American Planning Association Reprinted with permission from Planning & Environmental Law, copyright February 2008 Planning & Environmental Law
by the American Planning Association February 2008 Vol. 60, No. 2 p.3
TIF, Greenfields, and Sprawl: How anIncentive Created to Alleviate Slums HasCome to Subsidize Upscale Malls andNew Urbanist Developments Tax-increment development districts have become the financial underpinning of regional smart growth, through the fair funding and efficient development of infrastructure before new homes are built. ILL STEADMAN, SUNCAL COMPANIES, NEW MEXICO Economic development incentives are talization. CDFA's 2007 training confer- designates an area as a "TIF district" an obscure subject, receiving little ence on TIF was substantially oversub- for redevelopment (or in the case of a news media attention. One, however, scribed and it projects substantial TIF greenfield site, for new development).
has provided colorful fodder for many a content for its 2008 annual meeting.
When new construction occurs within newspaper. "Created to combat sprawl, Similarly, the 2008 New Partners for that district, property values and tax as- tax breaks now subsidize it," moaned Smart Growth conference organized by sessments go up and therefore property the Kansas City Star. "Yuk! Ick! A the Local Government Commission in- taxes also rise. When that happens, the Farm!" chided the St. Louis Post- cluded a workshop on TIF and other tax revenue is split into two streams. Dispatch. "Oh, those blighted suburbs," financing devices. The first stream, derived from the editorialized the Des Moines Register.2 "Among our members today, TIF is "base value" or pre-TIF assessment, The culprit is TIF—tax increment certainly the most widely explored and continues to go to local taxing bodies as financing—a complicated device for implemented finance tool, and the it did before (i.e., to schools, city, subsidizing development that has mor- issue on which they are most eager to county, etc.). The second stream— phed from a tool for inner-city revital- receive professional development," made up of all the increase or "tax in- ization into a widely used suburban said CDFA executive director Toby crement"—gets diverted to benefit program frequently associated with dis- Rittner. "The issue of the appropriate only the new development activity in putes about sprawl. For years the most use of TIF is a recurring debate in the TIF district. This diversion can last controversial issue within the economic many states." In 2007, CDFA pub- as many as 15, 23, even 40 years, de- development profession, it is now lished a best practices reference guide pending on each state's rules (durations emerging as a significant issue in land on TIF jointly with the International that can strain the idea that a TIF dis- use planning. For example, the Coun - Council of Shopping Centers. trict is "priming the pump" to restore cil of Development Finance Agencies private-sector confidence). (CDFA), the nation's largest association WHAT IS TAX INCREMENT FINANCING (TIF)?
The diverted increment can support of financing professionals, has for the TIF is an economic development in- the issuance of debt (TIF bonds) or it past few years sought to promote best centive enabled under state law and in can be used on a "pay-as-you-go" basis.
practices in TIF, including a focus on turn awarded by local governments. As The funds are typically restricted to its original policy intent for urban revi- regulated by state statute, a locality paying for infrastructure or other public 1. Will Steadman, Commentary: (Jan.11, 2005). Editorial, Oh, SunCal plan has city's sustain- those blighted suburbs, THE DES able future in mind, ALBUQUERQUE MOINES REGISTER (April 10, 2001).
TRIBUNE (Sept.18, 2007).
Greg LeRoy directs Good Jobs First,, a
2. Chris Lester and Steve Nicely, nonprofit, nonpartisan resource center promoting corporate
Giveaways Set the Stage for a and government accountability in economic development, and
is the author of The Great American Jobs Scam: Corporate
20,1995). Editorial, Yulk! Ick! A Tax Dodging and the Myth of Job Creation (Berrett-Koehler,
Farm, ST. LOUIS POST-DISPATCH American Planning Association Planning & Environmental Law
February 2008 Vol. 60, No. 2 p.4
As originally enacted, TIF in many states required that developers certify that "but for" the TIF subsidy, the projectwould not occur.
improvements; they are also commonly mining which areas are "blighted" that an area is not realizing its greatest allowed for brownfield clean-up, land enough for TIF. As detailed below in a potential for commercial use or tax rev- parceling, demolition or other site retail case, this has even come to in- enue. These amendments tended to preparation. However, in some states clude upscale suburban shopping malls expand TIF's economic development TIF revenues may even be directly mission more explicitly into commer- paid to developers to reimburse private cial and industrial projects, and with construction costs, effectively increas- TIF AND THE ELUSIVE DEFINITION
fewer geographic restrictions. For ex- ing their rates of profit. ample, Virginia deleted the word In addition to property tax diver- A central legal issue in the long-term "blight" from its TIF statute in 1990, sions, some states also allow incremen- deregulation of TIF that has enabled it enabling localities to TIF any area in tal increases in the local share of sales to become embroiled in controversies the interest of promoting "commerce taxes to be "TIFed," but not the state over greenfield developments and and prosperity." Other states granted share, which is usually largest. How - sprawl is the definition of "blight," the localities broad discretion to designate ever, as detailed below, New Mexico in condition TIF is intended to cure. TIF where they find that an area may 2006 began to allow all three incre- As urban historian Colin Gordon has have future blight. ments of its Gross Receipts Tax to be chronicled,4 the "condition" and "cure" State-enabled enterprise zones, not captured for TIF—diverting large sums frame that grew up around physical to be confused with federal empower- of revenue from the state as well as blight traces back to Progressive-era ment zones, are another common geo- from cities and counties.
