- In Kansas City, a study by a university economist found that, far from curing blight, TIFs there were mainly used to subsidize development in affluent areas.
- Aberdeen South Dakota voters have demanded the right to approve a TIF subsidy being offered to a meat-packing plant. The argument for the TIF is not that the area is blighted but that Aberdeen has to offer subsidies to compete with other cities that want to subsidize a new plant.
- The school district in a St. Louis suburb is opposing TIF subsidies for a new residential area because the development “would put more children in district schools without a corresponding increase in tax revenues.”
Posts Tagged ‘TIF Funding’
Here’s another Player Report. The Player Reports are supporting stories detailing how a select few individuals or groups that know how to ‘play the game’ benefit above and beyond our standard business owners. The Players ultimately ruin the system for the rest of us. The Players thrive in our dysfunctional leaderless community. Read The Player opinion in the Inside Tucson Business.
Museum Politics: Red-headed Stepchild Tucson Museum of Art Might Leave Downtown, while Mayor’s Wife Delivers The Bacon for Tucson Children’s Museum
The way the City of Tucson has handled the Tucson Museum of Art during the “Rio Nuevo Era” is a great example of what happens when you pay undue attention to going after what you DON’T have, rather than paying enough attention to save or retain what you DO have.
Once the Rio Nuevo funds started rolling in-the first check arrived on Halloween of 2003, according to the Rio Nuevo website-it soon became apparent that the growth in retail activity at El Con and Park Place would yield two times or more what the city had projected. Good thing, because the Rio Nuevo master plan had already expanded the original vision of the project, and it was clearly going to take much more than $60 million to realize it.
By the time the State of Arizona had granted a 12-year extension of the TIF funding to the City of Tucson in 2006, the vision and its associated costs had already spiraled out-of-control.
- The Sonoran Sea Aquarium lost its place in the plan, replaced by a much more expensive new arena.
- The “Civic Plaza” west of the Tucson Convention Center was over-designed to the tune of several tens of millions of dollars, with a proposed 1,000-space garage underneath a grand plaza, between the arena and the TCC complex.
- And of course, the science center had gone from a $100 million project to something like $350 million, with the concept design of a rainbow bridge that would be a quarter-mile long and 350 feet tall.
Whatever extra money was expected to come in from the extension of Rio Nuevo was surely going to be eaten up by these new projects.
The allocation to the Tucson Museum of Art both before and after the TIF extension was still $2 million. With projections of $600 million or more from the extension, that $2 million was now just 0.33% of the TIF, compared to 3.5% of the original pool.
The Presidio Terrace Factor
New, modern, hip housing is a necessary component of a revitalized downtown; without an active population to live and thrive the entire project would be a tough sell. By this time, Thoreson had embarked on an ambitious plan to build new housing in downtown, but the goal of 1,200 new units by 2006 that she talked the council into projecting was clearly beyond the city’s grasp. By about 1,000 units, as it turned out.
One of the sites that was identified for housing development was Lot 7, adjacent to the Tucson Water building and across Main Avenue from the Tucson Museum of Art. Definitely a no-brainer as an attractive site for a mid-rise, upscale residential development.
This project became known as “Presidio Terrace” and it could be the topic of its own post, but it’s important here because the parking lot at the Presidio Terrace site was leased to the museum for its employees and visitors. In order to build Presidio Terrace, the city and the developer would have to satisfy the museum’s need for parking. During the planning for PT, it was decided that the promised $2 million Rio Nuevo contribution to TMA would be for a public parking garage underneath the housing development, with some number of spaces allocated for the museum’s use.
TMA was always adamant about maintaining parking there, but you have to wonder why that $2 million replacement of parking was all TMA would ever get out of Rio Nuevo.
Meanwhile, Other Museums Felt the Rio Nuevo Love
Why were TMA’s own ambitious plans for expansion met with a deaf ear, when the Arizona Historical Society’s new museum, the UA’s new museums, and the Tucson Children’s Museum’s new building, all got huge allocations in the revised, post-TIF extension Rio Nuevo plan?
- Joining the Arizona State Museum, Arizona History Museum, and UA Science Center would be a new home for the Tucson Children’s Museum.
- In a May 22, 2007 memo to the City Council. city manager Mike Hein outlined a plan for allocating the half-billion or so in projected Rio Nuevo funds, and, in addition to $130 million for the science center and Arizona State Museum, it had $60 million for “Other Museums”, which included $10 million for a new Tucson Children’s Museum building.
Co-locating the Children’s Museum on a museum campus certainly has the potential to create synergies, particularly with the science center. However, the original allocation of funds for the Children’s Museum from Rio Nuevo was intended to renovate the museum in its Carnegie Library location, not to relocate it out of downtown to a new building.
How did the Children’s Museum get added to the plan, and get promised a hefty allocation of TIF money? Could Mayor Walkup’s wife Beth’s long-time involvement with the TCM have played a role?
Tucson Museum of Art – Rio Nuevo’s Red Headed Step-Child
City officials and their emissaries have reportedly told museum staff that:
- There is another available parcel of land near the Cultural Plaza that could be held for the TMA, but TMA would have to pay all the costs of a new building there itself.
- If the museum leaves for a better arrangement in Marana, Oro Valley, or the Foothills, “we’ll just get someone else in there” (in the TMA’s existing building). (Who, exactly? The fledgling Museum of Contemporary Art?)
Council Member Nina Trasoff, whose Ward 6 does not include the museum and Historic Block, but whose council subcommittee oversees arts, culture, and history in addition to Rio Nuevo and downtown, has done little to combat the perception that she’s not a fan of the museum, or of the western art that it exhibits (along with many other genres). Cowboy art is not everyone’s bag, but in a place like Tucson, it obviously has to be part of the mix.
Pima County obviously doesn’t care much for the museum or its growth, or at least for its vision of expanding TMA into an iconic downtown landmark owned by the county. When the museum revived a decades-old vision of using portions of the Old Pima County Courthouse for additional exhibit space, Chuck and the Chuckettes underwhelmed TMA board and staff with their response.
The City pays the museum something like $80,000 a year to maintain the historic properties on the museum campus, the “Historic Block”. This likely does not cover the costs of maintaining the Casa Cordova, the Romero House, the J. Knox Corbett House, and the rest. This is hardly a grand gesture of support.
