Proposition 2 would not prevent future Domain-like deals

Katherine Gregor makes several good points, but this one deserves emphasizing:

Of course, exempting TIFs from Prop. 2 doesn't make much sense. Tax increment financing allows the city to contribute new increments of property-tax revenue (and by more recent state law, sales-tax revenues) to help pay for the infrastructure needed by a development. If a property that used to yield $1 million in tax revenues now yields $3 million, due to redevelopment, the extra $2 million is "tiffed" to pay off the project costs. So a TIF can help developers make projects with retail economically viable by contributing city property- and sales-tax revenues – exactly what Prop. 2 otherwise rejects.

This is a critical point, and one that has gotten lost in the debate.  Proposition 2 would not prevent the City from making large-scale, incentive-laden, Domain-like deals in the future.  Proposition 2 would affect smaller projects for which the cumbersome TIF bureaucracy is impractical.   Affordable housing "buy downs" in a single VMU development, for example.  Or small infrastructure projects intended to encourage better urban design.  (The amendment does not exempt all infrastructure spending, as some proponents imply; the amendment forbids spending on infrastructure "suitable to serve the improvements and uses intended by the developer or owner of a Retail Use benefited thereby" -- i.e., exactly the kind of infrastructure spending the City might offer as an incentive.)

I don't like being out-wonked, so let me briefly explain the unlimited array of incentives authorized by TIFs.

When the city authorizes a Tax Increment Financing district, it creates a specific fund that holds the incremental tax revenue generated by the development.  The fund can capture either incremental sales tax revenue or incremental property tax revenue.  

The statute authorizes the tax increment fund to "pay project costs for the zone"[1].  The statute broadly defines "project costs" to include:

1.  "capital costs, including the actual costs of . . . new buildings, structures, and fixtures";[2}  
2. "the actual costs of the acquisition of land";[3] 
3. "real property assembly costs";[4]
4. "relocation costs";[5] and 
5. "payments made at the discretion of the governing body of the municipality or county that the governing body finds necessary or convenient to the creation of the zone or to the implementation of the project plans for the zone."[6]

Number 5, in particular, is broad enough to authorize virtually anything.

Another provision authorizes the TIF's board of directors or the city to "enter into agreements [AC:  i.e., deals with developers] as the board or the governing body considers necessary or convenient to implement the project plan and reinvestment zone financing plan and achieve their purposes."[7]  The agreement "may during the term of the agreement dedicate, pledge, or otherwise provide for the use of revenue in the tax increment fund to pay any project costs that benefit the reinvestment zone[.]"[8]

Although the charter amendment would bar tax abatements, none of the above is a "tax abatement."  The statute provides for tax abatements separately; abated taxes aren't even considered when calculating the tax increment.[9]  (By the way, the prohibition of tax abatements may very well be preempted:  the statute provides that "[t]o the extent of a conflict between this chapter and a municipal charter, this chapter controls."[10])

In short, the TIF statute authorizes oodles of incentives.  Although the City technically might not be able to offer sales or property tax abatements, that's just semantics -- it could offer equivalent deals.

Proposition 2, perversely, would allow the City to strike the type of deal that so agitates Proposition 2 supporters while clamping down on the kinds of incentives that Austinites broadly support.  Proposition 2 supporters who believe the charter amendment would handcuff City Council are simply confused. 

[1]  E.g., Tex. Tax Code s. 311.0123(e)(2). 

[2]  Tex. Tax Code s. 311.002(1)(A).

[3]  Id.

[4]  Tex. Tax Code s. 311.002(1)(C).

[5]  Tex. Tax Code s. 311.001(1)(F).

[6]  Tex. Tax Code s. 311.001(1)(K).

[7]  Tex. Tax Code s. 311.010(b).

[8]  Id.

[9]  Tex. Tax Code s. 311.0125(d).

[10]  Tex. Tax Code s. 311.018.

Comments

[Gritsforbreakfast]

"Proposition 2 supporters who believe the charter amendment would handcuff City Council are simply confused."

I assume, then, that Prop 2 OPPONENTS who make the same claim are either confused or disingenuous? My guess is the latter.

For the most part, it's the Mayor and Prop 2 opponents who I keep hearing say the amendment would "handcuff" the city.

[AC]

Prop 2 supporters offer two justifications: (1) We want to kill the Domain deal; and (2) we want to prevent future Domain-like deals. I hear (2) more often than (1). Whenever someone argues the anti-subsidy resolution on the books today is not good enough, he or she is invoking (2). I bet most of the people who will vote for Prop 2 believe they'll be putting an end to Domain-like deals once and for all.

