I've been giving Madison's new Tax Increment District #1 a lot of thought this past week. On the surface, the TID feels like the sort of rich-guy welfare that I ought to lower the boom on. The city helps a private developer shave over $200K off his costs -- or, looked at alternatively, add over $200K to his profits. The new tax dollars from the housing development cover the loan and are rendered unavailable to city, county, and school district budgets for at least a decade.
Yet there are some reasonable arguments for this TID. The LAIC, our economic development office, has warned previously that Madison is short on affordable housing. Bringing jobs to town doesn't do as much good if the workers can't find places to live here and thus commute, taking most of their spending, tax dollars, and cultural commitment with them.
The TID also isn't exactly free money. It isn't a tax break: the developer, Randy Schaefer, will stay pay the full property taxes on whatever portion of the district he retains ownership of, including his strip mall. Through their taxes, the new homeowners who build on the lots east of the Schaefer Plaza will pay for the water, sewer, and street from which they directly benefit.
One question keeps nagging at me, though: Could Schaefer have gone ahead with this housing development without the TID? Plenty of other developers are able to put houses without assistance from the city; what makes this project different?
The city is designating tax dollars to cover a debt that is usually borne by the developer. Why would the city absorb the infrastructure costs for this development but not for any other private builder who wants to put up a house in a previously undeveloped area of the city? If the city has a compelling interest in expanding housing, shouldn't the city be willing to cover the costs for any builder who wants to put up a house?
Perhaps the difference is the "blight" designation. SDCL 11-9-8 requires a blight designation to permit the establishment of a TID. In Resolution 2657 authorizing TID #1, the city justifies the blight designation for this area:
The area described above consists primarily of bare unimproved land with one existing single family residence and commercial structures. Most of the area is open, undeveloped and because of inadequate site improvements and infrastructure, it remains undeveloped and substantially impairs the sound growth of the City of Madison and is therefore a blighted are as defined by South Dakota Law [City Commission agenda packet, 2007.11.19, p. 54].By that definition, couldn't any bare patch of ground qualify for similar public assistance? My wife and I built a house two years ago on open land with no street or lot layout, no public road access, inadequate water and sewer infrastructure, and not even a nice restaurant, video rental store, or insurance agency next door. Our development has certainly improved the value of the land; should we not get to apply a portion of our property tax bill toward our mortgage?
One more thing we should watch for: one of the selling points of the TID was that this development will provide "housing for low to moderate income individuals or families" ["City of Madison Tax Increment District 1: Tax Increment Plan," agenda packet, p. 60, point IV]. The plan projects tax revenue from each single-family residence at just under $2300. That's $500 more than the tax revenue generated by our $100K house. Just how low-income will those low-income houses be? Will a typical teacher be able to afford a house in TID #1? It will be interesting to see just how true to its promise of "affordable" housing TID #1 will remain.
Madison can use more housing and better housing. But does a TID serve that purpose more than simply cutting costs for a private developer? Your comments, clarifications, and complaints are welcome.
Welfare for the wealthy. Randy Schaefer must need the money. Who else would develop that low area if it was given to them.
ReplyDeleteHe bought the 6 acres of land from the City with Russ Olson's LAIC help for $155,000 after the City paid $150,000 to Dick Wiedenman and added $150,000 worth of fill gravel to level it.
He sold Dr. Evans a space for about $200,000, he sold Verizon two spaces for about $250,000, sold the 2nd Street Diner some land for $60,000, sold his storage units for $150,000 and he still owns the Movie Guy space, Direct Check space and his own insurance office space, worth an additional $600,000,plus his vacation home in the Hills.
The City should look at this again. This does not look good. It does seem like welfare for the wealthy.
Well, if I were a developer in town, I'd be at the next commission meeting and ask for my own TID. If it's good enough for one guy, it should be applied to the rest equally.
ReplyDeleteIt's an option for everyone, but also comes with a risk. The ultimate reason behind the TID is to provide the most affordable housing possible. At the city meeting, Schaefer said that without the TID it would cost more to develop the houses. He's taking advantage of an opportunity that's there. Other developers haven't, but they could always do so in the future.
ReplyDeleteOne thing to remember, however -- as the city also found out during the same meeting -- even though the city isn't obligated to pay the money leveraged for the TID loan, it goes toward the city's total funds available for financing projects (which is very close to being maxed out)
anon3 is correct the TIF counts against the City's debt limit.
ReplyDeleteAnon 4 wonders if this is the same Randy Schaefer (Mr. Schaefer) who taught school and coached for a short time at Hitchcock, SD about 24 years ago.
ReplyDeleteCan't say for sure, Anon4 -- Mr. Schaefer is a mid-80s DSU grad with a B.S. in education, so he may have taught somewhere. If so, I note again with mild wonder how many teachers end up selling insurance.
ReplyDelete