We hadn’t heard much lately about the City of Richmond's plans to build a new arena to replace the old Richmond Coliseum, as well as to develop the surrounding area. That is, until this weekend, when the Richmond Times-Dispatch’s Mark Robinson used an FOIA request to give us the juicy deets.
The news is... not good.
The development plan includes a 500-room Hyatt hotel, a VCU medical office building, and over 2000 new apartments and 20 restaurants. The city is reportedly pushing the developers to include more affordable housing, which is a good first step; and they are at least asking about whether existing RVA restaurants would be hurt by the new competition. (The developers say no, although I’m not so sure.)
But the big news from the weekend was Robinson’s report about tax incentives. The development group, NH District Corp. (NHDC), is led by Dominion CEO Tom Farrell. He and his pals apparently want the city to create a special tax district that extends well beyond the development site, and then use the tax revenues from that district to pay down the bond debt for the project.
This is a bad idea. Bad, bad, bad.
Look, every development project gets some incentives; it's part of doing business with developers and corporations. Because of a fundamental competition among localities for economic development, companies and real estate developers can take projects to nearby counties; they can go elsewhere in the state or country; or just find another deal to chase profits. There's nothing wrong with the city offering a few incentives to sweeten the pot and make sure NDHC follows through.
But Farrell and his group are suggesting that the city use a mechanism called "Tax Increment Financing," or TIF, to fund the bonds to develop the site. Basically, NHDC and/or the city would borrow money to pay for construction, and then tax revenue from the specially-designated TIF district would be used to pay back the loan.
TIFs often "freeze" tax revenue in an area. So if the city normally got $1M in property tax revenue from the area that will become a TIF district, they will get only that $1M for the next 20-30 years. Any new tax revenue pays for the new development, with the idea being that the arena/hotel/restaurants are bringing in lots of people and helping to create all that new revenue.
There are big problems with Farrell's proposal. First of all, TIF districts are well recognized as boondoggles, in which much-needed city revenues are instead diverted to developers. (H/T to WCVE's Catherine Komp for posting useful links about how bad TIFs are on Twitter.) Developers, as they are wont to do, will make grandiose claims about all the new revenue they will bring in from the new project; but even if the new revenue materializes (hint: it often doesn’t) the TIF ensures that most of it goes back to the developers. Moreover, if the TIF district doesn't generate enough in taxes to cover the bond payments, taxpayers often are on the hook to make up the difference.
This TIF proposal is not exactly a surprise; Farrell's NHDC includes a helpful infographic about it on their website. But the NHDC also includes examples of "successful" TIF districts, and their choices are pretty disconcerting. One, the Rio Neuvo development in Arizona, had to be taken over by the state legislature because the city of Tucson had mismanaged the project for a decade, wasting over $200M in taxpayer funds. Another, in Columbus Ohio, is centered on the Nationwide Arena. After years of low attendance for the NHL's Blue Jackets, the arena owners had to be bailed out by local taxpayers, who are still losing millions in tax revenue while the team's owners cry poverty.
City Council President Chris Hilbert has already signaled that the TIF is a non-starter, at least to its current extent. Good: it should be. But the early signs about this whole arena deal are already troubling, especially in the context of similar kinds of developments all over the country. Over and over again, local taxpayers get screwed over by a coalition of political leaders and developers that like to be seen as building something for the city, while making big profits as well. Already the city elites are lining up to support the project, even though they say they worry about whether "the city’s finances and taxpayers are adequately protected."
The City Council MUST reject this TIF idea. We don't want to be the next set of suckers who falls for this scam.