They will not. Prop 2 won't prevent the city from striking the splashy, subsidy-laden, greenfield-redevelopment deals because these can be handled through a TIF. Prop 2 will prevent the city from offering financial incentives to mixed-use developments that are too small or otherwise impractical for a TIF. So, yes, Prop 2 will handcuff the city, but not like its supporters think.

[don johnson]

Where are all these "small" developments getting help right now? The ones you are concerned will lose out if Prop 2 passes?

We really need to stop with the government subsidies anyway. Remember the Intel Building? What about the Dell plant closing in Round Rock. Didn't we lose that one to RoundRock over subsidies? Is it a good long term strategy?

I'm voting for it. I heard the guy who got Prop-2 on the ballot and he was a very thoughtful south congress property owner. He debunked plenty of the scare tactics coming from Will Wynn. For example, the Domain developer can't sue Austin if Prop-2 passes(doesn't have a case anyway). He sounded like an honest passionate and concerned citizen on the issue. Some other south congress business owners who never get any of this free money have backed him. Will Wynn on the other hand, just sounds sleezy these days.

You may have some points, but my vote is based on taking tools from a bad city council. They don't deserve it. See Las Manitas, McMansion, etc. My frustration with this council could have as much to do with my vote than anything else.

[bittergradstudent]

Rather than take tools from a bad city council, why not work toward throwing the bums out?

Won't handicapping a bad city council make them even MORE inept at running the city?

[don johnson]

Hell no. The less damage they can do the better. I like the idea of a pro-active city council, but there are problems. This council needs to be "grounded" and only allowed to do fire, ems, police, transportation, and sanitation again for a while. Remember who the chump was at the table during the Las Manitas debacle? Why would we want them in that role? Is this council really that good at managing and distributing property tax obligation? I understand the concept of a net-gain on these deals but we need to also think of all the "Simon Properties" money siphoned out of Austin in the equation. Anyway, is the city of austin in dire need of a tax base? You know, they can manage the spending side too. When you think of all the things you like about Austin, how many of them are here because of a tax subsidy?

Just heard a great radio commercial pointing out all the things "Simon Properties" didn't do as part of the deal and it ends by saying "Will Wynn should know keeping your word is a two way street". I was wondering if the "pro" side would get any of this air time. Who is paying for the loads of paid-media Will Wynn is doing anyway?

[M1EK]

Don, the same people who tried to hide behind the progressive label while pushing McMansion are behind the SDS group. They're better described as conservatives - fighting change in all its forms. (Local business in unwalkable awful strip malls = good? sustainable?)

The Domain was open to local businesses, like 2nd street was. Few tried (most were too, uh, CONSERVATIVE to take a risk on urban and sustainable).

As for the promises, AC has already posted the link to a document by city staff that shows that the Domain developer did, indeed, fulfill all their promises. And yes, they could sue the city. (They might not win; it would be an interesting case - far less slam-dunk than the one that Wal-Mart would have had against the city had they caved to RG4N, but also potentially far more costly).

[don johnson]

I don't want Will Wynn, Brewster McCracken, & Laura Morrison making big deals on my behalf. No thanks.

If we need to pay up any remaining obligation to the Domain then so be it, but I don't see it happenning (wouldn't we make it up in property tax?). Let's go ahead and turn off the spiggot now.

If you have a problem with tax subsidies going to those that just 7 people decide are worthy, then you have to vote for it. So far all the above mentioned have shown poor judgement in my experience.

Let's go ahead and create a fair scenario in regards to taxes. If they need to be lower for business & development to flourish then lets do that. But let's not hike up everyone else and then let 7 people pick and choose what is best for us by lowering taxes for those who they deem worthy.

I understand and am realistic about tax subsidies I think. But was a huge acreage on the edge of town really the best use for these subsidies? You can barely get there from anywhere. I think it is cool once you are there, but it is just a bunch of out of town retail stores on an island. I mean is this really the poster child of progressiveness worth fighting for? Would Austin really have been worse off without the Domain?

Who was behind the McMansion ordinance and who's behind the SDS by the way? You could make me think hard on my stance here. I'm really just coming from an emotional place. I just want to vote against Will Wynn cause he's sleezy to me now. He hasn't done anything but watch things that hurt me fly through council during his term. And fly through on false premises.

[Tim]

We live in a representative democracy. We elected those 7 people to make exactly these sorts of decisions for us. There was a comment period that very few people took advantage of. I can't help but feel that no matter how this turns out that most of the prop 2 folks are people who don't want to get involved in democracy until after all the hard decisions have been made.

And the reason that the Domain is in the middle of nowhere is that there are few large sites left in Austin. Sure it could have been built in Beecaves or Round Rock, but then Austin would have gotten none of the tax dollars.

Working on these large tracts of land lets the city do some real city planning, rather than fighting with neighborhoods over every single, individual building to be built.

