The Success of Town Center… - Virginia News Source4 Virginia Code §58.1-3245 • “Blighted area means any area within the borders of a development project area which impairs economic

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The Success of Town Center…

2008

2An Alternate View

1972

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What is Tax Increment Financing (TIF)?

• A way to finance Development Projects without raising taxes.

• Money is carved out of the General Fund(operating fund) to finance debt service for TIF projects

• General Fund must meet increaseddemand for services with less money.

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Virginia Code §58.1-3245• “Blighted area means any area within the borders of a development project

area which impairs economic values and tax revenues, causes an increase in and spread of disease and crime, and is a menace to the health, safety, morals and welfare of the citizens of the Commonwealth; or any area which endangers the public health, safety and welfare because commercial, industrial and residential structures are subject todilapidation, deterioration, obsolescence, inadequate ventilation, inadequate public utilities and violations of minimum health and safety standards……”

• “…It is a public purpose to provide public facilities including, but not limited to, roads, water, sewers, parks and real estate devoted to open-space use as the term is defined in § 59.1-3230 within redevelopment and conservation areas to encourage the private development in such areas in order to eliminate blighted conditions…”

Virginia Code §58.1-3245.1

What Does the Law Say About TIF?

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What Does City say about TIF?

“Tax Increment Financing (TIF) is an economic development tool designed to stimulate economic activity within specific geographic boundaries. A TIF district is effective forredeveloping blighted areas, encouraging private investment in areas with limited prospects for growth, and improving areas where a much higher quality of development is desired.”

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What Does A Public Policy “Think Tank”Say About a Finding of Blight?

• “The designation usually requires a finding that an area is “blighted” or “underdeveloped” and that development would not take place “but for”the public expenditure or subsidy. It is only a bit of an overstatement to characterize the “blight”and “but for” findings as merely pro forma exercises, since specialized consultants can produce the needed evidence in almost all cases.”

-The Lincoln Institute of Land Policy (Land Lines Article), January 2006, Volume 18, Number 1

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What Does Common Sense Say?

Where’sThe

Blight?!

WHEREWHERE’’SS

THETHE

BLIGHT?BLIGHT?BLIGHT?BLIGHT?

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CBD South TIF• November 23, 1999 ordnance established the

CBD South TIF District• Base year assessment (as of July 1, 1998) of

$151.9 million was “frozen”• Real estate taxes generated from the “frozen”

assessment continue to flow to General Fundfor life of the TIF

• Incremental real estate taxes from development and appreciation are collected in a “Tax Increment Fund”

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CBD South TIF (continued)

• City issued $69.2 million in bonds (debt) and used the proceeds for “public investment”:

– Parking garages– Plaza land– Westin Hotel Conference Center– Pedestrian Bridge (between parking garages)

• Debt Service on the bonds is paid with real estate taxes collected in the “Tax Increment Fund.”

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Core = Town Center = 33 acres+ Non-Core = Everything else = 317 acres

= Central Business District South TIF = 350 acres

Public “Infrastructure” = Nontaxable ValuesAll Public “Infrastructrue” has gone into the Core

Existing and New Private Development = Taxable Values

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City’s Claims about Town Center:

1. Town Center “pays for itself”.2. A lot of business related tax revenues have

been generated for the General Fund.3. Enormous growth of taxable real estate

values within the TIF.4. Town Center helps shift tax burden from

homeowners.5. Economic Leverage: Ratio of Public/Private

Investment is a real “economic boost”.

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#1 Town Center “Pays for Itself”

“Future increases in real estate taxes generated from the increase in assessments from the new development within the TIF are used to finance public improvements.”

“What are Tax Increment Financing Districts?”, www.vbgov.com

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Partial List of Businesses/Buildings in Non-Core Area:Regal 12 CinemaHarold’s GrillThe Big Screen StoreCigarsThomasville FurniturePetsmartZootsHallmarkSilver DinerStarbucksScottradeGreat ClipsMattress DiscountersSprintChik-fil-a

Apartments/CondosPembroke CondosColumbus Station Apts.Columbus Station CondosAshbrooke ApartmentsMidtown & City View Apts.

4801 Columbus StreetU.S. Post OfficeHancock FabricsPembroke BingoOld FX – Flea Market - goneMattress Wagner FamilyCash AdvanceTile for LessSuzuki PembrokeOld Gateway – goneOld Builder’s Square – goneOffice MaxVitamin ShoppeStarbucksT MobileTaco BellVA PilotBagels N MoreLens CraftersDavid Nygarrd Jewelers – goneBarnes & NobleFYE (Planet Music)Bed, Bath & Beyond

Fulton BankSkanskaGoodman & CompanyAnthemCandlewood SuitesCrowne Plaza HotelBeach FuneralDragas Office ParkExtended Stay AmericaDays InnMcDonaldsWendy’sREINB&L Food MartBest BuyT.K. TrippsCircuit City – goneRedwing ShoesNorthern ToolsEthan AllenWachoviaRemax AllianceHuff, Poole & Mahoney, P.C.

