurting. Mm, maybe. But let's look at it. In that same period, the entire tax roll for the city of Dallas decreased in value by 9 percent.

So the Sports Arena TIF, this blazing success our only daily newspaper tells us about, has been sucking wind at a rate more than three times worse than the city overall. And now I think this brings us back to your hands on your purses and your wallets.

Why are they even talking about this stuff? And why are they saying the opposite of the truth about it? Is that a good sign? Or probably not?

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13 comments
Mavdog
Mavdog

Adding residential units to Victory is a no brainer. They should have done that at the very beginning. The axiom is that retail follows rooftops, not rooftops follow retail. That is the primary reason the Victory development failed and was handed back to the lenders/partners.

The TIF reimburses the developer for infrastructure costs such as streets and utilities. When the developer's costs are paid back, the TIF stops paying any further monies. There is a good reason for TIFs to exist, and they can be very useful in redevelopments.

The original TIF was to terminate at the end of 2018, not this year.That $3M you mention should flow to the different taxing entities when the monies for the original costs of development are reimbursed. Apparently the costs have not been reimbursed yet, and with the halt in new development at Victory over the past decade that's not hard to understand. The proposed new development will help in retiring that amount owed.

If ArenaCo needs a parking structure, they should be the ones to build and pay for it. The only way a TIF should be used for the garage is if it will be a public parking garage, which is not going to happen. The revenue from the garage should be sufficient to pay for its construction.

Extending the geographical area of the existing TIF should not be allowed unless there is a clear and identified economic basis for its extension. with there not being any major infrastructure needs in the extended area, there doesn't seem to be a credible basis for it.

1500 Marilla
1500 Marilla

Today's Dallas TIFs work perfectly. As designed they assure the necessary 8 votes all City staff needs to keep their jobs. TIFs slough off big money to big developers and slightly less big money to smaller developers. This is called constituent relations. Money flows to so-called charities and other do-gooders along with the usual Boo Hiss bad real builders. Don 'Dallas Achieves' Williams/FRI and Brent Brown/Jubilee get their dollars same as Perot, Hicks, Hillwood.

All TIF budgets approved without comment by Council a few weeks ago. TIF meetings are public and posted online on City Secretary calendar. If you show up they might postpone or go into executive session though. Not one single Council member ever questions one single budget line item. Or assuming City ownership of property and passing the DISD and County tax savings on to private operators. Making some of our TIFs, Tax Decrement districts. Where are you Greg Abbott?

Look for things like the 'affordable housing' trough. It goes straight to Jerry Killingsworth who pretty much personally decides where every dollar goes. He gets HUD funds, bond funds, DHFC funds, TIF funds. Over $100 million last year. Holding hands with fellow oldman banker Karl Z, lots of constiuent relations.

Guest
Guest

"As far as I can tell, the theory of reinvestment zones doesn't stretch out that far. I've never seen a single soul put a sharp pencil to it and ask the question, "Are we net ahead on any of this?""

I run a TIF district in Tarrant County and it will make money next year. Plus all our incentives to developers recapture their full value within five years. The problem with Dallas's reinvestment zones is how they were designed and managed.

Alfredo
Alfredo

Actually the first Dallas TIF in the late 1980s was for State-Thomas and the area was(is) either single family or apartments. However, the way TIFs are used now is far different than the original TIF concept and is now just another method of municipal finance to a targeted area and avoid the GO bonds, which allow the taxpayors to vote on the project.

TIFs are different than abatments because in a TIF the taxes are actually paid.

Mervis
Mervis

Let's get all the commentators in here from yesterday's post about sprawl to explain how the suburbs f'd up the Victory development.

Mister_Mean
Mister_Mean

Several random thoughts:1)Public welfare for the rich! Profits for the rich and risk for the public.2)The burden of property taxes falling disproportionately on residential properties vs commercial properties (Remember the $600,000.00 in Dallas City taxes that went to former State Republican Rep. Fred Hill to keep this inequity).3)It’s only tax dollars-why the city and the appraisal district can always get more from the citizens.4)Success? It seems to me that Victory development is a failure but (oh I forgot) I do not have that “vision” that the city council and staff have (they have not been taking their psyche medicine and are having delusions)5)As someone from the city once told me ‘Dallas is owned by developers”.6)The general poor performance by the city on any project-but again it always goes back to point 3 and More Taxes-the city can’t do anything right (they always mess up).7)The voters should approve any of these tax abatements given to developers (oh but that would effect the way things are done by the city council and staff-business as usual)

These are some of the reasons I will not vote for the next bond proposal-the city just can’t help itself with responsible spending and management. (point 6).