I also have a really hard time trusting a "progressive" political movement started by a real estate investor. Brian Rodgers (founder of SDS), has been renovating properties along Lamar into boutique shops. He is a direct competitor to the domain. He fought against the Walgreens on South Lamar, which oddly enough is in competition with properties he owns. I can't even believe the number of people who will buy into what is obviously just one mans case of sour grapes.

[don johnson]

You ever taken advantage of the comment period Tim? You wouldn't hold it up as some kind of "power to the people" excercise if you've ever been down there voicing an opinion opposite of what council has already decided for you. Those 3-minutes are important, but treated like a joke.

So what if the founder of SDS has motives such as wanting an even playing field to compete with the Domain? I don't know anything about the Walgreen's but I imagine the neighborhoods started that one and maybe he jumped in advantageously. Just how the Domain developer is fighting against these same types of subsidies in El Paso being that they are not on the receiving end over there.

I say let's go ahead and pull the tax money manipulation out of the equation. If we want all these great things in Austin why not just create a friendly environment across the board? I know it is a delicate balance since lowering taxes too much allows people to hoard un-improved properties. Hell, people do it now. But if the argument is that we wanted in on the Domain tax revenue, then why still can't COA balance the budget?

By the way I drool over development of huge tracts where there is no hodge podge going on. Mueller is so cool because they get to design the entire layout right down to the street lamps. It just makes me sad that Catellus, an out of town firm, is in bed with COA and able to develop outside of the code local developers have to deal with. There are a few local builders there, but you don't get to just go buy a lot on the free market. You have to be chosen.

Maybe it is because I'm on the outside, but as much as I like Mueller I can't help but think I am subsidizing that place to my own detriment. Maybe sort of like how this SDS guy feels about the Domain.

You all make great theory points, but might be a little more pissed off if your boots were on the ground. Life is a balance and surely I'm not right on all counts, but is nobody else tired of the subsidies game? You know, eventually the free market makes improvments and does it at it's own risk and not yours. What's the rush?

[don johnson]

"We elected those 7 people to make exactly these sorts of decisions for us."

This is arguable. Did we elect them to be making Las Manitas deals behind closed doors which led to the very public fiasco on their part? Do we elect them to be knee deep in private business deals? I agree about representative democracy and that you get who you elect. But your statement on what they are supposed to do on your behalf may be flawed.

[M1EK]

Don, actually, a good argument in favor of the Domain subsidies is precisely that it's on the edge of town (it's not on the edge of the metro area, of course). This means we can recapture some tax dollars that would otherwise go to other municipalities - places we're already getting screwed by.

The point of representative democracy is to let these folks make some decisions - you don't see me pushing ballot measures for all the times they did something I disagree with, do you? What I see here is the same people behind BATPAC trying to govern by referendi - knowing full well that most people will fall for the "grassroots vs. corporation" story and not realize they're getting played for fools by Laura Morrison and her ilk.

[mktiv]

Here's an email I sent to a neighbor outlining what I think (and echoing many views put forward here). I'm not a bleeding heart for either side, but I think I'm approaching this from a rational viewpoint of a concerned citizen, taxpayer with no axe to grind.