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TIF Report – Debt Service Chart

CBD South TIF Real Estate Tax Revenues Compared to Debt Service

Fiscal Year TIF Revenues* Debt Service** Tax Rate***

2000 $ 14,944 $1.22 2001 353,013 $1.22 2002 490,995 $1.22 2003 905,331 $ 820,232 $1.22 2004 1,503,178 1,283,427 $1.22 2005 2,142,072 1,912,544 $1.1964 2006 2,707,772 1,908,024 $1.0239 2007 3,504,155 3,136,085 $0.99 2008 3,711,235 3,774,435 $0.89 2009 (est) 5,062,526 5,290,000 $0.89

Total $20,395,221 $18,124,747

“The debt service is being paid with TIF real estate tax revenues.”

*Source: CAFRs; **Long Term Debt Report, ***Tax rate excludes SSD Tax

($63,200)($227,474)

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#2 A lot of Business-Related Tax Revenues Have Been Generated for the General Fund

• “… Town Center businesses paid more than $5 million last year in non-real estate taxes that go mainly into the city’s general fund, which pays for vital services like schools, parks, libraries, police and fire protection.”

City Page, January 28, 2009

• “The first three phases have been incredibly profitable for Virginia Beach…The city currently nets about $5 million a year for the general fundfrom Town Center.”

Mayor’s e-mail of January 22, 2009

• “…other business related taxes generated within the TIF District totaled $5.2 million for FY-08. This exceeds the real estate taxes generated of $3.7 million.”

TIF Report of July 1, 2008

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TIF Report – Business Related Taxes Chart

What about Trustee Taxes?

“In addition to the real estate taxes, business related taxes are also generated within the TIF district. These taxes are generated within the core area of the District as shown in the table below.They are accounted for in the General Fund and, in addition to the base real estate tax revenue, are used to provide services across the entire city. The business taxes exceed the real estate tax revenues generated each year.”

Business Taxes Generated Within the Core Area of the CBD South TIF District

Type of Tax FY-2005 FY-2006 FY-2007 FY-2008

Business License $ 735,204 $ 840,825 $931,196 $1,284,743

Business Property 233,634 348,014 392,049 447,047

Trustee Taxes* 1,653,635 2,423,473 2,692,222 2,856,323

General Sales Taxes 440,202 536,114 567,921 601,962

Total $3,062,675 $4,148,426 $4,583,387 $5,190,075

*Includes meal, admission, and hotel taxes; excludes utility taxes, which are difficult to quantify; based on data available as of 10/2008

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What are Trustee Taxes?

Meal, Amusement and Hotel taxes and are collected from businesses throughout the city. But, Trustee Taxes do not go “mainly into the city’s general fund.” A significant percentage of Trustee Taxes are earmarked for programs dedicated to Tourism:

Type of Tax

% Dedicated

Programs

Meal 36% Tourism Growth Investment Fund (TGIF), Tourism Advertising Program (TAP), Major Projects, Open Space

Amusement 100% TGIF, Major Projects Hotel 75% TGIF, TAP, Major Projects, Beach Events

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% of Trustee Taxes Dedicated to Tourism

Type of Tax Amount

Percent Dedicated to

Other Programs

Amount Dedicated to Other

Programs Amount to the General Fund

Meal $1,770,920

36%

$637,531

$1,133,389

Amusement $199,943 100% $199,943 0 Hotel $885,460 75% $664,095 $221,365

Totals $1,501,569 $1,354,754

$5,190,075 Town Center Additional Business Tax Revenues

- $1,501,569 Less Trustee Tax Revenue Dedicated to Other Programs

$3,688,506 Gross Contribution of Town Center Business Related Taxes to the General Fund

$3,711,235 in real estate tax revenue was siphoned away from theGeneral Fund to Pay Debt Service on the TIF for 2008

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#3 Enormous Growth of Taxable Real Estate Values –TIF Report ChartTaxable CBD South TIF District Assessments For Fiscal Year Ended June 30 of Each Year