Sometime in 2007, it apparently dawned on the Tucson Museum of Art that it really wasn’t part of anyone’s plan for downtown. The Presidio Terrace deal had fallen apart; the expansion to the courthouse wasn’t going to happen; and Rio Nuevo had increased its funding for all of the other museums, while allocating nothing for TMA. Without feeling the love, TMA went looking for greener pastures.
So when developer Mike Hansen came a-courtin’, TMA listened. Hansen dangled the prospect of several acres of prime Foothills real estate near La Encantada for a new TMA campus. Later, there were overtures, or rumors of overtures, from Oro Valley and Marana.
The Tucson Museum of Art is one project that won’t lose much if Rio Nuevo falls apart-it wasn’t getting much anyway. Still, with the air let out of the Rio Nuevo bubble, it’s hard to imagine that those overtures from Tucson’s neighbors to the north are going to do anything but gain strength and momentum, bad economy or not.
‘A bird in the hand is worth two in the bush’
If Rio Nuevo’s bubble does, in fact, collapse, there won’t be new museums on the west side of the downtown area. But you can’t really lose what you never had. If Tucson Museum of Art leaves downtown of its own accord, because another Pima County town wanted it more than Tucson wanted it, downtown WOULD lose something that it already had.
Does it even need to be said what a pitiful shame that would be? Is Tucson prepared to lose the TMA, just like it is losing Triple A baseball, spring training, Rio Nuevo, and god forbid, the Gem Shows? At some point, you have to stop the bleeding and decide what is important to protect.
Maybe the Tucson Museum of Art just needs some better-connected board members – that might be one way to get things going.
Looks like Paton, Antenori and Melvin are going to have to stick their necks out to keep the TIF funding for Rio Nuevo. You can bet there will be many strings attached. The idea of rational, business owners, without a stake in the project is a critical part of the plan.
From today’s AZ Star, discussion on Rio Nuevo:
“I don’t want to kill Rio Nuevo,” Antenori said. “As much I’d like to do it for spite to the City Council, the reality is the business impact is far more important. We have to save it.”
“The city government in Tucson is dysfunctional in almost every dimension,” said Sen. John Huppenthal, R-Chandler. “And the idea that we would trust them, even in some reconfigured state, with $500 million to advance the economic growth of Arizona, I would find astonishing.”
Waring told fellow Republicans that Rio Nuevo Director Greg Shelko didn’t further his cause at last month’s hearing.
“It was a really underwhelming performance; I can’t emphasize that enough,” Waring told a group that included Senate President Bob Burns and Appropriations Chairman Russell Pearce, who will be putting the budget together. “It was really, really ugly. … It was about as bad a performance as you’re going to see down here. They really didn’t articulate what it is that’s happening.”
Even local lawmakers were critical. Sen. Jonathan Paton, R-Tucson, said, “Quite, frankly, as a Tucsonan, I was embarrassed.”
But Paton also said the hearing was a wake-up call for city officials, who are now focusing on the plans for the Convention Center, hotel and arena as signs of progress.
“I had been telling them they had problems with the Legislature,” Paton said. “I don’t think they really took that seriously. I think they started talking it pretty seriously after that hearing.”
Rio Nuevo’s future could rest in the ability of Tucson Republicans – Antenori, Paton and Sen. Al Melvin in particular – to convince their colleagues the project is worthy.
Melvin, vice chair of the Senate Appropriations Committee, has the ear of Pearce. Melvin indicated Tuesday he wants to keep the funding in place with Paton’s legislative changes.
“All these things, if we can incorporate them, hopefully we’ll get it on the right track,” Melvin said.
In what he himself calls a “twist of fate,” Antenori, a long-time critic of the project, has taken the lead defending Rio Nuevo to House leadership. He wants to retain all funding.
I’m a new author to this blog and appreciate the outlet to set some facts straight. I’m concerned that the local media is missing the mark on some of the Rio Nuevo issues and thought I would take a moment and bring the readers another viewpoint. There was a meeting last week at the State Legislature Finance Committee on the future of Rio Nuevo TIF funding. You can catch the video HERE.
Want to see how a real city has used TIF as a professional economic development tool, to leverage enormous commercial growth in its downtown? Let’s look to our nation’s capital, of all places, where Downtown D.C. has experienced a renaissance in recent years.
Check out this Power Point presentation that explains how a TIF has been used to stimulate significant investment of hotels, retail, and a museum that is part of a mixed-use development, in the District of Columbia.
Click on “TIF Case Studies_Washington D.C.ppt“.
With the recent acceleration in criticism of Rio Nuevo and its possible termination at the hands of the state legislature, I have heard and read many misconceptions about how the Rio Nuevo TIF works and what the City did wrong in creating this mess. The City did a lot of things wrong, strategically and tactically, with things done and not done, and unfortunately some of the things it did right have been too little, too late to save it from its likely fate at the state capital.
But the trouble started with how the district was drawn back in 1999, four years before the City even started collecting TIF revenues from the State of Arizona. Last week Rio Nuevo Director Greg Shelko was bothered that the Senate Finance Committee brought up how the district was drawn—again—but to bring this up is not just dredging up the past, or about revisiting outdated criticisms or old grudges. The way the boundaries were drawn is more than an inconvenient truth about Rio Nuevo. It is the fundamental truth about Rio Nuevo and why it hasn’t lived up to its enormous promise.
Rio Nuevo was handicapped before it even began by decisions that were made several months before the voters approved the project in November 1999. The City decided to draw up a district that included property from “A” Mountain all the way down Broadway to what was then called Park Mall.
Some Tucsonans have defended a downtown development district that takes in all of the TIF generated at El Con and Park Place as Tucson’s way of achieving payback for the State revenue-sharing inequities that Pima County suffers relative to other areas of the state. However satisfying this offset of a perceived injustice may be to Tucsonans, the reality is that the gerrymandered TIF district—drawn in the shape of a very long rifle—has been a hindrance to development, regardless of how much money it kicked back to Tucson.