model tenement ordinances intended graphically targeted, pro-urban revi- As originally enacted, TIF in many to address urban slum conditions. With talization incentive. A few states— states required that developers certify little legal power or financial capacity to Arkan sas, Kansas, and South Caro - that "but for" the TIF subsidy, the shape development, cities began to in- lina—have declared the entire state to project would not occur. This was in- voke blight as something it could regu- be an enterprise zone. Others, like tended as a safeguard to ensure that late under police powers—as a threat to Ohio, which has more than 300 zones, the TIF truly met the definition of "in- public health, safety, and morals. responded to the "economic war centive"; that is, that it caused some- The Great Depression brought fed- among the states" by revising their thing to occur that would not otherwise eral and state attention—and a typical program's legislative intent: It is no have happened—to "leverage" private definition of "slum" from the National longer to revive older areas; it is to re- investment. However, the "but for" Association of Housing Officials that duce business property taxes to dis- test has in most states become at best a laundry-listed broad, vague terms such courage Ohio jobs from moving to pro forma gesture, and at worst a fig as "dilapidation, obsolescence, over- other states. Some of those other leaf enabling public officials to avoid crowding, poor arrangement or design, states, like New York with its the charge of "giveaway" and claim lack of ventilation, light or sanitary fa- "Empire Zone" program, have loos- credit even for projects that would have cilities, or a combination of these fac- ened their rules by allowing zones to occurred anyway.
tors [that] are detrimental to the safety, grow in both size and number and to Many early TIF statutes restricted health, morals, and comfort of the in- expand noncontiguously into previ- TIF to areas with "blight." (California habitants thereof." When most states' ously ineligible areas, including sub- pioneered TIF in 1952; today it is on TIF statutes were enacted in the 1970s urban office parks.5 the books in the District of Columbia and 1980s, these Progressive-era and The cumulative effect of these ex- and every state but Arizona.3) However, Depression-era definitions were rou- pansive definitions of blight, pro-dis- most state statutes defined "blight" tinely borrowed, sometimes verbatim, cretion court decisions, and loose state with a string of descriptors that lacked in defining TIF-eligible redevelop- oversight of local practices has been to hard quantitative thresholds. Since the grant local governments an ever-widen- 1980s, a combination of loose state In addition to the "condition" and ing latitude in granting TIF. A handful oversight of local practices, state leg- "cure" frame that informed TIF of states have enacted modest reforms, islative relaxation, and state court deci- statutes, another kind of qualifying cri- but sometimes, as in Illinois and sions has given local governments in terion has been reflected in blight or Minnesota, only after enormous TIF- most states wide discretion in deter- TIF-eligibility definitions: the idea district proliferation. 3. The Florida Supreme Court re- 5. Alyssa Talanker and Kate Davis, cently held that bonds that rely Straying from Good Intentions: How upon TIF require a referendum. See States Are Weakening Enterprise Strand v. Escambia County, 2007 Zone and Tax Increment Financing Programs, Good Jobs First, June2003. Available at www.goodjobs- 4. Colin Gordon, Blighting the Way: Urban Renewal, EconomicDevelopment, and the ElusiveDefinition of Blight, FORDHAM URBANLAW JOURNAL, Vol. 31, No. 2 (Jan.
American Planning Association Planning & Environmental Law
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Blight-related litigation against specific TIF projects has typicallybeen initiated by rival commercial entities (such as malls) that believe a TIF-subsidized project will undermine their business.
Iowa, like Minnesota, has more than Westfield America, a real estate in- rebuild the cities' infrastructure. Or in 2,000 TIF districts and their migration vestment trust, bought West County a county-initiated residential TIF, a into greenfield projects has provoked Center in Des Peres, an upscale suburb school district may gain new students some sharp debates. In 1992, the West of St. Louis (2000 median family in- to educate but not receive its normal Des Moines City Council created a come: $106,195). Announcing it wanted property tax revenue increase to cover greenfield TIF district for the $50 mil- to expand the center to include Nord - that expense. John Lefebvre, then lion Glen Oaks Golf Course project.
strom and Lord & Taylor, Westfield treasurer of Adams County, Colorado, The city awarded it $2.3 million in asked for a $29 million TIF. The Des denounced the "TIFing" of 240 green- TIF for the construction of sewer lines.
Peres Board of Aldermen declared the field acres for big box retail. Eyeing a The development included exclusive mall to be "blighted" even though it $26.9 million tax increment "without a market rate housing and led the way was almost 100 percent occupied and penny [of it] accruing to the county," for further use of TIF on residential grossing more than $100 million a year.
he pointed out that if a murder occurs market rate projects in Iowa. Oppo - Des Peres citizens, together with the at the mall, the county coroner, county nents of the TIF deal formed "Con - owners of a rival mall, sued to block district attorney, county sheriff, county cerned Citizens for Representative the deal, but lost at trial and before the jail, and county court would all incur Government," and launched a success- Missouri Court of Appeals.7 ful bid to unseat the standing mayor.
Endorsing a proposed Missouri re- In Chicago, an analysis of 36 TIF The founder of Concerned Citizens form, the CEO of Schnuck's, a major districts estimated they will divert $1.3 was elected mayor in a 1993 special grocery chain there, wrote: "Over time, billion in tax revenues that otherwise the definition of ‘blight' has become would have gone to schools and other Blight-related litigation against spe- more or less meaningless. . TIF has public services, because the property cific TIF projects has typically been in many cases become just a subsidy values in the districts were rising prior initiated by rival commercial entities offered to entice a developer for the to the creation of the districts. How - (such as malls) that believe a TIF-sub- benefit of enhancing a municipality's ever, once within a TIF district, all the sidized project will undermine their sales tax base."8 properties' incremental tax increases business. However, state court deci- are captured and diverted.11 sions have generally upheld local dis- TIF: ‘FREE LUNCH' FOR CITIES AND
The same intergovernmental dy- cretionary authority to grant TIF, THE ‘FISCALIZATION OF LAND USE'
namic is true when cities or counties including rulings akin to the U.S. Su - In many states, city governments have grant property tax abatements, or ex- preme Court's Kelo decision upholding the authority to designate a TIF dis- emptions, that may cover multiple tax- local government's right to use eminent trict by themselves even though the ing jurisdictions. In response to these domain to transfer property from one local property and/or sales tax incre- tensions, a handful of states have en- private owner to another in the service ments will be diverted from multiple acted rules that effectively shield the of economic development.6 taxing authorities. When that happens, school increment from TIF and/or A factually remarkable but legally county governments and school dis- abatements, or grant school boards typical case arose in Missouri, where tricts typically stand to lose the most some form of authority or at least con- there has been a heated policy debate revenue. In some states, payments in sultative rights about their increments.
