WASHINGTON — Tax-increment financing is an increasingly popular finance tool for cities looking to finance mass transit development, but participants in such projects said Thursday that economic conditions have created several significant challenges for TIF undertakings.
Speaking to an audience of mainly local government employees and bankers during a webcast sponsored by the Council of Development Finance Agencies and Stifel Nicolaus & Co., Alex Iams, a commercial development planner for Arlington Economic Development in Virginia, and Karl Stundins, area redevelopment program manager for Dallas, expressed similar concerns.
Iams, using a $207 million TIF in Arlington’s Crystal City neighborhood as a case study, said the county jumped on the opportunity to use TIF last year when it determined that redeveloping the area, constructed mostly during the 1960s and 1970s, could probably more than double the tax base.
However, Iams acknowledged that some projections of TIF revenue compared to the cost of the project, which would include a streetcar network, show the two curves nearly intersecting at times. The county has some apprehension about how the commercial market will continue to recover, Iams said.
“Things seem to be staying on script for now,” he said. “We’re keeping an eye on everything, but we’re happy with where we are.”
Stundins said Dallas created seven TIF districts between 1988 and 1999, but saw an explosion in them recently, with seven new ones popping up between 2005 and 2006. Most of those are way up in value, he said, but others have not seen the expected increases.
“The financial market is entirely not back since 2007,” Stundins said.
Dallas has been looking at possibilities for injecting some life into under-performing TIF districts, including redrawing their boundaries, he said. But among the lessons of the past few years is the existence of a “political reluctance” to redraw a TIF district, “even if the timing wasn’t right,” he added.
Stundins said finding the initial money can be a huge challenge because it is rare for a potential district to showcase sufficient demand in several real estate sectors at once, including commercial, residential and medical.
“If you can’t get bank financing to do the private side, nobody is really going to be happy with the outcome,” he said.
Local governments considering TIF need to find developers with pockets deep enough to absorb high up-front costs, and understand enough about market absorption to scale back overly optimistic projections from the developer, Stundins said.
Iams said it can sometimes be necessary to wait awhile before issuing TIF revenue bonds, because allowing the development to realize its potential would be a credit enhancement for such debt.
CDFA and Stifel Nicolaus plan to continue hosting discussions on TIF financing, CDFA officials said.