It has been a hindrance because it has skewed the City’s incentive structure for how to plan and finance revitalization. The boundaries as they were drawn gave the City access to huge sums of state sales taxes from The Home Depot, Circuit City, Mervyns, Dillard’s, Macy’s, two Targets and many other stores and restaurants, but this largesse motivated the City to use TIF as a big piggy bank that replenished every month, rather than as an economic development tool that depended on their wise use of the opportunity to generate retail growth in Downtown. With so much money coming in from existing and new sources along Broadway, and a large wish list that included an aquarium, several new museums, a re-creation of the Mission San Agustin complex, a restored Fox Theatre, and several other projects, the City chose to view all that free money from the east end of Broadway as a piggy bank. It was as if any TIF generated in Downtown itself was a bonus. When you don’t have to work for something, you don’t value it. The TIF money was free, so Tucson didn’t make a commitment to generating more of TIF in the area that should have been producing it.
The fact that Downtown business was moribund in 1999 was actually a great thing from the tax-increment standpoint. The state sales taxes from any new development, any net new business activity, would have been 100% incremental compared to the base year of 1999. If Hotel Congress increases its sales by 10% over 1999, the corresponding 10% increase in state sales tax is the tax-increment for that property. But if the empty lot down the street (and some or all of the other 30 empty lots) gets filled in with new businesses (with offices, apartments or condos on top, of course), then whatever sales taxes are generated there are 100% “increment”. So the fact that downtown is/was dead is an advantage with the TIF scheme; it creates an opportunity to enjoy a huge windfall if you actually invest in projects that generate new sales tax in Downtown.
When the City issued its 1999 RFP for Rio Nuevo, a California developer responded to it with a proposal to build lots of retail on the west side of I-10, on the south side of Congress. It was this developer, NOT the City, that proposed using TIF to fund the construction of attractions and infrastructure. The developer envisioned a master-planned area with the Sonoran Sea Aquarium, Museum of the American West, and the Universe of Discovery (I’m not making these up; these were the names of the museums that were proposed in 1999), and a Regional Visitor Center serving as the anchors of a mixed-use development that would include 500,000 square feet of outlet stores. The new sales taxes from this retail center would have all come back to Tucson, as the 1999 sales tax base on the land where it would have been built was Zero.
That particular developer didn’t have its act together, and probably couldn’t have pulled the project off, but the City could certainly have found one that did, let’s say Forest City or General Growth. If the City had chosen to stand up to Menlo Park neighborhood, which didn’t want a lot of retail on that corner, OR, if the City had said, “okay, we’re not going to put the retail there where the neighborhood doesn’t want it, but we’ll put it on the east side of the freeway”, we could have created a TIF district that didn’t need to extend its boundaries beyond Downtown. A TIF district that was limited geographically to Downtown would have allowed the City to invest in the infrastructure to support that retail center with a repayment plan based on the new sales taxes generated there and that would not have been generated otherwise. Whatever sales taxes that retail center would have generated would have come back to Tucson, 100% OF IT.
Instead, the City Manager’s office, led by city manager Luis Gutierrez and assistant city manager John Nachbar (who left Tucson shortly thereafter for Kansas) put together the rifle-shaped TIF district with no public input in the summer of 1999. Nachbar knew that El Con and Park Mall were planning redevelopment and growth. It seemed like a clever way to get funding to build the museums while not forcing retail development on an unwilling neighborhood. Tucson had just a few months to get voter approval for a TIF district before the enabling legislation terminated. The City Council approved the plan 5-2, and then the voters of Tucson and South Tucson (the state law required a partner city to vote for the project, and Tucson promised South Tucson $1 million for its trouble) approved Proposition 400 in November 1999 with over 60% of the vote.
The City then spent $600,000 on a master plan that was subsequently revised at great cost; it created a governing board, a citizens advisory committee, and began essential environmental remediation work on the west side of the Santa Cruz. The TIF revenue stream did not begin until 2003, when the City decided the time was right to maximize the flow of sales taxes being generated in the district. Park Place’s renovation was nearly complete and El Con had opened a Home Depot store.
In order to fund the planning, consultant fees, land acquisition, staff costs, and other expenses prior to the time when the TIF funds started coming in, Rio Nuevo borrowed over $14 million from the City of Tucson. Unfortunately it did not pay any of this back, and now a significant part of the recent bond issue proceeds will be used to repay this loan to the City, which is reeling from huge shortfalls in projected sales tax revenue. In order to initiate the district, state law required an investment in the “primary component”, which was the Tucson Convention Center. Consequently, the first completed Rio Nuevo project was the new box office at the TCC, which cost about $700,000.
A TIF district is supposed to be revenue-neutral; in other words, the governmental entity that is losing the taxes should not miss them because it never would have received them anyway but for the project. Funds are supposed to be invested in “but for” projects; those that would never have been built “but for” the investment. The incremental sales taxes should come only from areas benefited by the public investments.
But Tucson grabbed sales tax increment that was generated outside of Downtown, and that would have absolutely gone to and stayed with the State of Arizona. The malls on Broadway were redeveloping regardless of what Tucson did with its downtown. The motivation for that redevelopment was totally unrelated to the destination of the sales taxes that would be generated there, and it certainly had nothing to do with Downtown. As such, the sales tax increment generated east of the Snake Bridge was 100% diversion of State money. It was an increment, yes, and therefore it was diverted back to Tucson for Rio Nuevo, but it was an increment that was the fruit of other investments made by private developers, and it should have stayed with the State of Arizona. Tucson did not invest TIF dollars earned at El Con back into infrastructure improvements at El Con Mall (and I’m not arguing that it should have); it spent them on studies, consultants, and plans for projects Downtown. (Some have seen this as a delicious irony as well, that the mall that signaled the demise of downtown’s department stores and retail base in the 1960s is now being used as an engine to restore Downtown.)
One can argue that that is a good thing because it helps balance out other revenue-sharing inequities that leave Tucson on the short end relative to Phoenix, but it cannot be argued with a straight face that it is a proper way to set up a TIF.
If Tucson had drawn a TIF district that was self-contained in Downtown, there would have been no diversion of extraneous State sales tax-increment that it wasn’t really entitled to. The City of Tucson has looked at the fairly predictable revenue stream coming down Broadway as a source of income that it is entitled to spend Downtown. With a real TIF, you wouldn’t have a budget of anticipated revenue unless you sold bonds to leverage development that created the sales taxes. In other words, you wouldn’t say, “we’ll have $600 million coming in over the next 20 years; how can we spend it?”