about TIF for almost a decade, largely lieu of taxes (PILOTs) may be negoti- These revenue tensions within TIF triggered by the use of TIF for new re- ated to offset such losses, although the rest atop a broader intergovernmental tail space and the resulting harm to ex- control and allocation of PILOTs can problem: the "fiscalization of land isting stores. The problem is especially be a source of tension. Additionally, use." For three reasons, local govern- severe in the St. Louis area, where the some states, through their school-fund- ments in many states face chronic East-West Gateway Council (the re- ing equity formulas, effectively grant budget squeezes that can distort their gion's metropolitan planning organiza- school boards financial relief for at least economic development priorities. First, tion) has documented that most TIF a part of their TIF losses.9 since the 1970s, there has been a long- projects occur in wealthy suburban That is, in a city-initiated TIF, term decline in federal aid to cities.
malls to help developers offset high school districts and counties can be- Second, when states face budget come passive investors in projects that deficits, one common way they resolve 6. The Institute for Justice, the properties threatened with dis- regarding Senate Bill172, Feb. 24, Tax Increment Financing: An 11. Neighborhood Capital Budget Libertarian litigation center that placement by retail and/or com- Alternative Economic Development Group, Who Pays for the Only assisted plaintiff Kelo, subse- mercial projects. Game in Town? undated. Available 9. Good Jobs First for the Financing Technique, ISSUE BRIEF quently created the Castle 7. Josh Reinert, Comment: Tax National Education Association, Increment Financing in Missouri: Protecting Public Education from 10. John Lefebvre, Tax increment to provide legal support nation- Is It Time for Blight and But-For to Tax Giveaways to Corporations: financing impacts greenfield devel- wide against "eminent domain Go? 45 ST. LOUIS UNIVERSITY LAW Property Tax Abatements, Tax opment, National Association of abuse." Significantly, a large JOURNAL1019 (Summer 2001).
Increment Financing, and Funding Counties, undated article in share of the cases the Coalition for Schools, January 2003.
FINANCE & INTERGOVERNMENTAL cites as current disputes and 8. Craig D. Schnuck, letter to National Association of Counties, success stories involve residential Missouri State Sen. Wayne Goode American Planning Association Planning & Environmental Law
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Scholars of sprawl point out that one of its root causes is thelack of regional cooperation and zero-sum tax-base competitionamong neighboring localities within metropolitan areas.
them is to reduce state revenue-sharing partment stores and other retailers "grayfields"— the euphemism for dead with local governments. Third, some closed while suburban malls opened malls—found that 7 percent of regional states have enacted "tax revolt" ballot in surrounding Virginia and Maryland, malls were already grayfields and an- initiatives or legislation (beginning with costing the District chronic sales tax other 12 percent were "potentially California's proposition 13 in 1978) that "leakage." The District also has fed- moving towards grayfield status in the cap the rate at which property tax as- eral strictures on its ability to tax in- next five years"; that would be 389 sessments may rise (and thereby de- come and a large amount of tax- press property tax revenues). exempt land. Thus especially needy When retailing becomes oversatu- Forced to find other sources of rev- for sales tax revenue, but short of it, rated, sales are cannibalized from enue, cities have a perverse incentive the District has eagerly offered TIF older malls and main street districts, to adopt economic development and deals to big box retailers such as imperiling their contributions to the land use strategies that stray from tradi- Target and Home Depot that have tax base and exacerbating the fiscal tional measures of development (such agreed to open stores, even though plight of central cities and older sub- as rising living standards or declining the stores are projected to enjoy high urbs. Since vacant or underutilized dependency). The perverse incentive sales because they are entering a very properties typically get reassessed and prompts them to maximize revenue (so underserved market. pay much lower property taxes, dead they favor big box stores that generate Exclusionary housing practices and malls mean big tax revenue drops. For a lot of local sales tax revenue) and auto-oriented big box retail are, of example, Northridge Mall in Brown minimize spending (so they shun mul- course, classic elements of suburban Deer, Wisconsin, went from an as- tifamily housing, because it raises costs sprawl. Scholars of sprawl point out sessed value of $107 million in 1990 for public education). A survey of local that one of its root causes is the lack to a grayfield sale value of $3.5 mil- development officials in California,12 of regional cooperation and zero-sum for example, found that their first prior- tax-base competition among neighbor- ity in developing or redeveloping land ing localities within metropolitan TIF AND SPRAWLING ‘JOB PIRACY'
is to attract big box retail (with one and areas. This is especially evident in re- Even if a suburb's economic develop- a quarter cents of the sales tax going to tail development, where the suburban ment strategy is not distorted by a need the local government where the sale oc- malls that undermined downtown for sales tax revenue, TIF may become curs)—not to create good jobs or build shopping districts in the 1970s and a tool with which it can entice compa- affordable housing. 1980s are today undermined by the ar- nies to relocate from elsewhere in the When localities make such distorted rival of "power centers" and "lifestyle same metro area (and thereby win jobs decisions, TIF is led astray: Instead of and long-term tax-base growth). When being used where it is needed most, to Greenfield sites on the fringes of there is no regional mechanism to pro- leverage investment in disinvested metro areas, with large parcels of unde- mote cooperation and TIF's targeting areas, it becomes most attractive to use veloped land, have the advantage at- rules have been relaxed so that even in areas where it can sequester the tracting such projects. However, build- newly developing areas can create TIF most sales and/or property tax for the ing ever more shopping space begs the districts, intraregional "job piracy" is locality—i.e., where it is needed least question: How much is enough? The because the project is attractive for pri- U.S. is arguably well overbuilt in retail Detailed evidence of this process vate investment. And greenfields, be- space, some of it subsidized by TIF.
