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industrial development board

TIF for Woodland Town Center?

People are talking — and asking me lots of good questions — about the proposed Tax Incremental Financing (TIF) plan for the development of Woodland Town Center on South Illinois Avenue. I have some questions, too, but I can share some information and thoughts.

Decisions are coming up fast: The Oak Ridge Industrial Development Board holds a public hearing Monday (12/5) at 4 pm (not my notion of an ideal time for a public hearing) at the Oak Ridge Chamber of Commerce. Approval also is needed from both Oak Ridge City Council and Anderson County Commission. City Council addresses it on Monday, December 12 (7 pm at city hall) and County Commission expects to vote on Monday the 19th.

If approved, this will be Oak Ridge’s first TIF. A TIF is a development incentive, similar to a property tax abatement, but with features and restriction that (in my opinion) make it a better deal for the public than the tax abatements that Oak Ridge has used in the past. The idea is that the increased property tax collections resulting from a new development are designated to pay for public improvements to be built in the development area. The city (through the Industrial Development Board) would borrow money to construct improvements in the development area, and any increased property tax revenue from a defined TIF district would be dedicated to paying off that loan. When the public improvements are fully paid for, the property taxes go into the public coffers. As with a tax abatement, there are clear benefits to the developer.  Unlike a tax abatement, there is an explicit contract-type arrangement that sets out both the costs of the TIF and the benefits the community is supposed to derive from it. Also, Tennessee law requires that any TIF  be specifically approved by the governing bodies of the affected local governments (in this case, both city and county) whose property taxes would be dedicated to the TIF. (In contrast a city could establish a tax abatement that affects both city and county property tax without any county say-so — or a county could do that to a city.) I see TIFs as preferable to tax abatements because of greater transparency, the requirement for a public purpose, the clear definition of public costs and public benefits, and the requirement for approval by the elected officials of the affected local governments. Also, they don’t put property owners in the ticklish position of having to deed their property to an IDB (notably, the developers of the Holiday Inn Express that’s now under construction had to relinquish the abatement it had negotiated because it was preventing them from getting a needed loan).

This proposed Woodland Town Center development, between South Illinois Avenue and South Purdue Avenue, across from the former Dean Stallings car dealership, was approved and rezoned as a planned unit development a couple of years ago. Although it’s on the edge of the Woodland residential neighborhood, residents seemed pretty comfortable with the proposal because the developers have been sensitive to their concerns. The developers acquired several properties and took down the houses on them, but the development stalled with the bad economy. Now Panera Bread wants to move there in order to have a bigger location and more parking (Panera is very popular in Oak Ridge) and Aubrey’s Restaurant wants to establish an Oak Ridge location. Those two restaurants would occupy about half of the buildable land in the planned Woodland Town Center area. The TIF district would include the entire Woodland Town Center area plus some nearby properties along South Purdue and the former Dean Stallings dealership.

As people  have read in the newspapers, the public improvements to be funded by the TIF are removing the part of Quincy Avenue between S. Illinois and S. Purdue, building a new road between Illinois and Purdue that would connect up with Phillips Lane (a short cul-de-sac) on the north side of Purdue, installing a new stoplight on Illinois at the intersection with the new road (which would serve as the entrance to Woodland Town Center), storm drainage improvements, and some electric infrastructure. These clearly benefit the development, but I also see some direct benefits for the public at large. The road relocation should mostly eliminate the use of Quincy Avenue as a fast cut-through across the Woodland neighborhood — a benefit to that neighborhood. The storm drainage improvements are needed to correct chronic flooding that affects residents on South Purdue near Quincy. Additionally, the whole package benefits all of us by helping to ensure a higher-quality development than we might see if the developer and the restaurants had to foot the whole bill for the infrastructure supporting their project. I’ve heard from residents who are dismayed by the idea of another stoplight; it bothers me, too, but I’m afraid that it’s inevitable.  I keep hoping for an “intelligent system” to control the series of stoplights on South Illinois to help traffic flow more smoothly — not only to reduce drive aggravation, but also to make it easier for people to get to these businesses.

City staff has estimated the overall TIF cost at $605,000, and they estimate that combined city and county property tax collections would increase by $46,000 per year (split 50-50 between city and county, including $6,000 in tax on “personal property” of the businesses) as a result of the two restaurants, which means it could take 20 years to pay off the TIF.

People ask me if a 20-year payoff is a good deal for the city and county. I can’t say for sure because I can’t predict the future, but I’d be surprised if it took nearly the full 20 years to pay this off. Staff estimates $4 million private investment in the project. If that full investment got reflected in the tax assessor’s appraisal (it probably won’t), I guesstimate that it would yield twice as much property tax as they are projecting, so I am pretty sure that staff is lowballing their estimate of taxes in order to be on the safe side. Furthermore, if the rest of Woodland Town Center gets built or there’s new development on the Dean Stallings site, property tax from those projects would help pay off the TIF faster.