You would say, “what opportunities for development are out there that the City can invest infrastructure dollars to support? What fair and understandable process can we create that lets developers and retailers know what the rules are for applying for a share of this public investment?” Then, be ready for, or actively recruit, developers who see market potential to build projects that generate enough sales tax increment to cover the public investment. And since there is no initial money coming in, you have to bond to get the money to build the infrastructure to make these projects work.
Let’s say a developer wants to build 200,000 square feet of retail. (I picked that number because one of the City’s many studies—the 1995 City Center Strategic Vision Plan—stated that Downtown should be able to absorb 200,000 square feet of retail, and the City should try to achieve that.) The City evaluates the feasibility and risk of partnering on this deal, and if it decides to go forward, it might agree to pay for something like the construction of a public parking garage underground or above the street-level retail. Without it, the project doesn’t happen because other costs of doing development in Downtown give the developers incentive to continue building strip centers in the suburbs or on raw desert. With it, you generate jobs, sales taxes, vitality, and momentum for continued growth and investment.
200,000 square feet of retail kicks off a LOT of sales tax, and if Tucson had built such a center on an empty Downtown lot when the economy was growing, every penny of the new sales tax would have been increment that would have paid a large and ever-growing increment, year after year until the district expired. All of these sales taxes would have been rebated to Tucson, and used to repay the bonds that would have been sold to finance that parking garage. There would have been money left over to create a fund that you could use to stimulate new development. Or build a “world-class” museum.
More realistic than the notion that something so large as a 200,000 sq.ft. retail center would have been built in Downtown Tucson in, say, 2003, would be smaller mixed-use projects with 10,000 or 20,000 sq.ft. of retail, restaurant, or entertainment space. Incremental and sustainable development, creating 100% incremental sales tax growth. As an example, if Bourn Partners’ The Post had been built as planned, it would have created 10,000 square feet of new retail space. If you built several such projects with housing components and created some momentum, Downtown might be able to absorb a bigger retail project, especially one associated with an entertainment destination, hotel, and a thriving convention center. A new hotel would generate an enormous TIF because of its high sales and the fact that the sales taxes would be 100% incremental over 1999.
The sooner such developments could be completed, the sooner they would start paying the City back for its investment of TIF, and the more TIF could be earned over the course of a finite period.
Rather than giving public land away for free, which guarantees that there will not be comparable land values for banks and lenders to use to finance future projects, you would value the land appropriately and sell it at market value. Then, if you want to offer incentives to stimulate development, you do that another way. But you don’t give away land.
By simply budgeting the expenditure of free money that was generated at Park Place and rebated to Tucson courtesy of the taxpayers of the entire State of Arizona, there was no incentive on the City’s part to actually use the power of TIF to create new commercial development and new sales taxes in downtown. Since the money was going to flow in regardless, there wasn’t even any urgency about using it for the museums and other non-sales-tax generating projects.
The structure that the City created for the TIF district virtually GUARANTEED that little private investment or significant revitalization happened, or would do so in a timely manner. Actually there was no structure. There was no “program”. Rio Nuevo officials wondered, in the early years why no developers showed up. That was because there was no economic development program to respond to. The City’s plan was simply to build attractions that would draw visitors to Downtown, and to hope that developers would invest in housing or other development in Downtown in response to the increase in visitation to the area. Build a museum on the west side of the river, and hope that it would inspire a developer to build condos on Congress Street. That was basically the plan.
These foundational mistakes only doomed Rio Nuevo to failure because the City never fixed them—there was nothing stopping the City from changing its initial approach. In fact, had the City used the TIF generated at the malls as seed money for jump-starting its downtown TIF-generating plan, it would have been even more powerful. Combining the free money from the east end of Broadway with new TIF generated in Downtown would have been a tremendous advantage for Tucson. But the City chose to simply take the free money and spend it on projects that don’t generate sales tax in Downtown.
The Depot Plaza project is being developed in a manner that is close to the model that should have been used from the beginning. TIF is being used to build an underground parking garage, below two planned residential buildings with retail space along 5th Avenue and Congress Street. The problem is that there is no program that would inform another developer that such a model might be used on another Downtown project. The Rio Nuevo website gives no indication as to how a developer or investor might respond to the Rio Nuevo Economic Development Program, if there were such a thing.
Rio Nuevo has collected over $58.3 million in TIF between July 2003 and November 2008 (the last month for which Rio Nuevo has published its TIF revenue on its website), and it has spent much more than that.
But soon it won’t have any money to spend, other than what it generated in its December bond sale—the repayment of which is in question because of the state legislature’s interest in stopping the TIF payments. A February 15 article in the Arizona Daily Star claims that the bonds were backed by the General Fund, which if true, will certainly lead to more controversy. Not only is the hard-fought TIF extension (2013 to 2025) likely to be wiped out, but so will the last four years of the original ten-year Rio Nuevo District, triggered in 2003 and projected to generate over $120 million.
What A Pity!
By not delaying it, as other US areas did, city may have to pay extra $10M or more
Arizona Daily Star
Tucson, Arizona | Published: 02.15.2009
When other communities across the country were pulling out of the bond market in December as the failing economy pushed interest rates higher, Tucson forged ahead with a Rio Nuevo bond issue.
The move potentially cost taxpayers more than $10 million in extra interest — money that could have gone into projects instead — because the municipal bond market recovered in January and February, experts interviewed by the Arizona Daily Star said.
One municipal bond expert put the potential loss at as much as $18 million.
The city’s bond adviser, Shawn Dralle of RBC Capital Markets, estimated the savings from delaying the bond sale would have been a much smaller $5.4 million over the life of the bonds, from 2011 to 2025.
Tucson issued $78 million in bonds for its Downtown redevelopment district Dec. 15-17, as state lawmakers were openly threatening to take back the state sales taxes that go to Rio Nuevo because of the project’s perceived lack of progress.
Several experts said interest rates now would be about 1.2 percentage points lower than the nearly 6.5 percent the city sold its bonds at in December. Dralle estimates the rate difference would be only 0.25 percent to 0.5 percentage points lower.
Several Tucson officials said no one could predict future interest rates, and added that the city sold the bonds to get Rio Nuevo projects moving. The legislative threats weren’t a factor, they said.
But numerous communities across the country delayed their bond sales in December. A January report from JP Morgan Asset Management said many issuers were postponing year-end bond sales because they were unwilling to pay the high yields required to attract buyers.