has become available thanks to Minne - cause they have very low "base value" The National Trust for Historic sota's exemplary economic develop- property tax assessments and no sales Preservation estimates the nation has ment disclosure law which since 2000 tax base values at all, offer by far the 38 square feet of store space per capita, has required localities to report when largest increments. compared to other industrialized na- incentives pay for corporate relocations.
The land use fiscalization dynamic tions with between 1.5 and eight An analysis of 86 such deals involving can play out in central cities as well as square feet (and eight square feet in 8,200 jobs in the Twin Cities metro newly developing suburbs. The the U.S. 30 years ago). A 2001 study by area found an overwhelming pro- District of Columbia grew under-re- the Congress for the New Urbanism sprawling bias.15 Three-fourths of the tailed beginning in the 1970s as de- and PriceWaterhouseCoopers about deals involved TIF: typically a suburb 12. Paul G. Lewis and Eliza correspondence. Retail Forward, at A grayfield February 2001. Available at www.
Job Piracy Deepens Inequality in the Barbour, California Cities and the Inc., United States Retail Environ - or dead mall is one with sales of Twin Cities Region, Good Jobs First Local Sales Tax. Public Policy ment, GLOBAL ECONOMIC AND RETAIL less than $150 per square foot per (December 2006).
14. Matt Kures, Greyfields and Institute of California,1999. Their OUTLOOK (May 2003, p. 92). Ken - year. CNU notes that grayfields Ghostboxes: Evolving Real Estate survey covered all 471 California nedy Lawson Smith, Main Street at tend to be located on suburban ar- Challenges, LET'S TALK BUSINESS (May cities in existence in1998. 15, PRESERVATION FORUM,1992.
terial streets and therefore are 2003). Publication of the University of transit- accessible, even transit 13. Kennedy Lawson Smith, the Wisconsin-Extension, Center for Strategic Real Estate Research hubs, whereas thriving malls tend 19-year director of the National Community Economic Development. Group, Greyfield Regional Mall to have "freeway visibility and di- Trust for Historic Preservation's Study for Congress for the New rect ramp access." Greyfields into 15. Greg LeRoy and Karla Walter, Main Street program, 2001 esti- Urbanism, January 2001. Available Goldfields, CNU and PWC, The Thin Cities: How Subsidized mate, relayed in May 21, 2004, American Planning Association Planning & Environmental Law
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The most contentious policy debate on TIF for greenfieldprojects is now playing out in Albuquerque.
giving free land to small manufacturing public in 2004 and has been on an ag- Case Study: Albuquerque Struggles with
companies to relocate into newly cre- gressive campaign to build enormous Greenfield New Urbanist TIF Demands
ated industrial parks. "destination" stores of up to 200,000 The most contentious policy debate on Four-fifths of the subsidized reloca- square feet. It claims that each store TIF for greenfield projects is now play- tions were outbound and 22 companies draws millions of shoppers a year, many ing out in Albuquerque. Since the state moved more than 10 miles outward of them from hundreds of miles away.
of New Mexico drastically liberalized from the Twin Cities' center. The win- Indeed, newspaper accounts feature its dormant TIF law in 2006, the city ning suburbs had higher growth rates loyal shoppers making trips they liken has faced aggressive demands for TIF (as measured by property tax wealth), from developers planning two very less racial diversity, higher household Cabela's auto-dependent greenfield large greenfield new urbanist projects.
incomes, and less poverty. Sixty of the footprints are generally located "in towns The debate takes TIF beyond big box 86 companies ended up in locations in- and municipalities that do not have a retail and market-rate housing and asks: accessible by public transit, including large base of commercial businesses."17 Should an incentive originally created 24 companies that were accessible be- Cabela's says it has never built a store to alleviate slums be allowed to subsi- without an economic development in- dize premium developments on the The relocations also sketch the re- centive; TIF is the most common. To gion's long-term march of sprawl. A date, according to news reports and com- New Mexico's property-tax TIF third of the relocations moved out from petitor Gander Mountain, Cabela's has law was effectively dormant; the 2006 what used to be the seven-county Twin received or been pledged about $500 amendments to what are called Tax Cities MSA and into one of four addi- million in incentives for just 20 facilities.