These are the main reasons and thoughts I have for why I'll vote against prop 2-
- The subsidies for the domain are not just retail subsidies. The domain is not only a retail joint, but is a mixed use development that combines certain streetscape, parking and residential features along with retail. So yes, the subsidies are partly going to high-end retail, but that is not the only thing it is doing. I've been out to the domain once to check it out and its not the type of place I'd want to live and/or shop, but I think it's the type of development we should shoot for in the future (minus the high-end nature). I think it'd be great, for instance, if Highland Mall would be redeveloped in this fashion and I hope the city would be in a position to encourage that. I would consider living in a mixed use area if it wasn't so high-end.
- I'm not into proposition democracy. I think they do that a lot in California and other places, but I really don't think it's the best way to advance or create public policy. I think it tends to polarize; and while there are certain cases where it can and should be used properly, I think it's usually a detraction from proactive, sound public policy making and usually evolves into shouting matches about 'pet issues' and leads to incoherent and inconsistent policy. I think the sds position falls exactly in this category (see below). I'm willing to defer more to elected officials and the public policy making bodies in place. I think if you gave any Austinite the city budget each one could find a dozen or more different things they'd rather their tax dollars not be spent on (I know I could). But when only 1 council member voted originally against the subsidies and one only currently opposes, that tells me something. If I really don't like it I'd help kick the bums out of office, which maybe we should do. But when you have this support among the elected officials that's a signal to me that these subsides are somehow fitting into a plan that these folks have for the city and I think they were probably elected based on a more holistic plan or policy they put before the voters. Maybe I'm naïve in having some type of trust in elected officials, but I figure that this is why we have elections and a representative democracy.
- To me the subsidies at the domain represent two things- a drop in the bucket of city spending (not even really spending, but a tax break) and a symptom of a larger problem. Like I said before, if we all combed through the city budget we could probably find bigger fish to fry as far as wasted taxpayer dollars. Secondly, to me this is about the tax structure. I agree that subsidizing ONLY retail is not a good idea. So the question is (or should be): why are policymakers (overwhelmingly as I pointed out earlier) supporting giving these types of tax breaks? I believe the answer is this- because Austin, like most every other city in Texas is involved in a grand game of 'gotcha' with surrounding cities and suburbs. Meaning, these cities are all desperate for property and sales taxes, because those are the two legs they're trying to stand on. Because there is no other stream of revenue these cities are forced to fight amongst themselves to attract development that will yield higher property values and more sale tax revenue. Some have pointed out that the domain is not 'making' new jobs, just shifting existing ones around- I think this is correct. But if Austin is able to shift those jobs from Round Rock just a few miles southward over the city limit then that is money in the bank to them. Same if a city can 'out annex' the other cities into the unincorporated area. Some think competition is always good, well in this game it's not. This game is sprawl inducing, budget draining and terrible for the aquifer and other environmental aspects such as vehicle emissions/mileage traveled. This is the REAL issue. The real issue is not subsidies to the domain, no matter how loud sds screams. It is a shame that so much time, effort and money is being put toward the pro and anti prop 2 instead of advocating for a taxing and/or governing structure that would be more regional in nature and would take the pressure off the urge to sprawl as the current regime does. There are simple ways to do it, but none of them are politically as expedient as yelling about high-end retail getting subsidies. One solution that comes to mind is asking our legislators to pass a modest income tax bill (progressive taxation) for the state in order to ease our reliance on property and sales taxes (regressive taxation). But again, this is not politically fun, it is easier to talk about Neiman Marcus getting a tax cut. I mean, damn, shouldn't everyone be against that? In short, I'm not attracted to knee-jerk, reactive groups who seem to be so singularly focused on whatever it may be (in this case the subsidies to this big development) that they are missing the larger picture. We can react to hundreds of actions by the city council, but if we never understand the larger picture and become proactive about that then we'll get nowhere.
If you want to know more about what I think we should be working for- sound public policy that increases equity in the tax code and reduces the need for cities to 'sell themselves out' to big developers then you can checkout the Center for Public Policy Priorities at http://www.cppp.org/

[Debbie Russell]

Whether or not the Prop will prevent large scale Domain-like deals in the future is a non-issue since Leffingwell led a resolution that passed to do just that.

Expanding on Grits' post--it's disingenuous to hide your poorly-crafted argument behind the proponents campaign when it's clearly not. Own your own lameness, please!

[AC]

I see that the ACLU no longer requires legal training for its chapter presidents, because you obviously can't follow a legal argument.

[AC]

And as for the charge that this is not about future retail subsidies, take a look at this quote from the SDS website:

"If the SDS charter amendment (Prop 2) passes (you need to vote FOR the amendment), the city will not be able to give this money away and will never again be able to give city money to retail interests."

This amendment has been sold to the public, in part, as a way to avoid future Domain-like deals. The SDS website makes that claim itself, for god's sake.

Debbie, you either don't understand the SDS campaign or you are being, as you say, "disingenuous." (For the non-lawyers, that's how lawyers politely accuse one another of lying.)

[Michael Miller]

AC, I'm glad I found this blog today. I'll try to come here again regularly.

I agree that Prop. 2 will not prevent all subsidies to retail. Some of the exemptions make sense to me. I don't get the TIF one. However, the City Council will still not be able to give subsidies just any old place they want, since the TIF statutes do have at least some requirements for where one can be established. Still, it looks to me that the TIF statutes are much too broad, and we should consider reining that in. I have some sympathy for lower tax rates on improvements than on land (still haven't thought that through completely), but that would apply everywhere, not just a special zone. In any event, even if Prop. 2 allows some political tinkering, it's a step in the right direction, and perhaps the charter amendment should eventually be strengthened.

[AC]

Thanks for the comment, Michael, and thanks too to everyone else who made thoughtful comments.

TIFs are complicated things. As I recall the statute, the main limitation is that a TIF zone cannot be established if more than 10% of the property within the zone is residential. That won't affect a greenfield or vacant brownfield development (as the Domain was). Someone will have to ask Brian Rodgers why TIFs were excluded. The TIF statute has a preemption clause, which may have given SDS pause. Or perhaps SDS figured that excluding TIFs would have given the City too much ammunition. In any event, though, excluding TIFs has left the door open to future Domain-like projects, despite SDS's assertion that the amendment will close that door.