Just three days before Tucson’s sale, New-York based municipal bond adviser Freda Johnson told Bloomberg News it was recommending “borrowers delay their sales if at all possible” because of high yields and weak demands.
Mayor Bob Walkup said the bonds were sold to get Rio Nuevo moving in response to criticism from the public and the media about a lack of progress. He said the legislative threat to take the money back “wasn’t even a discussion.”
“I think we still did the right thing at that moment,” Walkup said, adding the city can’t predict interest rates. “If you find the guy with that crystal ball, let me know because we can make a lot of money.” Action delayed elsewhere
Deven Mitchell, executive director of the Alaska Municipal Bond Bank Authority, said the bank pulled back two bond issues in early to mid-December, one for a prison and the other for money that would be loaned to municipalities. The Alaskan bonds had similar ratings to Rio Nuevo’s, although Tucson spent $750,000 on bond insurance to boost its rating several levels.
The bond bank waited for the markets to calm down and then sold its bonds “as soon as possible” at rates under 6 percent just before Christmas and again in January.
It’s a difficult decision, Mitchell said, because if you need the money to start construction, it can be better to issue the bonds than wait.
But the amount of construction to be done with the $78 million in Rio Nuevo bonds is limited, with $58 million split between design and construction for 13 projects Downtown and on the West Side. One expert questioned the amount of “soft costs” for design in the bonds.
A total of $20 million went to pay back a loan to the city, into a reserve fund or for bond insurance.
Issuers as disparate as the state of Minnesota, the District of Columbia and Oklahoma City delayed bond sales at the end of 2008 because of market conditions.
In Florida, top state officials questioned the state bond director in January over a bond sale for universities on Dec. 14 with an interest rate of 6.16 percent, pointing out that another Florida issue a month later fetched a rate of 4.7 percent. The director blamed volatile credit markets. Higher interest costs
Michael Stanton, publisher of the Bond Buyer newspaper, looked at the difference in market rates — calculated from municipal market data or MMD — between December and the second week in February.
He said the average rates today are about 1.2 percentage points lower than rates were in December, resulting in roughly $10 million more in interest costs for the December bonds.
Stanton made a second calculation of only $4.3 million in savings using an index of revenue bonds — which are paid off with revenuelike sales taxes. But the Rio Nuevo bonds are backed not just by sales taxes, but by the city’s general fund as well.
Alvin Boutte Jr., managing director and head of the Midwest region for Chicago-based investment banking firm Grigsby & Associates Inc., estimated the difference in interest rates cost the city $18 million in interest over the life of the bonds. He estimated the city would pay 5.2 percent on the bond issue today.
In a larger issue by the city of Chicago on Jan. 20, Boutte said, the interest rate for 15-year bonds was 4.81 percent. By contrast, the yield for Tucson’s 15-year bonds is 6.79 percent.
The companies that underwrote Tucson’s bonds declined to estimate what the difference in interest rates cost Tucson. Stone & Youngberg said there were too many variables to calculate. Piper Jaffray referred calls to the city’s bond adviser, Dralle at RBC Capital Markets.
In a statement, Dralle said the rates did drop in January but that much of the drop was “on paper” because there were few sales, and many issuers had higher credit ratings — although the city paid $750,000 for bond insurance to boost its credit rating equivalent to AAA.
Dralle said the bonds got the best rates they could at the time they were sold, and estimated that Rio Nuevo bonds today would sell with interest rates between 6 percent and 6.25 percent because of “a worsening economy and with Legislative threats to the revenue.”
Jaret Barr, assistant to City Manager Mike Hein, said interest rates have dropped, but estimated the impact was more like $5 million.
He added the city talked about waiting but decided to move forward to keep projects going. He challenged those who criticize the city’s decision to tell him what the interest rates will be in March, since they think the city should have been able to see the future. Deliberately hurried
State Rep. Frank Antenori, R-Tucson, has railed against the city bond sale for months, contending the city knew it was getting a bad deal but went out to market anyway to commit the money so the Legislature wouldn’t be able to take it away.
“It was deliberately done in a hurry to use it as a bargaining chip,” Antenori said. “Because it was somebody else’s money, they just did it.”
Councilwoman Nina Trasoff countered that Tucson proceeded in order to jump-start important projects, acting on the advice of its bond attorney.
“You can always second-guess these things,” Trasoff said. “It’s always easy in 20/20 hindsight to say, ‘gee, if.’ ”
Contact reporter Rob O’Dell at 573-4346 or email@example.com.
Another pointed article from Emerine on the City of Tucson’s issuance of bonds for Rio Nuevo. The bonds were issued in such a hurry that they overpaid, they were required to have too much in reserves and the tax payers of Arizona will suffer. Come on AZ Star and Tucson Citizen, look into the cost of the bond and how much of a premium we paid. Were is it that the media isn’t looking into the fact that because we waited over a year to issue the bonds the additional cost over the term of the bond could reach into the millions.
Tucson’s leaders can’t lead when they’re in self-denial
By Steve Emerine, Inside Tucson Business
Published on Friday, January 02, 2009
What if you borrowed a big sum to expand your business and then learned the people who promised the money for you to repay the loan were talking about keeping their cash instead?
Would you tell reporters that although you haven’t talked with your money sources, you doubt they will pull the plug because you’ll be able to convince them not to?
Would you call the report “speculation and rumor” and say commenting on it would be premature?
Would you dismiss the information, saying you won’t “invest energy worrying about something until there’s something to actually worry about?”
I hope not.
But that’s exactly what Tucson Mayor Bob Walkup, City Manager Mike Hein and City Councilwoman Nina Trasoff (respectively) told the Arizona Daily Star upon learning Republican legislative leaders may yank state financing they approved in 1999 and 2006 for the Rio Nuevo downtown redevelopment project.
Tucson just incurred an $80 million debt by selling bonds to finance a part of Rio Nuevo. If legislators cut off the state funding Tucson planned to use to retire the bonds, the city and its taxpayers must either pay them off themselves or try to convince a court to order the state to do it.
Two Tucson Republicans, Senator-elect Jonathan Paton and Representative-elect Frank Antenori, confirmed last week that Maricopa County GOP legislators are indeed considering taking back the tax-increment financing authority now earmarked for Rio Nuevo.
Antenori said he’s inclined to vote with them.