Increment Development Districts, or tional Minnesota counties that the Bass Pro, number two in the market, is TIDDs, created a very aggressive new metro area now includes (or they began also on an aggressive megastore build program. No longer was TIF limited and ended within the four outlying out; it has received more than $200 mil- to redevelopment. Most significantly, counties). The four fringe counties are lion in recent years.18 the new law greatly expanded the tax the region's most thinly populated and Cabela's and Bass Pro justify their base that could be diverted, even newly developing. incentive demands by touting their adding a state increment. In addition Findings such as these are consis- megastores as economic development to a fraction of local property taxes, tent with other analyses that suggest "destinations," like Disney World or TIDDs could now capture shares of most economic development incen- Six Flags, spinning off ancillary jobs all three increments of the Gross tives are actually windfalls, not deter- and tax benefits from hotels, restau- Receipts Tax (GRT)—state, city, and minants. Newer suburbs have numer- rants, and other tourism-style spending.
county—and TIDD could back bonds.
ous advantages competing with inner Using this argument, they have won the This was a remarkable state action cities and inner-ring suburbs for new enactment of new "high-impact retail" with profound implications for how investment: more undeveloped and incentives that include TIF in South public services driven by future uncontaminated land, newer infra- Carolina and Ohio.
growth will be paid for, given that the structure, a more educated workforce, Some Cabela's stores have an unusual GRT (a broad-based business activity less dependency, and higher incomes.
pseudo-museum feature that blurs public tax including construction) provides a As one Twin Cities civic wag put it: space with private enterprise to a re- very significant share of revenue for "Subsidizing economic development markable extreme. The stores' "Con - both localities and the state. It pro- in the suburbs is like paying teenagers servation Mountain" centerpieces are vided 32 percent of New Mexico's re- to think about sex."16 "museum-quality wildlife displays" of curring general fund revenue in FY big-game taxidermy and large aquariums.
2007 and 73 percent of Cabela's: Case Study in Greenfield Big Box
In some stores, the space devoted to Use of TIF
these displays is legally structured as a Lobbying heavily in Santa Fe for the Cabela's is the nation's largest marketer condominium within the store and TIDD statute change was Forest City of outdoor sporting goods. Long a pri- owned by the local government—mak- Covington NM, LLC, a joint venture vately owned catalog seller with only ing it property-tax exempt. between Cleveland-based Forest City one store in Nebraska, Cabela's went Enterprises (the publicly traded firm 16. Lyle Wray, Minneapolis 18. This section draws from Greg Legislative Finance Committee Citizens League, as quoted in LeRoy, Not Very Sporting: Revenue Brief, Oct. 23, 2007.
Eileen Weber, Corporate Outdoor Sporting Goods Retail Subsidies Often Defeat Own Subsidy Scam, MULTINATIONAL Purposes, ST. PAUL PIONEER PRESS MONITOR (Vol. 27, No. 5, (Feb. 28,1999).
September/October 2006). 17. Cabela's Inc., Form10-K filing 19. City of Albuquerque, Five Year to the U.S. Securities and Forecast, Fiscal Year 2007–2011, Exchange Commission for the fis- December 2006. State of New cal year ending December 31, Mexico, October 2007 Consensus Revenue Estimate Update, American Planning Association Planning & Environmental Law
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Some councilors were also worried that another big greenfieldproject also seeking a TIDD would further shortchange thecity's disinvested areas.
with $9 billion in assets that redevel- cent of the economic activity in the seeking a TIDD would further short- oped the Stapleton airport site in Mesa del Sol TIDD comes from other change the city's disinvested areas.
Denver) and Covington Capital parts of the state, or would otherwise Irvine, California-based SunCal claims Partners of Santa Monica, California.
have happened elsewhere in the state, to be the largest privately held com- The Associated Press reported that then the project will have a negative fis- pany in the West specializing in master Forest City Covington spent $220,000 cal impact on the state. This break-even planned communities. With a coinves - in monetary and in-kind contributions finding, critical to Mesa del Sol's TIDD tor, in late 2006 it purchased 55,000 to New Mexico politicians in 2006, financing, rested upon the assumption acres stretching from Albuquerque's more than any other organization with a that zero percent of the project's busi- west side into Bernalillo County. (The lobbyist registered in the state. About ness activity—including retail activity— enormous parcel dated back to a Span - $150,000 of that sum benefited Gov.
will be pirated. Thirty-eight percent of ish land grant of 1692.) For its first Bill Richardson as he won reelection, the projected increment is to come from phase, the 1,500-acre Lower Petro - including $21,000 worth of private-jet retail sales alone.21 glyphs project, SunCal now sought the Soon after the city approved the same TIDD-for-infrastructure deal For - Forest City Covington was formed Mesa del Sol TIDD, some members of est City Covington had won for Mesa to build Mesa del Sol, a 12,900-acre the Albuquerque City Council had seri- new urbanist, mixed use project south ous misgivings. Previously, developers Both companies have employed some of Albuquerque International Airport.
bore most infrastructure costs, paving of the nation's most prominent land use Three times larger than Stapleton, the residential streets and paying impact practitioners. Forest City Covington site may be the largest tract of undevel- fees for arterial roads, water, and sewer.