As of June 30

Taxable Core Area

Assessments*

% Chg

Taxable Non-Core Area

Assessments % Chg

Total Taxable TIF

Assessments** % Chg

July 1, 1998 $ 20,276,974 $131,617,256 $151,894,230 2000 21,211,749 4.6 132,189,609 0.4 153,401,358 1.0 2001 24,557,458 15.8 157,443,378 19.1 182,000,836 18.6 2002 24,335,002 -0.8 167,306,103 6.3 191,661,105 5.3 2003 25,346,531 4.1 205,091,871 22.6 230,438,402 20.2 2004 70,769,267 179.2 200,615,339 -2.2 271,384,606 17.8 2005 119,749,714 69.2 212,207,666 5.8 331,957,379 22.3 2006 159,002,011 32.8 257,356,162 21.3 416,358,173 25.4 2007 204,141,729 28.5 288,949,166 12.3 493,090,815 18.4 2008 258,326,152 26.5 326,917,601 13.1 585,243,753 18.69 July 1, 2008 (revenue est) $352,388,400 36.4 368,329,000 27.7 $720,717,400 23.1

10-Yr Growth $332,111,426 1,638% $236,711,744 180% $568,823,170 374%

# of acres 33 317 350

Sources: *Office of Real Estate Assessor, “TIF Assessment and Levies Report.”Note: The core area is defined as Blocks 2-12

“The cumulative growth rate has been 374% which equals an average annual growth rate of 16.8%. Growth in the CBD South TIF District is almost double that of the cumulative citywide growth of 197% due to new construction of commercial and residential properties in the District.”

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Growth of Assessments in Core and Non-CoreTaxable Assessed Values

July 1, 1998 July 1, 2008 Dollar Growth Over Ten Years

% Growth Over Ten Years

Core – Town Center (33 acres) $20,276,974 $352,388,400 $332,111,426 1638%

Non-Core Area (317 acres) $131,617,256 $368,329,000 $236,711,744 180%

Total Central Business District TIF (350 acres) $151,894,230 $720,717,400 $568,823,170 374%

“Observing high growth in an area targeted for new development is unremarkable.”

- The Lincoln Institute

• Growth in Non-Core Area = 42% of the Total Growth in the TIF• Growth in Non-Core Area + Growth in Core EXISTING Assets = 48%

of the Total Growth in the TIF• No effort to segregate growth due to new construction vs.

unprecedented real estate market appreciation. • Non-core area growth of 180% lagged behind city-wide appreciation of

197% during the same time period.

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Growth of Non-Core and Existing Core Assets

$236,711,744 Growth of Non-Core assets +

$36,498,553 Growth of Existing Core Assets=

$273,210,297/100 x $.89 = $2,431,572

Real Estate Taxes for to pay Town Center debt service

TIF Revenues total $5,062,526 for FY2009. Non-Core and Existing Core Assets will

contribute 48% of this total.

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#4 Helps Shift Tax Burden From Homeowners

“Now comes a new phase of Town Center. Like earlier phases, it too will bring new jobs and help shift the city’s tax burden from homeowners.”

City Page, January 28, 2009

City-wide Real Estate Tax Burden Shares

Fiscal Year Percent Commercial Percent Residential

1999

18.2

81.8 2000 18.6 81.4 2001 18.5 81.5 2002 18.3 81.7 2003 17.5 82.5 2004 17.0 83.0 2005 16.8 83.2 2006 15.6 84.4 2007 14.3 85.7 2008 13.0 87.0

Compiled from Assessor’s Reports

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#5 Economic Leverage: Ratio of Public/Private Investment

“…the public’s $83.6 million investment in parking decks and other infrastructure has leveraged $392 million in private investment in Town Center. That’s a public-private ratio of 1 to 4.7 – a huge economic boost.”

City Page, January 28, 2009

About Phase IV, City Page says,

“Equally important, the cost of construction will NOT increase the city’s budget shortfall…about three quarters of the cost will be paid by the developer…the rest-about $60 million will come almost entirely from taxes generated within Town Center.”

Why is the public/private ratio for Phase IV less than for the first three phases: $1 to $3 vs. $1 to $4.70?

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TIF Report Chart of Public to Private “Investment”

Summary of the Town Center Project Financial Plan Phase I, Phase II, and Phase III

(millions of dollars)

Phase I Phase II Phase III Total Public Investment: Public Parking Garages-TIF Funded $22.5 $18.1* $16.9 $57.5 Plaza Land – TIF Funded 0.5 0.5 Meeting Space—TIF Funded 8.1 8.1 Pedestrian Bridge – TIF Funded 1.8 1.8 Infrastructure – CIP/EDIP Funded 6.3 7.7 1.7 15.7

Total Garage and Infrastructure - Public $29.3 $25.8 $28.5 $83.6 Total Private Investment: $95 $97 $200 $392

Completion Dates: Fall 2003 Winter 2005 Fall 2007 Public-Private Ratio 1 to 4.7

Assessed Value of Taxable Private Investment as of July 1, 2008 $114.8 $99.9 $129.1 $343.8

*Excludes option land and other retail to be reimbursed by the Developer; excludes cost of 269 public spaces in the Block 12 garage that were financed as part of the cost of the Sandler Center for the Performing Arts, CIP 3-283, as part of parking available for Center patrons.