The obvious question is why Republican Mayor Walkup, the six Democratic council members, Hein and other city officials didn’t meet in November or December with majority Republicans and minority Democrats to head off the threat to Tucson’s downtown plans.
The Star’s responses from Walkup, Hein and Trasoff indicate they’re in a state of denial.
City officials used similar excuses a year ago when the Colorado Rockies, who lease Hi Corbett Field and other parts of the city’s Reid Park for spring training, said they would leave if their landlord didn’t make improvements promised for nearly a decade, plus some other necessary upgrades.
Tucson officials said they didn’t have money to improve their own field, so someone else would have to pay for it.
When backers of Tucson’s annual Mariachi Conference asked council members to cut the rent for using the Tucson Convention Center, officials declined.
Fortunately, Cox Communications stepped up with a large donation to keep the conference going.
City officials regularly hear sponsors of Tucson’s various February gem shows complain about available hotel and exhibition facilities.
As Las Vegas is completing a multi-million-dollar gem skyscraper with state-of-the-art display spaces near several new hotels, Tucson continues to stall erection of a convention hotel and arena, plus rehabilitation of its convention center.
Yet local officials voiced surprise that Las Vegas was making pitches for some or all of our gem shows. One official admitted not taking the reports seriously because none of our shows have left.
Not yet, anyway.
Instead of discussing more new building requirements and higher impact and water-connection fees in a city where almost no one is building anything, Tucson officials should be talking with legislators throughout the state about the need to leave Rio Nuevo financing alone.
Walkup, the city’s titular head and only elected Republican, should lead this effort.
Instead, the mayor has been so absent from any crisis discussions that fellow party members criticize him privately.
Republican National Committeeman Bruce Ash does it publicly on his radio commentaries and in other interviews.
Above all, city officials need to actually do something.
One of them did last month. Five-term Democratic Councilman Steve Leal announced he won’t run for re-election this fall.
Contact Steve Emerine or e-mail comments for publication to firstname.lastname@example.org. Emerine, a Tucson resident since 1960, has run Steve Emerine Strategic Public Relations since 1994. He is a former local newspaper reporter, editor and columnist and served as Pima County Assessor from 1973 to 1980. He is a regular Monday guest on the John C. Scott radio talk show, which airs from 7 a.m. to 8 a.m. and from noon to 1 p.m. weekdays on The Voice KVOI 690-AM. This column appears weekly in Inside Tucson Business.
I came across this the other day while researching Rio Nuevo. I’m republishing (or re-blogging) it in it’s entirety. Hopefully it will give our readers a sense of history around the original vision of Rio Nuevo. In looking back perhaps we can see how we got to where we are. Our original City Manager, Louis Gutierrez’s vision of restoring Tucson’s culture and heritage are still holding true. Withalmost $90m spent what do we have to show for the investment? We are doing pretty well with the museums, a rebuilt presidio, a rebuilt Fox Theater but not much economic engines that merited the 10 years of TIF financing.
PUBLISHED ON OCTOBER 28, 1999:
Yes On Prop 400
Take A Leap Of Faith On Rio Nuevo.
THE WEEDY ACRES of Rio Nuevo South are among this community’s most valuable treasures.
They sure don’t look it right now. In the last hundred years, a series of destructive enterprises from a brickyard to a gym to a supermarket to a landfill and a bus barn have sorely distressed fields that for three millennia were this region’s Fertile Crescent. The land curving around the foot of A Mountain nourished archaic period peoples as early as 2000 B.C. Hohokams lived here from about 700 to 1200 A.D., Spanish missionaries and Pima Indians arrived in the late 18th century, followed in the 19th century by Mexicans, Apaches, Anglos and Chinese, all of them attracted by the once-flowing waters of the Santa Cruz.
Voters now have a chance to make up for years of abuse of this world-class archaeological site.
Proposition 400, on the ballot November 2, would divert sales tax money to seed a long list of projects on both sides of the river. Plans include a museum complex and housing at the northern end of the Rio Nuevo tract and an outdoor multicultural and family park and restoration of native cottonwoods at the southern end. Over on the east side of the river, a Sonoran Sea Aquarium and a visitors’ center would go in, and a series of public improvements meant to attract a privately financed hotel and an IMAX theatre. Some money would go toward existing downtown museums too, the Tucson Museum of Art, the Children’s Museum and El Centro Cultural, and to the Fox Theatre rehabilitation. New bridges and a shuttle would connect the two riverbanks.
At the top of the list — and the best reason to vote for Proposition 400 — is the restoration of Rio Nuevo’s historic riches.
Prop 400 would divert about $9.5 million to Mission San Agustín del Tucson Cultural Park, and another $2.1 million for archaeological work on the whole tract. The long-planned outdoor park would re-create the Spanish-era San Agustín visita, or mission outpost, including its famed Convento, mission gardens and chapel, along with the 19th century Warner’s Mill and Carrillo house. The much-older Indian sites, including a honeycomb of 2,500-year-old pit houses, would be interpreted in some yet-to-be-determined way. Across the river, at Church and Washington streets, the Presidio, the Spanish fort that was the military corollary to the religious mission, would be re-created.
The Presidioand the river land both are key to what Tucson is now and how it came to be, and Tucsonans for years have talked about bringing them back to life. Yet never before has there been any money to pay for restoration. Now there is.
Prop 400 allows the city a one-time-only chance to hang onto some state tax money, during a 10-year-period, to help pay for the Rio Nuevo projects. Called Tax Increment Financing (TIF), the plan would allow the city to keep about $60 million in state sales tax dollars, money that ordinarily would go back up the road to Phoenix. As written by the state legislators, this gift to the city requires a match-up of Tucson dollars, to be gleaned from city sales taxes and about $1 million a year from the general fund over the 10 years. Thus the public funds freed up by the measure amount to about $120 million. The city could take out bonds against this future expected income to get started on construction; the estimates are that $80 million would go directly to the Rio Nuevo projects, about $40 million to debt service.
But the Prop 400 money alone is not enough to pay for it all. It’s seed money that would help generate grants and private donations. The non-profit museums, including the aquarium, a new Arizona Historical Society Museum, a Flandrau Planetarium metamorphosed into the broader Universe of Discovery, and a National Museum of the American West, would have to raise their own cash in a 2-to-1 or 3-to-1 match before they’d be eligible for the TIF construction money. Thus, though a positive vote would unleash $120 million in public money, the whole public-private project likely would release some $320 million into the downtown.