hired new urbanist planner and architect oped land within one U.S. city. Over a Now, the council members worried that Peter Calthorpe to develop the master 35- to 50-year build out, the project en- the size and duration of the TIDD plan for Mesa del Sol. SunCal employed visions thousands of jobs (with a few would divert too much revenue and de- architect and urban designer Stefanos companies already recruited), 37,500 prive the city of resources it will need Polyzoides to design its New Mexico homes, 18 million square feet of office to revitalize older areas of the city, un- projects. Calthorpe and Polyzoides, and industrial space, a town center, and dermining a Planned Growth Strategy among other things, helped found the a big box retail center adjacent to an (PGS) they had recently adopted after Congress for the New Urban ism. SunCal Interstate exchange. a protracted public debate. The PGS also hired two prominent growth man- Moving quickly to exploit its leg- estimated the city's infrastructure reha- agement experts: Rutgers University islative victory, Forest City Covington bilitation needs at $1.9 billion. economist Robert Burchell (a pioneering applied for five TIDDs (to coincide Some officials were also concerned scholar on the infrastructure savings from with construction phases) to pay for about the potential for the new projects compact development, who performed a Mesa del Sol's infrastructure, request- pirating retail and other business activ- fiscal impact analysis) and attorney ing the maximum allowable diversion ity. The state's TIDD law has a "no net Robert Freilich (former editor of the of 75 percent of city and state GRT expense" provision, intending that a American Bar Association's Urban increments (as well as a smaller allow- project will not create a net fiscal loss able share of property taxes); the City for the state or locality. However, as Beginning in the spring of 2007, City negotiated its GRT share down to 67 with the state fiscal impact study, two Councilor Michael Cadigan (who repre- percent. In early 2007, Forest City studies (performed by private consult- sents part of the west side) and other Covington also won state legislation ants) used the assumption that Mesa council members held hearings and pro- and Richardson's signature authoriz- del Sol would draw zero percent of its posed to amend the city's TIDD ordi- ing up to $500 million in TIDD bonds GRT from elsewhere in the state—that nance. Their proposals ranged widely to be backed by the state GRT share is, all job creation would be new to the over time, and their debate was slowed state, as would all commercial tenants by a fall 2007 council election. At one A Fiscal Impact Report by the state's and all retail sales, including those at turn, they sought to roll back the state's Legislative Finance Committee found the big box center by the Interstate. 2006 action, so that at least within the the state will eventually break even, but Some councilors were also worried city limits of Albuquerque, future as a caveat it noted that if only 10 per- that another big greenfield project also TIDDs would effectively revert to being 20. Barry Massey, Richardson Signs 22. Freilich was denied the urbanizing areas, adequate public capital cost (e.g., roads, Bill Benefiting Donor, Associated chance to testify for SunCal at a facility ordinances and impact schools, sewer lines, or gutters) Press (April 10, 2007). Jeff Jones May 2007 Albuquerque City fees are essential to assure that the need for which is created by and Andrew Webb, Governor Takes Council committee hearing when development pays its fair share of a new development." Heat for Plane Trips, Associated a councilor raised the issue of his infrastructure costs generated by Press (April 11, 2007). prior work for the city on the the development." He defined im- Planned Growth Strategy.
pact fees as "mandatory pay- 21. Norton Francis, Legislative However, in the Summer 2003 ments paid by developers or Finance Committee, Mesa Del Sol builders in return for development Development Gross Receipts.
approval. They are calculated to Fiscal Impact Report, February OURNAL, he wrote: "As growth occurs in urbanized and planned be the proportionate share of the American Planning Association Planning & Environmental Law
February 2008 Vol. 60, No. 2 p.9
Unlike infill projects in already dense or mixed use areas,greenfield developments are not located in a place where themarket has already demonstrated an appetite for density.
used as they were before the state partnership" came in its discussion of sion fund or an endowment, this can be changes. In subsequent proposals, they financing and risk. The company a major problem."25 sought less sweeping changes to essen- wrote: because "new urbanist, mixed- Gyourko and Rybczynski also tially attach safeguards to future TIDDs.
use developments work on a slower found that the risk perceptions (Dis clos ure: This writer testified at the business model than standard develop- around new urbanism cause investors first of these hearings at the request of ments," "the phases of development to favor large, experienced develop- the City Council and participated in two must be designed to guarantee a cash ers—a description that would cer- subsequent member-convened meetings flow as quickly as possible in order to tainly fit both Forest City Covington by telephone, providing a national per- attract investors and keep up with the and SunCal—because of their experi- spective and answering questions about required rates of return needed due to ence executing the projects in phases higher perceived risks." to generate enough cash flow. Absent In a written submission to the Albu - SunCal's submission cited a 2000 a nontraditional source of financing querque City Council in May 2007,23 paper24 by University of Pennsylvania willing to accept a lower rate of return SunCal's New Mexico Division presi- professors Joseph E. Gyourko and despite higher risk, the professors dent argued that the proposed amend- Witold Rybczynski in support of this conclude, "some type of intervention ment "is nothing more than an attempt argument. Their paper, a survey of 23 from the public sector" may be neces- to halt growth on the west side." How - real estate industry practitioners com- sary, but that would be justifiable ever, in the next sentence, he stated missioned by the Congress for the only if there is "a social benefit that is the opposite and made the argument New Urbanism, finds that mixed use not obtained by standard suburban local officials found most vexing: If the new urbanist projects are viewed by TIDD restrictions were adopted (mak- investors as riskier than single-use Such social benefits have been at ing SunCal's Lower Petroglyphs project projects, especially because of their the heart of negotiations in Albuquer - ineligible), "conventional sprawl will complexity which makes them harder que, both in project negotiations and continue on the west side and smart in proposed statutory TIDD amend- growth, mixed use communities will be Regarding projects like those in ments. For example, some city coun- discouraged and unlikely to develop." Albuquerque, they found "the cilors propose calibrating the amount Citing a survey about the growing pop- lender/investor community was of TIDD diversion to community ularity of "satellite cities," he wrote, adamant that suburban greenfield sites benefits such as up to a 20 percent "[t]he model of a single downtown as were much riskier—so much so that share of affordable housing and simi- the single job center is outdated: vi- many would not even consider invest- lar affordable rent set-asides within brant cities have multiple centers of ing in them." The respondents also commercial space for small, locally employment and retail, surrounded by sited "large up-front infrastructure costs owned businesses. (California requires residential areas." and [the difficulty] of making large- that 20 percent of all TIF revenues— On the issue of whether SunCal's scale retail work in a setting without an no matter what the nature of the greenfield new urbanist project needs to established population base." Unlike project—go for affordable housing.) be subsidized, the executive also offered infill projects in already dense or mixed Be cause of concerns that the new conflicting messages. On the one hand, use areas, greenfield developments are devel opments' retail space would he declared "[n]ot true" the "popular not located in a place where the market undermine existing malls, some coun- misconception that a TIDD is a subsidy has already demonstrated an appetite cilors considered excluding the retail given to developers by the city." Later, share of the GRT from the TIDD however, he argued the need for a sub- Because of the heightened risk, (an estimated 38 percent reduction). sidy by asserting that mixed use projects Gyourko and Rybczynski found, equity Informing the proposed amend- can cost substantially more to build than investors demand high rates of return ments is a diverse coalition of citizen conventional single-use developments, to cover the elevated risk, in the range and watchdog groups that, by its own writing: "the city should be incentivizing of 15 to 18 percent. Such a high cost of admission, failed to notice the state's this development. ." capital generates the need for substan- drastic deregulation of TIDD in 2006 Indeed, the nub issue about tial early cash flow, so "unless there is a and was barely able to examine the SunCal's need for a "public-private patient financing source such as a pen- Mesa del Sol TIDD before it was ap- 23. Will Steadman, SunCal New 25. In Albuquerque, the recent Company and the nonprofit find tenants; the foundation Mexico Division president, letter history of philanthropic involve- Downtown Action Team, to revi- bought out Arcadia and to Albuquerque City Council ment in financing development talize downtown Albuquerque.
