The first post on the Howard Terminal Ballpark Project Oakland TIF Revenue vs. Impact Fees for affordable housing problem produced a series of questions from Oakland-based accountant Len Raphael on Facebook. I list the questions, and my answers to them, below:
Len Raphael: Zennie, thank you for the explanation of Tax Incentive Financing and the comparison to the impact fee approach.
Some preliminary “muni real estate project for Dummies” questions. More to follow.
Question: What are the biggest differences between the old Redevelopment Districts that Jerry Brown killed and TIF’s which you say Nancy Skinner’s legislation created?
Answer: Well,thanks for your questions. First, it is “tax increment financing”. Second, I never wrote that Governor Brown killed Redevelopment Districts; he worked to see the termination of California Redevelopment Law itself in 2011. That includes redevelopment agencies, which then form the project areas within which tax increment financing is used, or can be used.
Third, I never wrote or said California Senator Nancy Skinner created tax increment financing. You must understand that tax increment financing itself is a formula that can be done anywhere in the world, and with property taxes, sales taxes, vehicle fees, etc. All it takes is legal authority and a municipal entity willing to use it. TIF goes back decades, and in Oakland, the Oakland Redevelopment Agency was started in 1968, and John B. Williams was its first director. If you’re wondering who’s bust that is at the entry to BART 12th Street Oakland City Center Station, it’s that of John B. Williams, who’s leadership formed the foundation for Oakland City Center today.
Third, there are now at least four basic items of legislation that allow the use of TIF: SB628 Beale (which gave rise to the Enhanced Infrastructure Financing District concept), SB 293 Skinner, which was designed specifically for the Howard Terminal Ballpark Project, AB2, which allows the creation of “Community Revitalization and Investment Authorities”, which allow the creation of project areas, and the employment of TIF within them, very much like the old California Redevelopment Law, and the newest called AB464, which allows for the use of TIF within an Enhanced Infrastructure Financing District specifically for business assistance.
Question: Fundamentally are impact fees paid by the developers (and possibly indirectly by market rate tenants) but TIF’s are a shift of future real estate tax (you mentioned leases and vehicles?) away from the State of CA and Alameda County, OUSD, and the City of Oakland directly to pay for designated uses such as low income housing and transportation infrastructure? So impact fees are really a tax increase but TIF’s are tax revenue reallocations?
Answer: that’s a good way of looking at it, but that does not give the full picture. Impact Fees are supposed to be used in situations where the economic development planner knows there’s demand for development. Impact Fees allow, yes, the presentation of a kind of extra tax on development, ostensibly to get uses that normally would not be provided, like affordable housing.
By contrast, TIF Revenue use represents not so much a shift of revenues from the State of CA and Alameda County, OUSD, and the City of Oakland, but a concentration of the same. I write that because the State of CA and Alameda County, OUSD, and the City of Oakland can work deals to get specific projects built that help the redevelopment effort. For example, Alameda County could ask for the financing of a Household Hazardous Waste Drop-Off Facility in the TIF Zone, or somewhere else in Oakland (as SB 293 Skinner allows in accordance with a community plan).
Question: Could it be that the City staff has not reviewed the A’s projections for TIF tax revenues to see what risk there is to the taxpayers if say the A’s leave before the TIF backed bonds are not repaid? Or there’s a major earthquake etc.
Answer: No. No self-respecting government should allow a private sector developer to be the framer of its tax increment financing revenue and process. That smacks of third-world government legal processes controlled by outsiders, but in California. That the City of Oakland has not presented its own TIF Revenue calculations should be alarming to everyone. Economic development professionals in the City of Oakland are supposed to drive the TIF Revenue process – not the Oakland A’s.
Question: Clarify: would the TIF only be for the public infrastructure, but stadium, retail stores, office space, rental housing be paid with private funding and risk?
Answer: Here’s how that breaks down, Len:
Public Infrastructure – A’s pay for Howard Terminal on-site infrastructure, get paid back $350 million out of $800 million bond issue paid for by TIF Revenues.
Stadium – A’s privately finance the ballpark.
Retail stores – A’s and developer partner pays for retail, mixed use, privately financed.
Office space – A’s and developer partner pays for office, mixed use, privately financed.
Rental housing – A’s and developer partner pays for rental housing, privately financed – TIF Revenue used as subsidy to cause a certain number of units to be made affordable and extremely affordable.
Question: Where do “community benefit agreements” come into this? Are they just a variation on Impact Fees?
Answer: the community benefit agreements are the result of over a year of meetings with various members of the Oakland community regarding Howard Terminal. The problem is the City of Oakland has not 1) given us a forecasted target for TIF Revenue, and 2) the City of Oakland has not itemized the cost of the community benefit to agree on, so we can determine how much the TIF Revenue-backed bond issue can pay for. In other words, if we can expect $800 million from a bond issue, and $350 million is for infrastructure, how much of the remaining $450 million will be taken up by projects in the “community benefits agreement”?
The TIF Process calls for a bond issue that, when formed, would be structured such that the Oakland Athletics would pay for it in the event of bond issue default. That does not mean the bond revenue stream is formed in an irresponsible way, hence my call for a two-to-one debt coverage ratio, or art least $2 of revenue for every $ dollar of bond issue debt.
Question: More examples of TIF’s please. And how well they’ve worked out so far.
Answer: there are thousands of examples of TIF use locally and in California and America. In Oakland, TIF Revenue paid for the removal of crack houses in East Oakland. Oakland’s Redevelopment Agency financed the City of Oakland’s affordable housing budget such that $111 million was raised in 2011, alone, and $109 million the year before that. I argue that if Governor Brown left California Redevelopment Law alone, there would not be the giant homeless problem today; many agree with me, like Alameda County Supervisor Nate Miley.