That’s a lot of cash, and a lot of projects. The sheer size of the thing has some critics worrying about a repeat of urban renewal, the disastrous 1960s juggernaut that leveled the city’s historic heart. This is different. Urban renewal deliberately erased the city’s oldest neighborhood, a Mexican-American barrio, and replaced it with a bland, all-American cluster of half-baked modernist buildings. The point of Rio Nuevo is to honor Tucson’s birthplace, its history and cultures. And there simply aren’t any residents to evict or houses to level on the empty tract; the only thing being pitched out is the bus barn, whose bouncing buses are by any measure a bad use of hallowed ground.
Plus, neighborhoods in Tucson have more power than they did in those long-ago days, as Menlo Park’s fierce — and effective — opposition to the earlier Daystar proposal for Rio Nuevo demonstrated. We can expect extreme vigilance of the unfolding projects not only from the neighbors, but from the smart professionals, including archaeologists, historians and hydrologists, on the Tucson Origins Task Force. The main mayoral hopefuls, Democrat Molly McKasson and Republican Bob Walkup, have likewise pledged to keep a watchful eye on Rio Nuevo. The development authority that will permit the projects one by one is headed up by architect CorkyPoster, who’s shown fidelity to Tucson’s history in such projects as the Stone Avenue Temple and the Dunbar/Springs School restoration, and Ruben Suarez, who has the virtue of being both a Menlo Park resident and a former city budget director. These two, and others on the board, will serve at the whim of City Council, allowing another level of checks and balances.
The current plan calls for a reasonable number of gift shops and eateries in the museum complex, and a Native American market in the multicultural park. Those are fine. But let it be known now and forever that Daystar, with its 768,000 square feet of stores and multi-screen cinemas, was a wildly inappropriate scheme, an insulting monument to consumerism that would have been the worst possible neighbor to the historic sites. Not to mention that it would have about killed the Congress Street retail district. A few politicians and business types are still grousing about the loss of Daystar, but it was so far off the mark that it’s inconceivable anybody who cares about Tucson could have supported it. Some things in life are not about getting and spending, and Tucson’s outstanding archaeological site is one of them. The mayor, City Council and city manager were absolutely right to reject Daystar, as well as a proposed Colonial Tucson theme park. Why build a fake one when you’ve got real historic Tucson right next door?
If City Manager Luis Gutierrez had to draw a crazy-quilt funding map to avoid putting the Daystar mega-mall at Rio Nuevo, then so be it. It’s fine by us if some portion of the future sales taxes from El Con and Park Place malls trickles back downtown. Far better to preserve the Old Pueblo’s heritage than to invest it on sprawl on the city’s edges.
And besides, maybe, just maybe, real things, like an archaeological park and quality museums, will finally bring the tourists and their dollars downtown. It’s easy to dismiss heritage tourism as just the latest buzz term in the travel trade but Tucson’s experience shows that it makes economic sense. A new study commissioned by the Tucson Pima Arts Council says that the city’s museums and cultural groups generated $245 million in economic activity in Tucson last year; it estimated that the new Rio Nuevo museums could contribute an additional $76.8 million annually.. Two of the most popular Tucson attractions right now, the Arizona-Sonora Desert Museum and Mission San Xavier del Bac, are authentic places that speak to the region’s ecology and history. Mission San Agustín delTucson Cultural Park, with its 3,000-year timeline of human habitation on a single, fertile spot and its splendid archaeological resources, could easily rival those two. It could be one of the best things that happened to Tucson in a long, long time. Maybe not as great as those first ears of corn planted along the river in 1200 B.C., but darn close.
Tax Subsidies to New and Old Urbanists – From Antiplanner.com
The subsidies mentioned in yesterday’s post about Denver were in the form of tax-increment financing (TIF). For those unfamiliar with the term, tax-increment financing is the principal method of funding urban renewal. An urban-renewal agency draws a line around an area to be renewed, and for the next twenty or so years all property taxes collected on any new improvements in that district — the “incremental” taxes — are used to subsidize the renewal program.
Usually, the agency estimates future tax revenues and then sells bonds to be repaid by those revenues. The bond revenues might be used for infrastructure such as streets, improvements such as parking garages and parks, or they might simply be given to the developer as seed money for the project.
There are all sorts of variations. In Colorado, a property-improvement fee (PIF) is a sales-tax version of TIF: some or all sales taxes from a retail development are diverted to subsidize the development. Some states use EAT, which allows new businesses to avoid sales, income, and other economic activity taxes. Texas has tax-increment reinvestment zones in which developers are simply rebated the property taxes paid on the new development.
Some planners are arrogant, or ignorant, enough to claim that TIF is not a subsidy because the development pays for itself. Yes, and if I got to keep twenty years’ worth of property taxes on my home, I could build a bigger house and claim it paid for itself. But someone else would have to pay for the sewer, fire, police, schools, and other services that my family uses. Make no mistake about it: TIF is a subsidy.
Like so many other questionable ideas, TIF originated in California in the 1950s. Today, every state but Arizona allows cities to use TIF. Go to Google news and search for tax increment and you will find TIF controversies all over the country.
In many, if not all, of these cases, the reason for the TIF is not that the neighborhood in question is blighted but that the city wants to see some new development that may eventually add tax revenues to its coffers. In some cases, the city would collect sales taxes on retail, thus covering its costs, while schools, fire, and other programs that rely on property taxes would suffer.
Many of the opinion columns I read about TIF say something like, “When properly used, TIFs can do good things.” Then they go on to say that a particular TIF that they find objectionable is not proper. Perhaps they don’t want to see TIF money going to Wal-Mart but wouldn’t mind TIF being used to attract a Trader Joes. Or perhaps they want TIF to redevelop someone else’s neighborhood but not their own. Often they debate about whether a particular area is really “blighted.”
But the problem with TIF is not that it is sometimes abused but that it is an open invitation for abuse. Even if you believe that government can and should do something about blighted areas, you cannot define blight narrowly enough to prevent government agencies from defining just about anything they want as blighted. In one famous case, San Jose declared a neighborhood blighted partly because the homeowners, one of whom was the local U.S. representative in Congress, failed to rake the leaves in their backyard tennis courts.