brought in new management.
President Debbie O'Malley, May was cautionary. In 1999, the The foundation viewed the invest- Santa Fe-based Marshall L. and ment as a smart growth comple- Perrine D. McCune Charitable ment to its support for the anti- 24. Joseph E. Gyourko and Foundation invested $5 million to sprawl work of 1000 Friends of Witold Rybczynski, Financing capitalize the for-profit Historic New Mexico. By 2005, however, New Urbanism Projects: District Improvement Corporation an upscale 41-condo project by Obstacles and Solutions. HOUSING (HDIC), a partnership with the HDIC sold only six units and two POLICY DEBATE, Vol. 11, Issue 3, Arcadia Land Development retail projects were struggling to Fannie Mae Foundation 2000. American Planning Association Planning & Environmental Law
February 2008 Vol. 60, No. 2 p.10
The concept of smart growth is, of course, contested territory, and not synonymous with new urbanism.
proved. (Indeed, because TIF is such els of state services (in the short- and an obscure and complex subject, it medium-term). There would be no See you in Las Vegas
often escapes the scrutiny of groups substantial likelihood of funding these concerned about land use or tax policy.) April 27–May 1
bonds through the normal capital out- The smart growth group 1000 Friends lay process. In large measure, the American Planning Association's
of New Mexico convened a network of TIDD statute is a means of subverting 100th National Planning Conference
affordable housing, environmental and the ordinary capital outlay process, and environmental justice, tax and budget, using General Fund operating rev- labor and other community groups; enues to do the subversion."28 The none had ever studied TIF before. Monday, April 28
TIDD story in New Mexico continues Citing the American Planning ◆ A Conversation with Richard Babcock
Asso ciation's 2002 Policy Guide on 10:30 a.m.–11:45 a.m. Smart Growth and its 2004 Public CONCLUSION: IS TIF FOR GREENFIELDS
Redevel op ment policy guide26 (which ◆ Climate Change and the Law
includes a section specifically on 1:00 p.m. –2:15 p.m. TIF), a New Mexi co planner urged The concept of smart growth is, of ◆ Private Property Rights, Today and
the City of Albuquerque "to limit the course, contested territory, and not use of tax increment financing dis- synonymous with new urbanism.
2:30 p.m.–3:45 p.m. tricts to areas of the community which However, consistent with the Ameri - are seriously in need of redevelop- ◆ APA in the Courts
can Planning Association's adopted ment, such as brownfields and under- 4:00 p.m.–5:15 p.m. policy guides cited above, the use of developed parcels." TIF, the planner TIF for large-scale greenfield proj- wrote, "should be significantly ects—of whatever quality—seems far strengthened to ensure [it] remains a In December, the Albuquerque City afield from both the original mission strong tool for redevelopment and re- Council approved amendments to the of TIFs and the intent of smart vitalization of existing neighborhoods, city's TIDD ordinance to prohibit tax growth. Using TIF to leverage rein- and not be used as an unintentional increment financing for greenfield de- vestment in mature areas lacking pri- subsidy for greenfield development at velopments, by a vote of 4 to 1 (with vate investment serves smart growth the edge of our community."27 four councilors boycotting the meet- by acting as "urban Rogaine"; using it Citing similar concerns, 1000 ing). Two days later the mayor vetoed to reduce financing costs for market- Friends of New Mexico, New Mexico the measure; an attempt to override the rate housing and commercial space in Voices for Children, the Sierra Club, veto failed. Meanwhile, the Bernalillo greenfield sites is another matter. and the American Federation of State, County Commission approved the nine By mixing uses, building compactly, County and Municipal Employees TIDDs requested by SunCal. On a and creating a diverse, attractive com- went on record in favor of such TIF fast-track because of the upcoming munity that is less likely to suffer eco- amendments. The 1000 Friends group New Mexico legislative session begin- nomic decline or property abandon- stressed the need for workforce hous- ning in January, SunCal made a presen- ment, smart growth projects are meant ing, estimating that 30 percent of the tation to the state's Board of Finance in to make more efficient use of infra- jobs in Mesa del Sol will not pay mid-December, seeking to convince structure and be less prone to the tax enough for workers to live there, exac- the board to approve its TIDD applica- base stress associated with sprawl. erbating a jobs-housing imbalance. The tion. In reviewing the application, the On the specific issue of infrastruc- Albuquerque Chamber of Commerce analyst for Department of Finance and ture construction cost savings, there is and SunCal have opposed the amend- Administration concluded "[i]n effect, little published evidence. However, a ments. The same interests squared off this is a capital outlay project that will study by the National Oceanic and as SunCal began its application process only benefit residents of the project Atmospheric Administration (NOAA) with Bernalillo County for approval of area and the near surrounding areas, compared three scenarios for a project nine TIDDs worth $621 million on but will be funded by all of the taxpay- of about 800 homes in coastal Georgia: more than 3,900 acres. ers of New Mexico through lower lev- new urbanist, conservation, or conven- 26. The policy guides are located Upper Petroglyphs Project TIDD Application, prepared by Department of Finance andAdministration/Economic Analysis 27. Correspondence to Unit, Dec. 18, 2007.
