Oakland News Now – Understanding The Howard Terminal Ballpark Project is hard for the layperson because it is both a city-building process, and a stadium making project. Plus, it represents the intersection of two ways of helping to finance the construction of affordable housing in Oakland that are both old and new: tax increment financing and impact fees.
The problem is that the current Oakland City Council, and City of Oakland staff is so used to using impact fees to cause developers to build affordable housing in Oakland, that’s the only tool they know. They don’t realize that the old-style revenue-raising approach called tax increment financing was also used in Oakland to cause developers to build affordable housing. That is, until California Governor Jerry Brown got rid of the use of tax increment financing in 2011 when he doggedly worked to eliminate California Redevelopment Law.
Now tax increment financing or TIF is back in the form of three piece of legislation that impact Howard Terminal. And even though TIF ‘s been around all of Oakland Mayor Libby Schaaf’s life in Oakland, she’s not intimately familiar with it, and neither is her staff or the current City Administrator Ed Reiskin. So, what happens is, Libby and the Council try and force impact fees on the Oakland A’s for Howard Terminal affordable housing, and the A’s President Dave Kaval is saying no, and thinking that’s what TIF is for.
Now how would Kaval come to think that? Well, because I am the one who introduced him to the use of tax increment financing for affordable housing in our April 4th, 2017 phone talk about the ballpark. No – it wasn’t an interview for a video-blog, it was an idea session, of sorts. The bottom line is Kaval swore public money could not be used for the ballpark, I introduced him to SB 628 Bealle, the legislation that introduced the now common Enhanced Infrastructure Financing District concept, and that led to the formation of Kaval’s and State Senator Nancy Skinner’s own version of it called SB 293 Skinner.
The reason I introduced Mr. Kaval to the idea of using public money was because I believed Howard Terminal could not pass Oakland’s approval without an affordable housing component. I come from the school of how to use tax increment financing as a development incentive. In this case, to make the construction of affordable housing possible for Howard Terminal.
The Impact Fee approach was never a consideration for me with Howard Terminal because its something applied to developers who want to build in an area, and so you’re basically making them pay for the opportunity by saying “Ok, if you want to build here, you have to pay this fee called an impact fee”. Such fees are used to pay for public art, parking, and affordable housing. But it’s understood by economic development professionals that they’re applied when there’s pressure to develop – otherwise a developer can just say “No, thanks. We’re going somewhere else.”
By contrast, the TIF Revenue comes from the expected increase in annual assessed value from a predetermined area approved of by the City Council or the fiscal agency the City Council creates – in this case, for Howard Terminal. It’s used to provide a subsidy to make a percentage of housing units affordable by filling the gap between the decreased rents and the cost to build the multi-unit structure. The developer does not have to worry about losing money on the project, yet can contractually provide affordable housing.
The formula for TIF is simple: the “base year” of assessed value of all of the land and buildings, and vehicles and leases in the predetermined area are subtracted from the assessed value of all of the land and buildings, and vehicles and leases in the same predetermined area for the next year, and that result in multiplied by the property tax rate to get the first year of TIF revenue. The second year of TIF revenue calls for the second year of assessed value in the predetermined area minus the base year, and then TIF revenue is added to the first year of TIF revenue. We do this process 45 times to get the total TIF revenue for the predetermined area over a 45 year period (the current legal limit in the legislation the City wants to use).
Then, we apply what’s called a bond-sizing formula to determine how large a bond issue we can create (without statistical fear of default AKA our ability to pay its annual debt costs, called “debt service”), and then form the redevelopment plan around the money we know we can get – that’s called the bond proceeds.
Part of the bond proceeds are used for affordable housing in accordance with the redevelopment plan. Understand now? By contrast, Impact Fees are fiscal children born (for our purposes) in San Francisco.
Impacts Fees Were Created To Direct Development In San Francisco
Impacts Fees in the broad view were created during the Mid-20th Century. But in San Francisco, they were first applied as a key part of the San Francisco Downtown Plan formed by famed planning directors Alan Jacobs and Dean Macris (with a big assist from the U.C. Berkeley Department Of City and Regional Planning from which I graduated in 1987).
Impact fees were used to steer development away from the San Francisco Financial District and toward The South of Market, which was heavily under-developed. The point is, Impact Fees were employed as part of a plan to mold and shape development, and control overall development pressure. By contrast, Oakland’s only recently experiencing considerable demand to build which started over the last 17 years, but most considerably during the second decade of the 21st Century. And even with that, Impacts Fees in Oakland have been used to help build affordable housing in an attempt to replace tax increment financing – even though revenue flows from Impact Fees are far less than from TIF.
That happened, even though tax increment financing was available for use by Oakland starting in 2015 with SB 628 Beale and AB 2, Alejo for Community revitalization authorities. At the time, SB 628 Beale was the most publicized of the two and so I said to anyone in Oakland that legislation should be used. I not only pushed it for Howard Terminal, but also for Oak Knoll in late 2017.
Oakland not only didn’t listen, but Mayor Schaaf once said Impact Fees were just as effective. In other words, a fee is as powerful as annually collected property tax revenues by an agency for a redevelopment bond issue. Yeah, right. OK. Gotcha.
And here we are, six years later, and the Mayor’s still pushing impact fees when a making a redevelopment area of Howard Terminal would yield TIF Revenue of over $1.6 billion over a 45-year-period assuming a $2 billion base-year assessed value, and a modest 4 percent annual rate of growth in assessed value. Which, if we were to use a debt coverage ratio of 2, would effectively yield a bond issue of $800 million.
So, if the City of Oakland formed Howard Terminal the right way, the subject of what to pay for would happen knowing what money target we would expect: $800 million. Now, ask yourself, have you ever read about or seen the Mayor of Oakland or any of the City’s officials, talk in a way that starts with how much money would be available? The short answer is no.
So, absent a financial model of revenue and a bond issue plan, the entire conversation around Howard Terminal has become over-policitized and un-structured. The Oakland Athletics are asked to pay to build affordable housing rather than given an incentive to build affordable housing. The reasoning for the ask is draped in a silly class warfare against billionaires, and without any thought for the fact that it takes the financial backing of billionaires to be able to capitalize a big project like Howard Terminal. Good development projects are supposed to pay for themselves and be subsidized to make them affordable for all – not become tools for government to soak the rich.
With California Redevelopment Law, Oakland once had the right idea about government: use TIF to steer market forces to build an affordable Oakland. But with Impact Fees, today’s City of Oakland is building an Oakland that may have some affordable housing, but continues to be unaffordable for the middle class. Howard Terminal represents a chance to reform Oakland’s gentrified economy, but the way things are going, the City of Oakland’s blowing that opportunity, and threatens to create a city that does look like San Francisco, with the rich in the high rises and the poor on the streets. Meanwhile, the A’s will leave for Las Vegas, and Oakland will, once again, brag about it not spending public money on large scale development projects.
Oakland leaders may like that rhetoric, but the fact is, its the product of a city that does not have the will and the initiative to complete big projects. Big convention center? Not in Oakland. Sports stadiums? Not in Oakland. Major hotels to draw tourists? Not in Oakland. An Oakland version of Los Angeles’ L.A. Live? Not in Oakland. Oakland’s history is marked by loss after public-private partnership loss, and of late with Mayor Schaaf bragging about what Oakland didn’t spend. Today, Oakland’s downtown is marked by shiny new buildings next to numerous examples of disinvestment and a homeless population that’s grown to massive proportions. Low-skilled, well-paying jobs needed? Oakland chases them away because they’re not tech and cool. Today, Oakland takes on the look of a loser. My question is when will it stop?
Stay tuned.