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The Right Note: Caution TIFs Ahead

by Mark Kelly — January 17, 2013 at 3:00 pm 880 43 Comments

The Right Note is a weekly opinion column by published on Thursdays. The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.

GOP county board candidate Mark KellyA major source of opposition to trolley-driven development on Columbia Pike is that it will destroy the last corridor of market rate affordable housing in Arlington. Board Chairman Walter Tejada has cited this concern in the past as giving him pause about supporting the project.

Enter a tax increment financing district (TIF).

Earlier this month, Chairman Tejada announced he would seek a new TIF on Columbia Pike to create a fund for replacing affordable housing along the corridor. And, other Board Members voiced support for his 2013 agenda.

Just like that — a virtually done deal.

The TIF concept has been used by local governments across the country to finance pet projects for some time – Chicago has well over 100 of them — but it is a relatively new concept here in Arlington. The Board created the first TIF in Arlington in Crystal City, in large part to use as a financing mechanism for that portion of the trolley.

So how does a TIF work?

Essentially, Arlington County freezes the tax base of a defined area and dedicates tax revenue from that base to the general fund. The additional future revenue, or a percentage of it, is then earmarked to spend solely in that area, presumably with a pet project in mind.

The general fund, on the other hand, is used to pay for the ongoing county services we all use: schools, transportation, police, fire, parks, and other services. Absent future board action to reverse course, none of these priorities will receive consideration for future TIF revenue in either Crystal City, or presumably Columbia Pike, districts over the next 20 years.

Arlington needs to stop creating TIFs before the practice becomes ingrained in our way of doing business.

We have a long tradition of bringing funding projects through the traditional budget process, seeking public input. We also have a tradition of putting bonding authority before the voters. It is supposed to be the Arlington Way.

Our Board has already packaged bonding authority together to avoid straight up or down votes on big or controversial projects. For example, the aquatics center in November was voted on as part of a parks and recreation bond.

Our Board has already put the trolley on a path to be financed, at least primarily, by revenue bonds backed by the Crystal City TIF and commercial property tax surcharge. These bonds require no public vote.

The use of special interest TIFs to avoid future public debate, scrutiny, and up or down votes on such projects is a bad idea, plain and simple. It will not only avoid additional public input, but it will inevitably lead to higher tax rates for all of us. When schools, roads, public safety and other services face a squeeze in future budgets, the Board will tell voters they simply have to raise taxes to pay for it.

The County Board should not lock Arlingtonians into this fiscally irresponsible path.

Mark Kelly is a former Arlington GOP Chairman and two-time Republican candidate for Arlington County Board.

  • UA

    TIFs should be used to partially fund the Trolley, but you should never pay for affordable housing.

    New Arlington County employees (teachers, cops, firefighters) not currently making enough to live here should be giving a stipend to help pay for housing (if they are living in Arlington). They should be allowed to use that stipend (say $1000) towards any rental unit that they want and not force them into an Affordable. Markets work, if you leave them alone.

    • reality check

      If you go the County’s employment opportunities, you’ll see that entry level police officers – yup, there’s openings – make between $4,000 and $6,000 a month. Sixty thou, union benefits, and overtime pay sounds pretty good to me for a first job and not necessarily a college education.

      • Josh S

        This doesn’t mean that many local government employees would not struggle to find affordable housing in Arlington.

  • John Fontain

    Mark, thanks for the straight-forward and clear explanation of TIFs.

    If the County Board was really worried about retaining affordable housing, it seems to me the logical thing to do would be to stop pushing for a project (the streetcar) whose express purpose is to raise property values (and, therefore, the cost of living) along Columbia Pike.

    • The 1%

      Don’t develop the slums – where will the poor people live?

      • Arlingtonian

        Where would the poor people live? Southeast D.C., Route 1 in Fairfax County, Arlandria in Alexandria, Prince George’s County; lots of other places also accessible to Arlington by bus and/or Metro. There is no reason for Arlington to lower its tax base and tax its non-poor citizens to provide convenient affordable housing for the so-called “poor” (including illegal aliens), while many of Arlington’s residents commute to work in other jurisdictions.

  • Deadite

    Is it possible to have a modified TIF that would shovel a larger portion of Columbia Pike taxes toward financing the trolley but not ALL of their taxes? Why is it an all or nothing proposition? I have no problem with the people who will be using the service the most having more of their taxes directed explicitly toward the trolley (versus everyone paying for it equally when most Arlingtonians will never use it).

    • JohnB

      Yes. You can structure it pretty much any way you want to.

