Love and worry over tax allocation districts
By Guest Columnist CAROLYN BOURDEAUX, director of the Center for State and Local Finance at Georgia State University
As a city of Atlanta taxpayer, I have a “love-worry” relationship with tax allocation districts (TADs): I love some of the projects that Atlanta has used TADs to finance, but I worry about whether we are keeping a close eye on the cumulative impact of this and other economic development finance tools.
The Center for State and Local Finance (CSLF) recently published a report examining the use of TADs in Georgia that shows some of the extraordinary growth and achievement of TADs, but the report also raises some worries: Most significantly, the worry that the city and other overlapping jurisdictions in the region are punching larger and larger holes in our property tax base.
Let’s start with the love.
Although the Atlantic Station development has struggled in recent years, as a tax allocation district investment, it has been pretty successful. The TAD was created in 1999. A classic “pay-as-you-use” TAD, the project issued debt backed by the anticipated increase in property tax revenues that would be generated by new development at the site. The debt was used to help remediate the Atlantic Steel brownfield, which in turn allowed the new development to go forward. The new development generated by this investment has caused the assessed value in this area to appreciate 7,399 percent! So far so good.
Similarly, the Camp Creek TAD in East Point, created in 2003, has seen assessed values increase by 14,573 percent; and in the adjacent Princeton Lakes TAD, assessed values have increased by 13,728 percent.
The BeltLine TAD has yet to register such staggering increases; however, I suspect most Atlantans anticipate that this project will be transformative, knitting together neighborhoods with its walking trail/bike path and eventually transit. The CSLF report estimates that in 2015 the growth in the incremental values of the BeltLine properties increased by 43 percent, and the TAD is likely to post another significant increase in 2016 — so the future is bright.
I, and most likely many of my fellow citizens, enjoy the fruits of these TAD investments, but a growing concern is the accumulation of multiple economic development strategies that may be creating a drag on the tax base.
The CSLF report points out that $3.9 billion of Atlanta’s citywide assessed value is now in a TAD (back of the envelope, roughly 15 percent of the $25 billion Fiscal Year 2015 digest). TADs only directly collect revenues from the growth of the digest over a base year amount. The base year amounts for the city TADs is valued at $1.4 billion. This means that $2.45 billion in digest value (or 10 percent) is tied up in supporting TAD investments.
Additionally, the report points out that many economic development projects in Atlanta are not using TADs but are instead seeking a form of tax abatement through another, much less regulated, form of financing granted through local development authorities. The authority gives tax breaks to developers by taking ownership of property as a public, tax-exempt entity, then leases it back to those developers at a discounted value, effectively extending tax breaks that typically run over a 10-year period.
While this practice has become commonplace in many communities throughout Georgia, Fulton County’s development authority has been so busy that in 2014 it apparently became one of the largest property owners in the city, at roughly 4.27 percent of total city taxable assessed value.
As with TADs, not all of this taxable value is lost from the tax base, but a portion is. A billion here, a billion there, eventually it all adds up. Unlike TADs, there is almost no documentation of the revenue foregone. Although the money removed from the tax digest is intended to stimulate economic development that presumably would not occur otherwise, if these projects generate more need for services than they cover with revenues generated, everyone else has to pick up the tab for the difference.
Further, these and other TAD projects need to be truly evaluated against a counterfactual, or the question, “would this development occur but for the investment public funds to support the project?” If this is not the case, then the public investment is a benefit that accrues to businesses with no real return to the public. The business would have made the investment anyway even without the public subsidy. Every mom and pop business (and really every household) that does not get a government subsidy is picking up the tab for the business that knows how to “play the game.”
Although the CSLF report ultimately doesn’t evaluate the effectiveness of Atlanta’s TADs, it does point to the need for our elected officials to have care: To regularly assess whether TAD-financed assistance or other economic development subsidies are actually needed; to reassess whether TADs are meeting their development purposes; to aggressively pay down TAD debt so the digest can be returned to the regular tax base; and to fold up non-performing TADs.
Additionally, given the increasing magnitude of various overlapping tax relief strategies being deployed, this report suggests to me that it may be time for jurisdictions in the metropolitan area to consider a local government tax expenditure budget, which would add up the cost of the various tax deductions, abatements, credits and exemptions. Then, we might have cause to be more secure in our love of economic development investments while knowing we are able to keep a careful eye on the costs.