Posted on: July 29 2009by Bruce Eggler, The Times-Picayune
Saturday July 18, 2009
After three years of study and discussion, New Orleans Mayor Ray Nagin said Friday that he has issued an executive order establishing a city policy on use of tax increment financing.
He also indicated his support for using the device to promote redevelopment of the vacant Lake Forest Plaza shopping center site in eastern New Orleans.
Tax increment financing, usually known as TIF, is intended to stimulate economic development in areas that currently generate little or no tax revenue.
By creating a TIF district, the city agrees to divert a share of its "incremental tax revenue, " meaning the growth in tax revenue from the district above a specified base level, away from the city treasury and into a fund to pay for specific projects.
The goal is to let the city help underwrite infrastructure or other improvements that it can't afford to pay for directly, thereby stimulating economic development that will benefit the city's financial health in the long run.
Nagin's order says the city will approve TIFs only for defined geographical areas that are dormant or blighted, and in which revitalization would not occur within the foreseeable future without use of a TIF, and where the lack of development has the potential to cause instability or suppress growth elsewhere in the city.
The policy says TIF districts can involve both sales and property taxes and can be designed to stimulate both commercial and residential development. It says they can be used to finance public improvements, enhance infrastructure and "support investment needs that demonstrate clear public benefit."
Each TIF will require approval by the City Council.
Nagin's announcement drew quick criticism from Janet Howard, president of the Bureau of Governmental Research, a nonpartisan research and policy organization.
"Although the policies purport to rein in discretion, in reality they would allow TIF almost anywhere in the city and for almost any purpose, " Howard said. The device "could be used to pay for public infrastructure or to pay the mortgage for private assets. And, while there are good concepts, they are all ultimately discretionary. Any and all provisions of the policies can be waived if the administration considers it in the city's best interest."
For example, Howard noted, even though the policy says that no more than 50 percent of a district's incremental tax revenue can be diverted away from the city's general fund, it says the city may waive that limit if the district "would address multiple priority redevelopment goals."
Commented Howard: "So much for the maximum."
The policy also says that "generally" the city will approve TIF proposals only when the state offers "matching state tax increments, " but that this requirement also can be waived "in the best interest of the city."
The city approved TIFs in 2002 to help finance redevelopment of the former St. Thomas public housing site and in 2004 to promote economic development in Algiers, particularly the Federal City project. Both involved diverting shares of the city's normal sales tax revenue from Wal-Mart stores.
However, the city did not have an overall policy on what criteria TIFs should meet, and administration officials and City Council members have been discussing what such a policy should say since at least mid-2006, when developers proposed a TIF to help them convert the vacant Plaza Tower office building into luxury condominiums. They later dropped the idea.
The fact that Nagin finally announced a policy Friday seemed to be tied to the proposal for a sales-tax TIF to support redevelopment of the Lake Forest Plaza site.
In his opening comments at a City Hall news conference, Nagin discussed only the general framework of the new policy.
However, among those standing with him were City Councilwoman Cynthia Willard-Lewis, whose district includes the Plaza site, and businessman Cesar Burgos, who this year assumed leadership of the effort to put the site back into commerce for the first time since Hurricane Katrina.
Burgos, a close Nagin ally, did not speak at the news conference, but Willard-Lewis said the proposed Plaza TIF is "critically important."
Asked whether the Plaza TIF meets the criteria laid down by his new policy, Nagin said it will, provided that the state agrees to match the city's contribution.
Nagin's staff was unable to supply any information about the Plaza proposal. However, a board called the Lake Forest Plaza District voted last month for a plan that would dedicate 2 cents of the city's sales tax levy and 2 cents of the state's levy toward paying off construction loans to rebuild the shopping center.
"We need a TIF in order to make the numbers work, " Burgos told the board. "Without a TIF, it is pie-in-the-sky."
City Councilman Arnie Fielkow, chairman of the council's Economic Development Committee, has prodded a succession of administration officials for years to develop an overall TIF policy, and his committee has heard testimony from national experts on how the device has worked elsewhere.
Nagin made his announcement while Fielkow is out of the country, and Fielkow could not be reached for comment.
Nagin said the council will be asked soon to endorse the overall policy and to approve creation of the Lake Forest Plaza TIF. He said several other possible TIFs also are under consideration, including one for the Union Passenger Terminal area.
"For more info, go to Members Only, Key Issues on GNOHLA website"