      • Deadite

        OK good. Because this part makes it sound like the next 20 years of tax revenue from Columbia Pike will go toward nothing but trolley upkeep:

        “Absent future board action to reverse course, none of these priorities (schools, roads, etc) will receive consideration for future TIF revenue in either Crystal City, or presumably Columbia Pike, districts over the next 20 years.”

        • JohnB

          Are you saying that a politician distorted reality by saying something that while technically true is misleading?

          I’m shocked, SHOCKED to find gambling going on in this establishment!

        • Josh S

          What’s more, it’s only the Incremental increase in taxes that is involved in a TIF. (Tax Increment Financing). So, if the county collects $1,000 this year without the TIF and $1,100 next year after the TIF is put into place, it’s only the $100 that would be spent according to the constraints of the TIF. Obviously, this becomes a bigger and bigger deal as time goes on (assuming rising property taxes over time).

    • spaghetti

      In that case, lets also create a TIF for those who live in the Ballston-Rosslyn corridor and those along the blue line in south Arlington.

      Those who live along Columpia Pike currently pay property taxes that help fund metro that is not anywhere near them.

      • Deadite

        Yes please! I have no problem – none – with my tax payments being weighted more heavily toward the services I use most commonly. Why would anyone have a problem with that?

        • Josh S

          Because it’s very impractical to try to implement. Also, there are certain services that must have a basic funding level even if you and many others rarely or never use them (fire fighters, hospitals, ambulences, etc).
          I like user fees myself.

  • JohnB

    It makes perfect sense to use a value capture mechanism like a TIF to fund a major localized infrastructure investment. It does not make sense to use it to subsidize housing. Mr. Kelly’s universal opposition to the use of Tax Increment Financing regardless of purpose is disappointing.

    • TIF

      Not really. If you believe that general tax revenue collected is to be utilized for the entire county in the form of roads, cops, etc. any attempt to slide a portion of that revenue collected via the TIF is reducing the overall ability to pay for all of the counties needs.

      In reality, the county will just raise taxes on everyone to account for the money drained off by the TIF to pay for a localized construction project that would have been collected but for the TIF. So, everyone’s taxes goes up.

      Second, having a TIF specificically for affordable housing is completely asinine. A TIF will cause landlords to raise the rent as they pass along the cost of the tax increase to their tenants. The money collected by the TIF will then be used to subsidize affordable housing. So, in reality, people could have afforded the rent but for the increase due to the TIF will need to apply for money from the government to pay the increase in rent that would have existed but for the government adding a tax.

      I wonder if they taught math in South America because Tejada clearly doesn’t understand it.

      • John Fontain

        TIF said: “In reality, the county will just raise taxes on everyone to account for the money drained off by the TIF”

        Bingo! Key point for our County Board to understand: Money is fungible. In substance, there is no difference between setting up a TIF and not setting up a TIF. Either way, citizens’ taxes must be raised to pay for additional government consumption.

        • Gilmer

          The thing I am concerned about is, I believe, the county by law has to have the same tax rate on commercial and residential property. If this TIF financing does not generate the desired revenue, any increase in tax rate will also be felt by homeowners. That does not sound entirely fair.

        • JohnB

          John,

          The primary purpose of a TIF is to create a dedicated revenue stream that can be borrowed against. Generally speaking you can get better interest rates on the debt that is needed to finance the project if there is a dedicated revenue stream. If the county can get the same rates on their general obligation bonds that they can get on bonds backed by the TIF revenue then there is no point to the TIF, but if we can save money by using a TIF then it is a superior financing option. Again, I am opposed to the use of a TIF to segregate revenue for the purposes of subsidized housing.

          • another guy

            The county can get much better rates on general obligation bonds than bonds backed by TIF revenues (since general obligation bonds are backed by the “full faith and credit” of the county, ie ANY revenues, not only a specific stream).

            A TIF district makes sense only to fund a project that will–by virtue of the nature of the project–increase the value of property in the district. The point of setting up a TIF district is to use the incremental increase in revenues generated by the project itself (because its existence has resulted in higher property values and thus property tax revenues) to finance the project. Since revenues from property taxes wouldn’t have increased without the project, it is essentially revenue-neutral for the county as a whole. That is why it works well for infrastructure (streetcar, metro, etc.)–because infrastructure will increase nearby property values. An affordable housing fund will not appreciably increase property values, and thus is an extremely stupid use of a TIF district.

        • Josh S

          Not exactly. A TIF can also allow you to build something today and use only money from the TIF to pay it for over time. So it’s only the new properties developed as a result of your investment that are used to pay for that investment. The overall tax rate does not necessarily have to go up for anyone.

      • Hank

        I wonder if they taught you geography wherever you came from. El Salvador is in North America.

        • Chris M.

