By David Pendered
In 2004, a research paper from Georgia State University outlined risks associated with the funding mechanism of the public amenities along the Atlanta BeltLine. It foretold the type of conflict that’s occurred between Atlanta and Atlanta Public Schools.
The paper raised a specter that was barely mentioned as Atlanta, APS and Fulton County approved a special tax district around the BeltLine – an economic downturn. Here’s a pertinent section of the paper:
- “In general, most of the risks inherent in tax increment financing stem from the gamble of using a financing stream based on yet to be realized future increases in the value of property tax revenues. Both economic problems and policy changes can reduce the amount of property taxes collected and put the debt in jeopardy. The risk to issuing jurisdictions is default and the subsequent need to intervene to cover debt payments….”
This is what happened in the case of Atlanta’s payments to APS. The contract the two entities signed did not provide a release valve in the event of an economic catastrophe.
The city has now spent money from its general fund to cover a debt incurred in only a portion of the city. This debt was to have been paid by property taxes on new development along the BeltLine. However, had the city defaulted by not dipping into the general fund, Atlanta could have breached the contract and been subject to financial penalties, according to the discussion at the Thursday meeting of the Atlanta City Council’s Finance Committee.
The discussion was prompted by an allegation by Atlanta City Councilmember Felicia Moore that Mayor Kasim Reed’s administration has violated the city charter by spending money without council approval. City Attorney Cathy Hampton responded that the charter was not violated and no law was broken. The committee took no action.
Incidentally, tax increment financing is the same mechanism used in tax allocation districts, or TADs.
The GSU paper notes:
- “TADs may also require use of risky investment tools, may create equity concerns, and may become costly to taxpayers if the new development prompted by a TAD does not produce the anticipated tax growth….”
At the time BeltLine Tax Allocation District was being created, the question for policy makers wasn’t if development would come to the BeltLine. The question was how to ensure development was balanced around the entire Emerald Necklace, and not occur only along what now is the Eastside Trail.
The concept of TADs has been around since the 1950s. TADs work by freezing the amount tax revenues governments collect from the district. Taxes generated by new developments in the district are used to pay for public improvements such as parks, trails, art exhibits – the things that folks love about their BeltLine experience. The new tax increment doesn’t help pay for city services such as public safety.
However, the paper notes that not much was known about how TADs play out over time. Nonetheless, Atlanta had created 11 TADs in the previous five years to fund projects including Atlantic Station.
As the paper’s executive summary notes:
- “The sudden surge in popularity of this economic development tool [TAD] generally has not been accompanied by any systematic assessment or set of policies to guide their evaluation or their use.”
The authors were Carolyn Bourdeaux and John Matthews.
Bourdeaux now serves as director of the Center for State and Local Finance at Georgia State. Matthews now divides his time teaching at Georgia State and Georgia Tech.
The paper prescribed a number of policies to hedge against risks, including an economic downturn. Atlanta didn’t implement any of the recommendations.
Here are eight risks the paper identified:
- “Public land acquisition in a TAD, reducing the amount of taxable property;
- “Project failure, downsizing, or delay;
- “Private sector firm failure;
- “Economic downturn;
- “Default on property tax payment by major property owners;
- “Changes in law or policy increasing tax exemptions or abatements;
- “Unanticipated successful assessment appeals;
- “Natural catastrophe.”
Even if some had been included, in the BeltLine TAD, they likely wouldn’t have staved off the depth of problems created by the Great Recession.
That’s because the slowdown was so great that the relief measures may not have covered the difference.
The four main policies the paper cited that are intended to address an economic downturn are:
- “Back property tax based TIF debt with sales tax increments collected within the TAD (recently permitted by State of Georgia). Sales taxes, however, tend to be volatile and are reduced during economic downturns (as is the case now [in 2004]).
- “Back [TAD] debt with all property tax revenues collected in the [TAD] district. In Georgia, this requires a finding that the incremental taxes will be insufficient.
- Expand the size of the [TAD] district to encompass non-blighted properties and/or properties that are highly likely to appreciate.
- “Annual reassessments to capture appreciation in property values.”