New worries arise over tax increment financing
Friday, November 15, 2019 by Jo Clifton
Council members approved a resolution Thursday directing the city manager to bring them a plan for financing two Capital Metro Red Line rail stations in north Austin, one at McKalla Place and one at the new Broadmoor development. However, several Council members expressed unease about using tax increment financing, a vehicle the city has used four times in the past to raise additional funds for infrastructure projects.
Council members Alison Alter, Greg Casar and Jimmy Flannigan and Mayor Pro Tem Delia Garza expressed various concerns about using money raised through a TIF on this project as well as others. However, Council unanimously approved the resolution brought forward by Council Member Leslie Pool, whose district includes both stations.
Tax increment financing is a way for cities to capture revenue from growth around a project, such as a rail station. When the TIF is created it covers a certain area known as a tax increment reinvestment zone. The city looks at the value of property within that zone to set a baseline. Assuming that taxable values increase within the zone, the city is able to take the taxes above the baseline and put them into a TIF fund. In this case, if Council ultimately approves a TIF for these areas, the extra tax money generated within the zone would help fund the rail stations.
Alter said she hoped Council would seriously consider “options other than TIFs. We have to be really careful to avoid earmarking our public funds without understanding the down-the-line costs. If we don’t take that tax money for our General Fund, our General Fund will be missing money that it needs to cover expenses, and we know that we’re going to be struggling to get enough General Fund money with the revenue caps moving forward. So I support investigating how we can fund this, but I would like us not to rely too heavily on a TIF or TIRZ.”
On numerous occasions, Council has expressed extreme worry about how the city will continue to pay for services under the 3.5 percent tax cap imposed by the Legislature during the last session. However, the point of a TIRZ is to take funding spurred by growth and put it back into the same area to encourage more growth.
Casar said he wanted to see a more comprehensive plan of how the city would help with funding, not just the Red Line, which currently exists, but also with the proposed Orange and Blue lines.
Garza, who serves on the Capital Metro Board of Directors, said the issue of funding the McKalla Place station came up during negotiations over the soccer stadium, “and my office worked really hard with the team to try to get as much investment as possible.” She expressed regret that they had not gotten more investment.
Attorney Richard Suttle, who represents the MLS team Austin FC, which is leasing the stadium, told the Austin Monitor the lease requires his client to contribute $640,000 for what he called an “enhanced bus station,” plus $3 million over a 15-year period for the rail station.
Pool told her colleagues she wanted to make sure that the zone for the tax increment financing would be as small as possible and last for as short a time as possible. City Manager Spencer Cronk is tasked with reporting staffers’ findings on the best way forward in early 2020.
Council also approved Pool’s proposal to ask the city manager to study what types of agreements the city might enter into with the Red Line Parkway Initiative. The initiative envisions a 32-mile stretch of hiking and biking trails along the Red Line.
According to the city’s Public Information Office, the city’s four tax increment reinvestment zones include Mueller, created in 2004; Waller Creek, created in 2007; the Seaholm TIRZ, created in 2008; and the Second Street TIRZ, created in 2000. Unlike the other zones, the Second Street zone receives $100,000 per year from the General Fund to pay for public plazas, streetscapes and other public improvements constructed and installed by the city within the zone. It is slated to end in 2029.
The Mueller TIRZ, which supports perhaps the city’s most successful development, is used for debt service and associated costs for bonds issued to finance the redevelopment of the 700-acre site of the former Robert Mueller Municipal Airport. The Public Information Office notes that “the TIRZ is one piece of financing, in addition to developer financing, that supports the overall, competitively procured Master Development Agreement …. This TIRZ is set to end on December 31, 2045, or when the debt is retired. With a base taxable value of $0, due to the airport site having been city-owned, the zone now encompasses $1.4 billion in taxable value, all of which is captured for purposes of the TIRZ.”
The Waller Creek TIRZ has a base taxable value of $237 million, but the zone “now encompasses over $1.3 billion in taxable value, of which $1.1 billion is captured for purposes of the TIRZ,” according to the Public Information Office, which states that this TIRZ will expire in 2041.
The Seaholm TIRZ has “a base taxable value of $6.6 million,” but the taxable value of the zone is now grown to “more than $309 million in taxable value, of which nearly $303 million is captured for purposes of the TIRZ.” This zone is expected to end in 2043, or before then if its debts are paid off earlier.
Photo by GPA Photo Archive made available through a Creative Commons license.
The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.
Join Your Friends and Neighbors
We're a nonprofit news organization, and we put our service to you above all else. That will never change. But public-service journalism requires community support from readers like you. Will you join your friends and neighbors to support our work and mission?