          So close hank! Try one more time, maybe with a little less snark. http://en.wikipedia.org/wiki/Central_America

          • Hank

            Central America is not a continent. South America is.

          • Deadite

            Central America is not a continent. Per your own Wikipedia link:

            “It is the southernmost, isthmian portion of the North American continent.”

          • Chris M.

            Awwwww that’s cute. You do realize that it’s the region that matters and that no one in El Salvador would consider themselves “from” North America, right? Trying to squirm out of your wrong answer on a technicality. I’m guessing Layer. Hold that JD up High.

          • Deadite

            ^^ The defiant ramblings of a defeated man.

  • Confused

    Hmm, I live on the pike and pay $2,100 a month for a 1 + Den Apartment. That is considered “market rate affordable?” Just how rediculous will this trolley cause my rent to sky rocket?

    • Deadite

      He’s probably referring to older units which are relatively affordable by Arlington standards. If you pay $2100 for a 1+den on the Pike you must have a newer/decent place, and thus it’s not considered “affordable housing”, FWIW.

      • John K

        Trust, further west on the Pike, it’s a lot cheaper.

  • Gilmer

    I am not clear on this explanation of the TIF. Is the extra tax revenue that is calculated after this freeze/snapshot of property values used to directly fund projects, or is it used to payback bonds?

  • MC 703

    So do all you sillies who railed about the bias of ARLNOW feel extra silly? This isn’t Mr. Kelly’s first column. Sheesh.

    • MC 703

      ….left-bias after the anti-McDonnell column, that is

  • obamacrat

    TIF = taxes I’m for!

  • BIDs

    And what about BIDs? They seem to be very similar and great successes with a huge amount of support where they are located, Rosslyn, Ballston and Crystal City. I think you have to have something like 60% support before it can pass. People voting to tax themselves for the benefit of their community and their area is not really NEW here Mark.

  • CPiker

    I don’t mean this as an affront to people, but I am baffled by the concept that people have that affordable housing will stay in S. Arlington if we merely stop paying attention to it or stop trying to find solutions to traffic and zoning issues along the corridor. I’m shamelessly for nothing but the most gentrification possible along the Pike. And that will happen Streetcar or not. Land costs are low, zoning is favorable, and big checks written to some of the small businesses here and current land owners will have them packing their bags tomorrow.

    Do you really think that by not putting in the trolley you are going to slow the pace of progress along Columbia Pike?

    Do you really think that developers of market rate housing don’t look at Columbia Pike as a gold mine given the low cost of land relative to other areas and the ability to launch a bunch of density on a corridor that cannot handle its own traffic and repair currently?

    Look, development and density is coming to the Pike. The Streetcar is your 50 year answer. Your bus service is maybe your 10 year answer. Metro is your 50+ year answer, but it won’t get started or complete until 15 years from now.

    • JohnB

      +1

    • Suburban Not Urban

      Maybe it will – but to have every taxpayer subsidize a feature that’s only purpose is to accelerate what you are describing and hand a pile of money to the developers that the current pol’s in power owe favors to – doesn’t seem to be in any but a small fraction of the taxpayer’s best interest(along with the pol’s who get their campaigns funded and the developers who pocket what is effectively taxpayer money)

  • John Snyder

    In reality, the streetcar is needed to preserve affordable housing. The Pike Neighborhoods Plan allows property owners to add additional density over what is allowed now IF a substantial portion is committed as affordable. (The formula is much higher than with site plans.)

    Without the streetcar, that is not possible, because buses won’t transport that many people, and we don’t have room for the cars either. So without the streetcar, when the old buildings need renovation, the owner’s only choice is to renovate and charge market rate rents, much higher than the market rate rents we have so many places on the Pike now. That’s about $1B of affordable housing preservation that will not happen without the streetcar. It is also over $2B in new building value (the extra density), which will more than pay back the cost of the streetcar in tax revenue.

    Opposing the Pike streetcar is opposing affordable housing preservation on the Pike.

  • T

    Hunker in your bunker clutching your AK. Is there any community improvement that Mr. Kelly would support? The party of “no” has become a most destructive force at all levels of government. If the likes of Mr Kelly were in charge it is likely that neither Richmond Highway nor Columbia Pike would ever have been paved.

    • OldYeller

      Well, they would have been paved by the landed gentry as a way to get from their Richmond plantations to their lobbyists in DC. And of course they’d be toll roads.

      • Josh S

        +1

  • JeffB

    I’m sympathetic to substantive arguments against the streetcar (costs, flexibility, etc.) but when opponents use the word “trolley” to make it sound like a silly idea that should be dismissed out of hand then they loose me. It’s a substantive option and should be discussed seriously.

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