Would a TIF Make Sense for Georgetown Park?

Photo by Mr. T in DC.

Buried halfway through this week’s Current, the paper ran an article reporting that both Mayor Vincent Gray and Council Chair Kwame Brown believe it might be a good idea to use tax incremental financing to lure a high end tenant to the mall.

Tax incremental financing (or “TIF”) is a process whereby the city issues bonds to raise money for a particular project. Typically this involves giving the funds to a private developer. A portion of the taxes from the project that gets funded by the financing are directed towards paying off the bonds. The idea is that the city will take the taxes that arise from the incremental increase in property and/or sales taxes from the now improved property to pay back the money.

The city has used TIFs in the past. For instance, the city used a $74 million TIF to help the Gallery Place development along. It used a $46 million TIF for the Madarin Oriental hotel. And it used a $7 million TIF for the Spy Museum. Each of these projects was successful and they even paid off the bonds ahead of schedule.

But TIFs only work when there’s an increment to be found. In other words, they work when they’re used in areas that will likely see a big improvement from the public investment. If there’s no increment, then the only way to pay off the bonds is to cut into the taxes that would arise from the property without the public financing. In that case all you’ve really done is give free public money to a private developer.

The pitch that the Current article made was that if there’s no TIF for the mall, then Vornado won’t be able to land Bloomingdale’s and will instead lease to a store like T.J. Maxx. So, the theory goes, the “increment” of having a Bloomingdale’s instead of a T.J. Maxx is enough to justify a TIF for the mall.

The twist with this proposal is that a part of the incremental tax proceeds (i.e. the difference in sales taxes that Bloomingdales would pay over T.J. Maxx) would be directed to tax breaks to attract retailers to less established retail districts in DC. Chairman Brown called this a potential “win-win”.

This is completely backwards.

If the District wants to get into the TIF game again, it should be directing the TIFs to those less established areas, not the mall. That’s where there will be an actual incremental increase in value; and that’s where we’ll get much more bang for our buck. If Vornado, which owns the mall, can’t put together a package to attract Bloomingdale’s with its own resources, then so be it. Maybe that means they and their partners paid to much when they bought the mall at auction last year. That’s not our fault.

Listen, GM doesn’t want a T.J. Maxx to move in to the mall, but using public funds to help attract one tenant over another is unacceptable. And it’s shameful that the Mayor and the Chairman are even thinking about such a ludicrous proposal.

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9 Comments

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9 responses to “Would a TIF Make Sense for Georgetown Park?

  1. J.

    There would be a significant tax increment created by filling a vacant shopping center – both property and sales tax receipts would increase. The downtown TIF bucket was tapped recently to fund the buildout of the Hamilton in vacant space – same concept would apply here.

    I am just not sure if there is any TIF capacity available for this project – and I’m very doubtful that given the current political situation, any project west of the river is going to get anything that could be viewed as a public subsidy.

    One point regarding the finer points of TIF: Successful TIFs are never sized at 100% of the projected increment – rather, extremely conservative assumptions and inflated coverage ratios are used so as to protect against the situation you describe. DC TIFs have been generally successful due to this conservatism.

    See the Kansas City Power & Light District for what happens when TIFs are not sized properly.

  2. RobRob

    “There would be a significant tax increment created by filling a vacant shopping center – both property and sales tax receipts would increase.”

    True, but isn’t that an artificially low baseline? To make that case, you’d have to argue that without TIF, *no one* would move into the mall. If TJ Maxx (or something similar) is a viable option, then that’s the real baseline.

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  4. Jim

    Anyone hearing that it may be Eataly? A person, who should be in a position to know but is bound by confidentiality, said to me that the space would be “more dining and food-oriented than traditional retail”.

  5. Jim Lee

    Georgetown is a net revenue generator for the city and a TIF that benefits Georgetown is a sound investment.
    Sales tax and property tax revenue originating in the Georgetown Historic District significantly exceed of the City’s cost of operating Georgetown. Revenue from Georgetown is a major contributor to the city budget and as a result, improvement that benefits the retail base in Georgetown is a good investment.
    Georgetown Park Mall is functionally obsolete and needs to be fixed. Vornado is working to fix this problem and the correct solution will “raise all boats” in Georgetown. Specifically, the city will receive more sales tax revenue from all the stores and more property tax revenue resulting from higher property values driven by higher rents that come from stronger sales in a more vibrant retail market in the Georgetown Historic District.

  6. RobRob

    Sorry Jim Lee, the idea that the city of Washington has to pay a real estate developer to develop real estate in Georgetown is ludicrous. This would be a terrible investment of public money.

  7. Jordan S

    I had the idea that TIF was geared toward the payment of infrastructure, i.e. parking, underground utilities, etc.. Where does attracting a higher paying tenant fall under this category? The purpose of the TIF is to incentivize developers to develop in areas that would otherwise be very difficult to do so. They may even need to meet a ‘but for’ test, proving that without the TIF the project would not be feasible. It is basically an economic revitalization tool (hence the establishment of a TIF District), and last time I rolled down M Street, the last thing on mind was the need for revitalization.

  8. Jay

    I have to agree w/ Jordan and Jim L. on this. TIFs are supposed to be used to improve a less desirable area of the city and subsequently, with the additional tax revenue generated to the city, the result of higher property taxes due to the TIF, fund city projects and improvements. If I were a property owner in Gtown already paying high property taxes, I’d be outraged not only by the higher taxes a TIF would bring b/c of a higher paying tenant in the area – a tenant, which btw, isn’t paying my mortgage, that may or may NOT benefit my property – but also knowing that the additional tax revenue would be used for city projects and improvements outside of Gtown as indicated by the Mayor’s and the former Chair’s potential support.

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