“The City has invested a total to date of $83.6 million and the Developer has invested $392 million, equal to a public to private ratio of 1 to 4.7 for the first three phases of the Town Center Project.”

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TIF Report Chart - What is the “Public Investment” in “Infrastructure”?

$69 million, $83.6 million or $135.8 million?

CBD South TIF District Core Area Assessments*

For Fiscal Year Ended June 30 of each Year

As of June 30

Non-Taxable Core Area Taxable Core Area Core Area Total

Assessments July 1, 1998 $0 $ 20,276,974 $ 20,276,974 2000 0 21,211,749 21,211,749 2001 0 24,557,458 24,557,458 2002 0 24,355,002 24,355,002 2003 0 25,346,531 25,346,531 2004 20,847,129 70,769,267 91,616,396 2005 23,291,460 119,749,714 143,041,174 2006 46,963,690 159,002,011 205,965,701 2007 61,503,967 204,141,729 265,645,696 2008 131,602,800 258,326,152 389,928,952 July 1, 2008 135,834,900 352,388,400 488,233,300

10-year Growth $135,834,900 $332,111,426 $467,946,326

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Calculating Ratios

$83.6 million : $392 million = $1 : $4.70

$135.8 million : $352.4 = $1 : $3.57

$135.8 million : $295.6 million = $1 : $2.18

?

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But, What About the COSTS?!

• What are the allocable costs for the greatly increased demand for services from the General Fund?

• What are the administrative and overhead costs (TIF accounting, reporting, etc.)

• Other Costs?

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Conclusions

• Will this TIF Terminate?• Where will revenues come from to pay

Phase IV debt service?• Comprehensive Plan has targeted

Pembroke as a Strategic Growth Area• More TIFs to come• LIGHT RAIL

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Is This TIFIs This TIFThe The

Right Right Thing Thing

To Do?To Do?

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“Previous City Council decisions like…creating jobs and living opportunities through the Town Center project…are part of the strong foundation that our city is built upon.

Executive Summary, page 3, Revised Budget FY2009/10

Executive Summary, page 6, Revised Budget FY2009/10

= $249,906 average home assessment, according to the city’s chart

Town Center Living Opportunities – Another Postscript

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Let’s look at the“Living Opportunities”

that have been created at Town Center for the

families of Virginia Beach…

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“Living Opportunities”

$2,224$2,224City claims “average” family pays:

$2,541$5,701Average Real Estate Tax on Solds

$285,527$640,595Average Assessment on Units Sold

$316,000$989,811Avg. Sales Price of Current Listings

$300,200 $714,256Avg. Sales Price of Units Sold

39%32%% of Total for Sale

2238Units Currently for Sale

56120Number of UnitsStudio 56

Westin ResidencesLiving Opportunity

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Suite Assessed Value Sales Price Assessment/Sales Ratio Suite Assessed Value Sales Price Assessment/