When you give cities the power to divert taxes from their usual recipients and into special slush funds for developers, you create a whole cascading series of moral hazards.
- The redevelopment agencies that manage TIF have little incentive to consider the impact on other programs. Screw the schools! We need TIF to enhance our budgets and justify our existence.
- Instead of simply curing blight, urban planners are tempted to use TIF to subsidize their visions of New Urbanism or whatever. Hey, we don’t have to worry about market feasibility anymore — we’ll just use TIF to bribe developers into building what we want.
- Corporations seeking to locate facilities being to shop for TIFs and other subsidies. If every city offers such subsidies, then the corporations simply locate where they want, and the taxpayers lose.
- Once local developers get a taste of TIF, they lose interest in doing any developments that are not subsidized. Why build an unsubsidized shopping mall or residential area that has to compete against others that are subsidized?
As one Kansas City mayoral candidate observed, cities and developers get addicted to TIF the same way that medical patients get addicted to painkilling drugs. “In economic development, we’ve come to completely rely on drugs,” he noted.
Moreover, there is growing evidence that TIF actually reduces long-run economic development and, in turn, tax revenues. One recent study found “evidence that cities that adopt TIF grow more slowly than those that do not.”
This could happen because, to the extent that TIF-subsidized projects compete against other businesses, they may harm those businesses and reduce the incentive for them to expand. As a recent study of TIF in New Orleans observes, “To the extent that other areas and businesses are negatively impacted, the existing revenue base of the local government is reduced.” For this reason, says the study, “it is exceedingly dangerous to view TIF as free money.”
Judged against all of these problems, the potential benefits of using TIF to recover blighted areas seem miniscule. Frankly, I don’t believe subsidies are needed to recover blighted areas. We’ve seen enough gentrification without subsidies to know that urban areas are dynamic and any blight is only temporary.
TIF often goes hand-in-hand with eminent domain, which is much more controversial partly because it is so much easier to understand. In most states, when an urban-renewal agency declares a neighborhood blighted, it can use eminent domain to force the sale of properties in the neighborhood. When it buys such properties, it probably uses TIF to finance the purchases.
Since the Supreme Court decision on Kelo v. New London, at least thirty states have passed laws restricting the use of eminent domain. But if we really want to stop urban-renewal abuses, we also need to repeal TIF laws.
Rare funding method sets Rio Nuevo tax area apart
Tucson officials want the Legislature to extend the special Rio Nuevo taxing district from 10 years to 40 to be like other tax-increment-financing districts around the country.What city leaders don’t tell lawmakers is, the Rio Nuevo district is unlike virtually any other district in the country.While the vast majority of tax-increment-financing (TIF) districts live off the increased property taxes from new development, Rio Nuevo is funded from sales taxes.Also, Tucson is one of the rare cases where state sales taxes are used. Those state taxes must be matched by the city with money or public projects.The district’s shape, with its Downtown core, where the money will be spent, and a tentacle stretching out to El Con and Park Place malls, where most of the money will be collected, is also a significant departure from other districts.“That’s very unique,” said Toby Rittner, the executive director of the Council of Development Finance Agencies. “Most are a single piece of property or are contiguous properties.”Rittner said it’s rare to attach tax-increment financing to an existing retail use that isn’t directly involved in the redevelopment project.Lifespan of tax districtsThe central argument behind the city’s push to extend the life of the Rio Nuevo district is most such districts last between 30 and 50 years, and the 10-year lifespan pitched to voters in 1999 is inadequate.Extending the district another 30 years will capture another $1.2 billion in state sales-tax money, the city estimates.But some experts on TIF districts said a 30- to 50-year life-span is stretching the truth. Most last in the range of 15 to 25 years, they said.Alex Iams, director of research and technical assistance for the Council of Development and Finance Agencies, said, “The typical length is 23 to 25 years” for TIF districts funded by property taxes.He said 25-year districts are typically for millions in TIF money, while 15-year districts are more for projects in the hundreds of thousands of dollars. Tucson’s sales-tax district is projected to bring in $124 million over 10 years.Professor Norman Tyler, director of the Urban and Regional Planning Program at Eastern Michigan University, said most districts start out in the 15- to 20-year range.He said many get extended because they are doing well, but he added that 30 to 50 years is an unusual length of time for a TIF commitment because the districts divert money from other parts of local governments into the redevelopment area.Sales-tax districts rareTIF districts funded by sales taxes are relatively rare, Iams said, noting they are allowed in only eight states and the District of Columbia. Of those, “only a handful allow for the diversion of state sales taxes.”Tucson was forced by state statute to create a sales-tax and not a property-tax district.“The reason a lot of states have shied away is because sales tax is a less reliable source of revenue” than property taxes, Iams said.He said a sales-tax TIF district that has been successful is in Denver, where a mix of sales and property taxes have been used to redevelop the former Stapleton International Airport site into retail and housing.A city fact sheet distributed to state lawmakers touts successes in Denver; San Diego; Fort Worth, Texas; and Memphis, Tenn., as areas with longer-life districts Tucson should emulate. But the fact sheet fails to mention those districts use property taxes heavily.Mary Okoye, the city’s lobbyist, said she didn’t see a problem with comparing Tucson to those other cities, despite the sales-tax-versus-property-tax differential.“I think it’s fair. It’s the same concept and the same mechanism. It’s just the funding that’s different,” Okoye said.City Manager Mike Hein said the city is bound by the state law to use sales taxes. If it were legal the city would have used property taxes for the TIF district, he said.Tyler said he understands why a city would want to expand the district into sales-tax-rich areas like El Con and Park Place, to capture the extra sales-tax increment, but said that’s not the intent of the TIF law.Rittner, who is also the head of the pro-TIF Tax Increment Finance Coalition, agreed it’s extremely rare to use the tax-increment financing from an existing retail use, instead of from the area that’s being developed by TIF money — especially if those malls lie miles away from the main improvement district.City officials don’t see the shape of the district as an issue.Okoye said Downtown Tucson doesn’t have a mass of retail from which to draw funding.“There’s no point in having a TIF district if you don’t get any TIF,” Okoye said.Rio Nuevo Director Greg Shelko said the malls were included by design so the city could capture as much sales tax as possible. If it was just Downtown, “there wouldn’t be a whole lot to capture,” he said.
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