Albuquerque City CouncilPresident O'Malley from DanPava, New Mexico Chapter of theAmerican Planning Association,Sept. 5, 2007.
American Planning Association Planning & Environmental Law
February 2008 Vol. 60, No. 2 p.11
CNU's founding charter speaks favorably about regional revenue-sharing, whereas TIF, by sequestering tax revenues, is often used as a tool of tax-base competition.
Affordable housing should be distrib- INTERNATIONAL COUNCIL OF SHOPPING CENTERS AND THE COUNCIL OF uted throughout the region to match DEVELOPMENT FINANCE AGENCIES, TAX INCREMENT FINANCE: BEST PRACTICES job opportunities and to avoid con- REFERENCE GUIDE, October 2007. centrations of poverty. . Within New Rules website recommends TIF statutory reform: neighborhoods, a broad range of housing types and price levels can bring people of diverse ages, races, Evans Paull, Using Tax Increment Financing for Brownfields Redevelopment. Northeast– and incomes into daily interaction, Midwest Institute, July 2007. strengthening the personal and civic Richard F. Dye and David F. Merriman, Tax Increment Financing—A Tool for Economic bonds essential to an authentic Development (LAND LINES, Lincoln Institute of Land Policy, January 2006), at Rachel Weber, Equity and Entrepreneurialism: The Impact of Tax Increment Financing on As an elected official prior to head- School District Finances. URBAN AFFAIRS REVIEW 38:5, May 2003. ing CNU, Norquist both opposed and Peter S. Fisher and Charles Bruner, Tax Increment Financing in Iowa: What Should Be used TIF. As a state legislator in 1975, Done? Iowa Policy Project and Child & Family Policy Center, April 2003. Somewhat he voted (in a small bipartisan minor- specific to Iowa, but also a good overview of TIF's promises and perils. ity) against Wisconsin's original TIF- James Krohe Jr., At the Tipping Point: Has tax increment financing become too much of a enabling legislation because he felt it ADDITIONAL R
good thing? PLANNING, March 2007.
was not well targeted and would shiftrisk onto cities rather than help to revi-talize them. Later, as the 16-year mayor tional suburban development. It found consider affordable housing set-asides of Milwaukee, he found TIF useful to that on a per-unit basis, the new urban- as a quid pro quo for TIF; he also sug- accelerate development, but he real- ist scenario had lower costs for sewer, gested mixed use and "connectivity" to ized it was coming at the expense of water, paths, trails, and sidewalks. Road adjoining neighborhoods (i.e., no gated the school district and other taxing costs were somewhat higher (perhaps communities). He expressed confi- bodies. He found the city had its great- due to alleys). Compared to conven- dence that whatever cost premium est success attracting new downtown tional suburban development, the new there is now for new urbanist construc- condominium developments when "we urbanist scenario also preserved more tion, it will diminish as it becomes stopped subsidizing, we stopped play- than five times as much open space, more common. A city's ability to lever- ing favorites."32 created almost four times as many age developer concessions depends pri- Norquist's fears about Wisconsin's miles of paths, trails, and sidewalks, marily upon its overall strength and TIF rules appear well placed. By and improved water quality by reduc- growth, he stressed, not upon TIF.30 1999, a study by 1000 Friends of ing consumption and pollutant CNU's founding charter speaks fa- Wisconsin found, 45 percent of the vorably about regional revenue-sharing, state's 661 TIF districts had been Although some prominent new ur- whereas TIF, by sequestering tax rev- used to develop open space—or ap- banist practitioners are involved in the enues, is often used as a tool of tax- proximately 30,000 acres of open Albuquerque developments, the base competition. The charter31 states: space (mostly farmland) developed Congress for the New Urbanism with TIF. Perhaps the state's most (CNU) as an organization is "agnostic" Revenues and resources can be shared controversial TIF is in Baraboo, where more cooperatively among the munici- about TIF and has never opined on the Wal-Mart built a Supercenter (i.e., palities and centers within regions to issue, according to its president and with groceries) on what was an apple avoid destructive competition for tax CEO, John Norquist. "Almost every- base and to promote rational coordina- orchard to replace an existing store one in CNU would say if there is going tion of transportation, recreation, pub- just two miles away that lacked gro- to be a taxpayer benefit to the develop- lic services, housing, and community cery space. In a remarkable admission ment, then there should be a public that the "but for" test did not hold, a benefit, clearly identified and open in Wal-Mart manager stated in a letter the public realm," said Norquist. He CNU's charter also speaks clearly for that the project would have pro- deemed it "perfectly appropriate" to affordable workforce housing: ceeded even without the TIF.33 29. Coastal Services Center, 32. John Norquist, telephone in- National Oceanic and terview, op cit. 33.1000 Friends of Wisconsin, Alternatives for Coastal Wisconsin's Tax Incremental Development: One Site, Three Financing Law: Lending a Hand to Scenarios. Available at Blighted Areas or Turning Cornfields into Parking Lots? 30. John Norquist, telephone in- (October 1999).
terview, Nov. 19, 2007. 31. Charter of the New Urbanismat:


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