Tax Allocation Districts are bad for PTC

0
87

The Peachtree City Council quietly placed a binding referendum on the upcoming November 3 election ballot that is worded as follows:

“Shall the Act be approved which authorizes the City of Peachtree City to exercise all redevelopment powers allowed under the ‘Redevelopment Powers Law’ as it may be amended from time to time?”

The wording sounds like a mere housekeeping detail but it is dynamite! It fails to fully or truthfully represent the issue before the voters and should more accurately read:

“Shall the Peachtree City Council have the authority to establish tax allocation districts, acquire privately owned residential or commercial real estate, issue city bonds borrowing money to finance redevelopment of the property and transfer the city funded development rights to private developers?”

It is likely the referendum would be rejected at the polls if the verbiage correctly described this important issue on the ballot.

The deceptive little bundle facing Peachtree City voters is touted as a financing mechanism and economic development tool available to give owners and developers financial incentives to construct new projects in economically distressed areas or to renovate existing dilapidated facilities.

Voter approval is being pushed by big money developers and special interest groups. The skids are greased for success and the referendum may pass easily because of the benign wording and expected low voter turnout in an off-year election.

Here is my take on the big picture as it relates to the referendum. Because there will be a strong rebuttal to this column from special interests, I have cited the applicable chapter and title of the Redevelopment Powers Law to substantiate facts which have been previously misrepresented to Peachtree City citizens. I encourage readers to review the law for themselves. It is available on the Georgia General Assembly website.

The authority to acquire and redevelop privately owned blighted or economically deprived areas is delegated to local governments by the state in the Redevelopment Powers Law. It specifically permits cities to exercise the power of eminent domain to acquire distressed property from unwilling owners who refuse to sell (O.C.G.A. 36-44-6).

The Redevelopment Powers Law further permits cities and counties to establish redevelopment agencies and establish tax allocation districts known as TADs (O.C.G.A. 36-44-8).

Prior to establishment of TADs by any local government, the Georgia General Assembly must pass local enabling legislation and provide for a voter referendum on the issue since large sums of tax money are channeled to the private sector.

Representatives Virgil Fludd, Ron Mabra, John Yates and Matt Ramsey sponsored House Bill 495 to fulfill that requirement at the request of the Peachtree City Council. The bill was passed by the House and senate during the last legislative session and was signed by Governor Deal. The only remaining obstacle is an up or down vote by Peachtree City voters in the Nov. 3 election.

If the special referendum is approved by voters, the Peachtree City Council may either establish a redevelopment agency such as a new development authority or name itself as the redevelopment agency (O.C.G.A. 36-44-4). It will likely designate itself as the redevelopment agency and promptly designate one or more TADs identifying specific economically distressed geographical areas in Peachtree City eligible for redevelopment.

The city in cooperation with the Georgia Department of Revenue will establish Tax Allocation Increments for each TAD. The tax allocation increment is the portion of property tax revenue set aside in a separate fund to pay off city bonds issued to pay for the urban renewal projects (O.C.G.A. 36-44-9).

The money is skimmed off the top, effectively freezing property tax revenue available to the city for other purposes. The long-range effect could be higher millage rates to compensate for loss of revenue to the city budget.

Furthermore, millage increases are allowed after the TAD has been established but the law specifically prohibits millage rate reduction within the geographical boundaries of the TAD until the debt is paid in full. The bonds are typically 30-year bonds.

One scary provision in the law is the city may enter into a contract with any private person, firm, corporation or business entity to convey or otherwise obligate a piece of property for redevelopment although the property has not yet been acquired by the city (O.C.G.A. 36-44-19).

Redevelopment projects within the TADs can be owner initiated, developer initiated or city initiated. It is likely most projects will be city initiated with behind the scenes developer input and negotiations prior to entering into contractual arrangements.

Supporters say the new city bonds are no risk to the taxpayers because the developer/owner pays them off through lease income or revenue from the ultimate sale of the project. They argue that under current law the property will be pledged as collateral and the taxpayers are not on the hook.

The property is indeed pledged as collateral but taxpayers may still be on the hook because large institutional bond investors suffering losses due to default by the developer, project failure or foreclosure can still take legal action to recover remaining losses from the project.

Yes, foreclosure in addition to default on the bond payments by developers is a possibility since “gap loans” from banks are permitted in such an arrangement. Acquiring gap loans to cover cost overruns and shortages to supplement the revenue from bonds is permissible (O.C.G.A. 36-44-16).

Even if the city is not directly liable for the bonds, a default or project failure would damage the city’s bond rating, resulting in higher interest to be paid by the city taxpayers on other bonds issued for more legitimate reasons.

Candidates for elected office have stated in recent political forums that another special referendum of the people is required before a TAD can be established. This is not true! A public hearing and passage of a resolution of approval by the City Council is the only requirement to adopt a redevelopment plan and establish a TAD provided the November referendum is approved (O.C.G.A. 36-44-8).

What do our political leaders have in mind? Cleaning up the unsightly mess on Huddleston Road is the most frequently mentioned potential TAD project. Proponents have not specified if they want to place all of the properties along Huddleston Road in a TAD for potential acquisition or only gerrymander selected properties for specific projects.

I agree that providing sewer, placing an upscale new business office park and some updated light industrial facilities on Huddleston will make the city more aesthetically pleasing. However, I can’t imagine business owners along Huddleston Road giving up property without a fight.

The dilapidated residences in Wynnmeade and some of the unsightly residential streets off Morgans Turn have also been mentioned as potential TADs. Supporters make a strong case that high density upscale residential condo or townhouse projects in those areas will be good for the city.

TADS can be lucrative for some handpicked developers who will fund major projects through low interest, tax-exempt bonds while having no skin in the game. The arrangement is a win-win accommodation for everyone except the taxpayers and property owners who are at risk.

Voting yes to establish TADs is a financial gamble for Peachtree City citizens. We might as well send our City Council members to Las Vegas with a bundle of tax money and hope for the best.

Enough said!

[Scott Bradshaw, a resident of Peachtree City, is a real estate broker and residential real estate developer certified in Economic Development Finance by the National Development Council and a former member of the Peachtree City Development Authority. He may be contacted at rand5474@bellsouth.net.]