Staff also estimates an additional $165,000 in “direct and indirect” local sales taxes to city and county each year, over and above what Panera collects  now, which sounds like a valuable thing for the city ‘s coffers. I’m not entirely clear, owever, on how much of that sales tax goes to city vs. county vs. schools, and I don’t know what staff assumed to come up with that number. I want to know more about what they are assuming, because I want to make sure it makes sense.

Other questions I’m hearing:

* Why involve the IDB? It’s my understanding that state law authorizes IDBs to “do” TIFs, but they aren’t allowed for city governments, but I want to verify this.

* What risk do the IDB and city face if tax collections aren’t high enough to pay the TIF bills? I’m not sure — this depends on the form of the security that must be pledged to obtain the loan. Attorney Mark Mamantov explained TIFs to City Council a few months back; if I remember correctly, he indicated that the lender assumes most of the business risk on these deals.

* Why can’t the city insist that these restaurants locate in some of the vacant buildings we have here in town? In general, a government can’t tell businesses where to locate (at least not in the United States) — and it does seem that the two restaurants were attracted to this particular site by the developers’ conceptual plans for the project.

* What will happen to the building where Panera is now? I hope it will be reoccupied quickly. Panera has done very well there, so the location should be attractive to another eatery.

* How will this affect the value of other property nearby? The conventional wisdom is that this project should boost the value of unoccupied commercial property close by. Interestingly, I’m told that it’s also likely to increase the property-tax assessments of other commercial property. I hope it doesn’t inflate the already-too-high asking prices of some of the properties that are currently being offered for sale or lease — excessive prices seem to be one reason why some sites in town are chronically empty. I’m told that it should not affect the tax assessments for residentially zoned property in Woodland. However, there may be some adverse effect on value of the houses closest to the development. That adverse effect can be minimized if the developer does a good job of screening the property to reduce its effect on the neighbors — and for some residents, being close to attractive commercial businesses is a plus.

* Why is the Dean Stallings property part of the TIF district? The new stoplight would improve access to the Dean Stallings property, and could even allow development of a road to connect to undeveloped land behind it.  Because the Dean Stallings property could directly benefit from the TIF improvements, any increased tax revenue from its future use is legally eligible for use in paying for those improvements.

* If the project pays off early, can the tax revenue from the TIF district be used on another project in the district instead of being added to city and county funds? I don’t believe revenues could be diverted to new uses without approval of a new TIF, but this is something I need to know more about.

*Doesn’t subsidizing these two restaurants give them an unfair  advantage over existing local competitors? Maybe… The restaurants will not directly benefit from the TIF improvements, as those improvements will only build the kind of infrastructure every business needs. In general, however, locally owned restaurants (which I generally prefer over chains) are at a disadvantage compared with chains, as the chains (even a fairly local chain like Aubrey’s) have access to more management know-how, as well as high-visibility advertising that builds brand awareness. However, the conventional wisdom says that when there are several restaurants located in the same area, they all benefit. I believe that — if the restaurant where I wanted to eat has a long line or is unexpectedly closed, I like knowing that there are other good options nearby. More restaurants in Oak Ridge increases the chance that people will choose to dine here, particularly in the evening.

* Aren’t TIFs supposed to be used to help with development of brownfields, low-income areas, and urban redevelopment areas? It is true that TIFs were originally conceived (this was decades ago) as a way to help facilitate development or redevelopment of areas that could be described as “social challenges”. The concept has been adapted for other situations over the years, so that’s no longer true. Also, the TIF rules vary a lot from state to state.  In the future, I think that Oak Ridge could use TIF arrangements to help make good things happen in older commercial neighborhoods like Grove Center and Jackson Square.

* How will this affect the “City Center” (former mall) property? I can’t say, but I think this development is close enough to that property that the City Center would share in the general benefits to local business that are expected to result from this new development.

* Why would the City subsidize restaurants, since this kind of business that doesn’t generate high-paying jobs? It is true that the 100-plus jobs expected to be generated by this development are mostly fairly low on the pay scale, but job-generation is not the only purpose of economic development. Retail centers are important to residents and visitors,  the sales taxes they generate are an important source of local revenues, and there are plenty of people who would be happy to get those jobs.  Also, comparative statistics indicate that Oak Ridge is unusually well supplied with good-paying “primary jobs”, but it lags in offering the kinds of retail opportunities and eating-and-drinking opportunities that help convince well-paid workers and their families to live in a community. Most of the people I talk with would like the city to have more of these kinds of businesses.

What questions have a missed? What else should I be thinking about? (Please comment below!)

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