This moment, right now – after a rigorous Baylor economic study has blown to smithereens the “economic impact” claims the city has made for years for Fair Park and the State Fair of Texas – is an invaluable learning opportunity. This is way beyond anything to do with the Fair or the 2,377-acre under-utilized park it occupies.
The lesson from the Baylor study is that the information we get from city staff about major public investments – hundreds of millions of dollars of our money – is absolute junk. If anybody ever asks the city manager and his staff what’s being done with our money, they show us the equivalent of sales brochures.
Worse, for the most part nobody asks. Given the lack of any rigorous arms-length economic testing – of which the Baylor/State Fair study is but the coal mine canary — the theory by which Dallas City Hall invests our tax dollars is the equivalent of “Trust Mr. Madoff.”
And, look: This is not an attempt by Prof. Schutze to give you some obscure lecture on municipal finance, mainly because Prof. Schutze knows he’s not up to that. This is more like you and I are two scared investors off the street, and we’re about to walk together into this guy’s office and try to guess if the guy is legit or not. Only in this case the guy is the city.
We just don’t want to be gullible suckers. Street sharps have been working the shell game on gullible suckers since the Middle Ages, at least. Let’s not be victims.
First, let’s look hard for red flags. Does he have a bottle of whiskey on his desk? No. Good. Does he have a patch over one eye and a pirate hat? No. Good and good. So what does he have? What does he want us to do with our money?
The biggest and best example of how the city invests our tax money for us is the city’s widespread longstanding use of “tax increment finance districts” as a way of granting millions of dollars in tax breaks to developers.
The city now has $10.1 billion worth of property in these districts, some $6.6 billion of which is sheltered from direct taxation. They pay taxes, but their tax money doesn’t go to the city. Instead, the taxes the developers pay on that $6.6 billion go back into their own developments.
Let me be quick to say: The man behind the desk, the city, will tell you that this tax break is not a subsidy. He shows us his brochure, and in it there are a couple of arguments. One is the but-for agument. All of the development in the TIFs, according to city, would not have taken place but for the existence of a TIF. The TIF made it happen.
The second argument in the brochure is that the tax money doesn’t go into the pockets of the developers but goes to pay for “public infrastructure” like roads and sewers to service the developments.
Red flag time. You and I need to go get a cup of coffee in the lobby together. If we have been paying attention to the real estate news, and we have, we have noticed lots of stories which seem to be telling us the exact opposite. The city uses TIF money all the time, for example, as a direct cash grant to tenants for the “finish-out” – furniture, wall art, whatever – in their new digs in new developments.
Wall art. That’s not streets. So let’s make a little red-flaggy thing in the margin of our brochures: “Story about money going only to public infrastructure possible bullshit.” Now we’ve had our coffee. Let’s go back in and proceed, shall we?
What about that but-for argument? These TIFs are surrounded by all kinds of hot new development just beyond their borders, all of which seems to be taking place on a but-nothing basis, without any TIF money for anything. They do their deal, develop their project and pay their taxes — on one side of the TIF border, pay the taxes; on the other, get the taxes back.
In fact some of the TIF district borders are drawn so tight around the property lines of the beneficiaries that it’s like a one-man TIF. For example, at Cypress Waters, the Billingsley Company’s 1,000-acre office/retail development near D/FW Airport, the city has been drawing and re-drawing the borders like the cuffs on a $50 suit, at the behest of Billingsley to let the company in and out of certain requirements and benefits.
Hey, not for us to say that that was a mistake. We’d have to be sophisticated experts to know that, and we’re just two guys off the street. On the other hand, it’s tax money, which sounds sort of like our money, you know, for sewers and stuff – all those potholes, for example, that never seem to get fixed.
Let’s do this. I don’t want to insult the guy right off the bat. But I’ll kind of look at you, and then you kind of wink at me and touch your eyebrow, and then we’ll both make some more red-flaggy things on our brochures: “But-for argument also possible bullshit.”
We haven’t even gotten to the big argument yet — the real sales pitch. The city is going to tell us that we are way, way ahead – come on, it’s so obvious! — no matter how we look at this TIF thing, because we have these big developments that we didn’t used to have, and they’re new, and they’re big and cool, and one day they’ll pay a lot of taxes. We’ll call that the way-way-ahead-come-on-it’s-so-obvious argument.
Here’s a problem with way-way-ahead. Some people out there – some really smart people – say it’s not so obvious. I told you last summer about a guy named Charles Marohn, a former city planner who is now head of a foundation called “Strong Cities,” who offers chapter and verse to show that the way-way-ahead argument is bullshit. He says new developments, especially car-dependent developments, cost a community all kinds of money for infrastructure when they are being developed.
The problem is that big shiny new developments are only new and shiny for maybe 20 years: After 20 years when the wear is beginning to show, they are worth less and pay less in taxes, and all the streets and sewers around them are starting to need replacement.
If the community doesn’t capture those costs at the get-go and do it the old-fashioned way – charge taxes, put the tax money in the bank, keep it – then the city is screwed when the developments start to need major new public investment to avoid serious decay. Marohn cites chapter and verse on this with real examples.
And then there is this: Developments cost a city lots of money beyond the physical infrastructure. Right now the city of Dallas is in negotiations with the city of Irving, the suburb that borders part of Cypress Waters, over who’s going to pay for police and fire protection, for example. So take that as evidence that developments, while they may offer financial plusses to a city, also pose financial minuses.
And who does the math on that? Go ahead. Ask the guy. Ask the city:
“Excuse me, sir, do you have one of those … I think it’s called a ‘pro forma’ or something, where you’ve got this all worked out, like what the development pays us, what it costs us and how we know the TIF thing puts the city ahead?”
I know the answer. I have been asking that question for years. You know what the city’s answer is? The answer is, “Well what do you want that for?”
“I don’t know. I’m just like … you know. Nervous. How much did you say you have in this TIF thing?”
“Yeah, I’m nervous. Do you have a serious economic study, an arms-length objective rigorous study done by academics, not hired consultants, to show that the city is really ahead by the TIF districts and by how much, like that one Baylor just did that showed that everything you’ve been telling us for years about the economic impact of Fair Park and the State Fair of Texas is total unsubstantiated bullshit?”
“Well we think the Baylor study was biased and unfair.”
I look. You wink, touch forehead. We do red-flaggies all over all of the pages of the brochure, rip up the brochure, drop the confetti on the floor and walk, because this ain’t right.
It’s just not right. For decades we have accepted these blandishments and sales pitches from a city staff that simply has no credibility at this point. That doesn’t mean, by the way, that they are liars or even that they are wrong.
But what it does mean is that we are fools if we don’t insist on an entire program of testing. We need to find schools, not consultants, who will come in and test all of the underlying assumptions on which City Hall has been operating for as long as anybody can remember. I suspect strongly we’ll find out that the city manager’s staff is just howlingly wrong in what it believes on any number of scores.
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Example: I came across an interesting factoid in a draft study of the city’s park system recently. Do you know what the highest return-on-investment is for money the city puts into outdoor recreational infrastructure? Guess. I’ll tell you. It’s trails.
City Hall has wasted some many millions of dollars – it’s supposed to be five million but it could be ten for all we know – on a fake kayaking rapids in the Trinity River, while the same staff had to be dragged kicking and screaming by council members Scott Griggs and Angela Hunt into building a trail along the Trinity River downtown.
And, wait a big minute. How much would the tax base grow if Dallas had beautiful streets and state-of-the-art alleys, water and storm sewers, so more people would want to invest in homes here? How does that pencil out against another Cypress Waters?
Not saying I know, obviously. But I am saying that you and I are crazy if we don't demand real answers.