JimS
JimS

My quibble would be this: a local municipality's "business plan" assumes that developers will pay the infrastructure costs for their developments and pay taxes. Giving them back the infrastructure cost is no different than giving them back their taxes, or not charging them taxes in the first place. The business plan also assumes that a city will attract development by being a good city, a well run place, and that the development it attracts in such a way will pay full freight -- what everybody else pays. The presence of a new development imposes significant costs on the municipality -- police, fire, every single thing a city does. The city still must bear those costs. So where is the sharp pencil that tells us the city will be ahead or even whole for giving back the infrastructure costs? Do you see any evidence that cities are profit centers in the first place? Taking on long-range losing deals for the up-front boost of new investment, is, I believe, a Ponzi scheme. This is all just soft-pencil voo-doo that heads-up business people would never allow in deals done strictly on their own side of the street. But it's OK for the public side, because, after all, that's not anybody's real money. Is it?

lorlee
lorlee

killingsworth is the one who sold the Community Development loans given to downtown developers (with all those low income apartments in their buildings) at 50 cents on the dollar just when they would have started paying money back to Community Development to pay for projects for the people they were really supposed to help.

JimS
JimS

Sometimes, if you treat the developers really sweet, they will help you gut Fair Park by moving another institution to the Arts District. Is that a win-win or a sin-sin?

JimS
JimS

Well, tell me: can you provide an analysis of your TIF that compares what the city gets from it in new tax base compared to what it gets from other developments of similar scope and time-frame not financed with a TIF or any other tax deal?

Mavdog
Mavdog

Typically the costs of utilities and streets are borne by the developer who took the land from its undeveloped state- farmland?- and made it ready for the building developers. The building developers tap into the utilities on their property's perimeter and extend them to serve the development they are constructing.

In areas like this, what we'll call "redeveopment" sites, typically the infrastructure is either too aged or too small for the higher density project. So who is going to pay for the new streets and utilities?

That's where the TIF comes in, which is the reimbursement of the tax revenue delta. The increased amount of taxes go towards reimbursement fo the costs. The taxing districts still get the tax revenue they were getting before the redevelopment. Eventually the taxing districts will get the increased revenues once the infrastructure refurbishment costs are reimbursed.

Yes, the redevelopment will increase the costs to the city; but look at the additional tax revenue the city will receive outside of the taxes going to the TIF. Most often the TIF is from property taxes, think about the sales tax being generated by the redevelopment, business property taxes from the collateral development that is generated by the original redevelopment. There should be an echo, although in the case of Victory it has been a long drawn out timeline to realize this echo.

But that echo of additional development and additional tax revenue is there, and will increase going forward. these apartments that the Hillwood/Camden sale will add provides additional taxes.

I disagree with your calling it a "ponzi scheme". It's seed money, there is some risk as there is with any real estate deal. But if the seed sprouts, which has done in a limited way (look at the office and other uses in Victory), it will return many times fold going forward.

But the parking structure is not what should be done with the tax money. If the structure doesn't pencil for the ownership, it doesn't pencil for the public either.

Guest
Guest

Yup. I can show the whole city vs. the TIF or the whole city less the TIF vs. TIF. Makes money is both cases. Pretty easy to prove when the whole city has been declining and the TIF is the first thing to start adding the value.

Want to know the secret? I refused to issue debt in the first 5 years of the TIF's lifespan. I made the project prove it viability before we issue debt. The challenge is keeping the council out of the cookie jar to issue debt for things like swimming pools and fancy streetscapes. Developers ask for things that save them money, and add value to the project. Cities and Councils asks for things that cost money and offer very little return for the project.

JimS
JimS

Wow. That is extremely interesting. I'm sure the last thing you need is to get caught in controversy over this stuff, but I sure wish you could give me a not-for-attribution promise-we-never-talked-ever primer on this stuff. Email me at jim.schutze@dallasobserver.com. All off the record until and unless we agree otherwise. My main challenge is always all of the things I don't know. Maybe you could help me get a little bit smarter.

 
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