Sales Ratio1601 $372,000.00 $391,625.00 94.99% 2101 $749,400.00 $831,500.00 90.13%1602 $332,400.00 $349,855.00 95.01% 2102 $467,400.00 $492,000.00 95.00%1603 $352,000.00 $370,560.00 94.99% 2103 $586,600.00 $617,500.00 95.00%1604 $414,600.00 $436,463.00 94.99% 2104 $570,200.00 $600,500.00 94.95%1605 $362,500.00 $0.00 2105 $500,600.00 $527,000.00 94.99%1606 $354,100.00 $0.00 2106 $756,700.00 $839,000.00 90.19%1607 $448,200.00 $410,611.00 109.15% 2201 $788,900.00 $0.001608 $407,400.00 $429,000.00 94.97% 2202 $450,300.00 $474,008.00 95.00%1609 $399,800.00 $420,856.00 95.00% 2203 $563,200.00 $596,084.00 94.48%1610 $416,900.00 $0.00 2204 $613,700.00 $646,500.00 94.93%1611 $362,100.00 $382,000.00 94.79% 2205 $509,200.00 $536,500.00 94.91%1612 $364,400.00 $0.00 2206 $794,400.00 $825,000.00 96.29%1701 $430,100.00 $452,750.00 95.00% 2301 $894,100.00 $880,000.00 101.60%1702 $383,500.00 $403,735.00 94.99% 2302 $477,200.00 $502,317.00 95.00%1703 $395,200.00 $415,948.00 95.01% 2303 $593,200.00 $642,000.00 92.40%1704 $424,000.00 $446,500.00 94.96% 2304 $601,100.00 $632,752.00 95.00%1705 $448,100.00 $495,308.00 90.47% 2305 $520,600.00 $547,975.00 95.00%1706 $415,700.00 $437,548.00 95.01% 2306 $827,300.00 $0.001707 $389,100.00 $425,438.00 91.46% 2401 $690,900.00 $693,670.00 99.60%1708 $497,200.00 $532,000.00 93.46% 2402 $572,700.00 $602,838.00 95.00%1901 $699,000.00 $738,000.00 94.72% 2403 $651,200.00 $685,447.00 95.00%1902 $425,700.00 $448,089.00 95.00% 2404 $614,200.00 $650,000.00 94.49%1903 $542,700.00 $571,500.00 94.96% 2405 $507,600.00 $534,354.00 94.99%1904 $566,200.00 $571,776.00 99.02% 2406 $842,300.00 $0.001905 $495,400.00 $521,494.00 95.00% 2501 $786,300.00 $827,665.00 95.00%1906 $672,500.00 $707,308.00 95.08% 25022001 $756,900.00 $797,000.00 94.97% 2503 $621,400.00 $0.002002 $435,600.00 $459,000.00 94.90% 2504 $616,900.00 $674,974.00 91.40%2003 $603,400.00 $635,500.00 94.95% 2505 $490,700.00 $516,000.00 95.10%2004 $549,300.00 $578,201.00 95.00% 2506 $850,400.00 $0.002005 $458,700.00 $483,000.00 94.97% 2601 $800,300.00 $0.002006 $672,600.00 $708,000.00 95.00% 2602 $532,800.00 $560,887.00 94.99%

Westin Residences at Town Center

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Suite Assessed Value Sales Price Assessment/Sales Ratio Suite Assessed Value Sales Price Assessment/

Sales Ratio2603 $621,400.00 $654,054.00 95.01% 3105 $761,200.00 $0.002604 $659,300.00 $785,331.00 83.95% 3106 $1,138,500.00 $1,198,429.00 95.00%2605 $549,700.00 $0.00 3201 $1,087,200.00 $0.002606 $814,900.00 $857,775.00 95.00% 3202 $805,800.00 $848,200.00 95.00%2701 $856,800.00 $0.00 3203 $999,200.00 $1,051,800.00 95.00%2702 $489,300.00 $0.00 3204 $54,600.00 $0.002703 $722,500.00 $760,490.00 95.00% 3205 $45,100.00 $0.002704 $694,900.00 $731,521.00 94.99% 3206 $1,096,600.00 $0.002705 $569,400.00 $621,985.00 91.55% 3301 $1,784,600.00 $1,880,000.00 94.93%2706 $893,200.00 $950,210.00 94.00% 3302 $65,500.00 $0.002801 $934,500.00 $0.00 3303 $65,000.00 $0.002802 $544,300.00 $0.00 3304 $1,777,600.00 $1,871,150.00 95.00%2803 $794,700.00 $836,767.00 94.97% 3401 $85,300.00 $0.002804 $709,600.00 $746,954.00 95.00% 3402 $83,200.00 $0.002805 $586,800.00 $0.00 3403 $82,500.00 $0.002806 $946,500.00 $0.00 3404 $1,882,800.00 $1,981,905.00 95.00%2901 $996,000.00 $0.00 3501 $116,400.00 $0.002902 $539,400.00 $1,322,500.00 40.79% 3502 $106,800.00 $0.002903 $648,100.00 $1,322,500.00 49.01% 3503 $77,700.00 $0.002904 $708,600.00 $745,920.00 95.00% 3504 $88,100.00 $0.002905 $672,700.00 $0.00 3601 $131,900.00 $0.002906 $1,000,900.00 $0.00 3602 $132,100.00 $0.003001 $1,074,200.00 $0.00 3603 $139,000.00 $0.003002 $674,700.00 $0.00 3701 $225,000.00 $0.003003 $815,800.00 $0.003004 $749,900.00 $0.003005 $749,900.00 $0.003006 $997,700.00 $0.003101 $930,400.00 $1,508,817.00 61.66%3102 $607,900.00 $1,508,817.00 40.29%3103 $876,100.00 $0.003104 $879,600.00 $0.00

Westin Residences at Town Center