Blake: Bonds that don’t pay off create a TIF By Peter Blake
Thoreau’s pieties notwithstanding, any man more right than his neighbors still constitutes a minority of one — at least on the Westminster City Council.
That minority is Councilman Bruce Baker, who has voted, all by himself, against the city’s determined effort to build a huge subsidized development atop the ruins of the failed Westminster Mall at U.S. 36 and Sheridan Boulevard.
The 105-acre project, which city leaders think of as a new downtown, will be handled by the hand-picked developer, OliverMcMillan of San Diego.
The subsidy is in the form of the ever-popular tax increment financing (TIF). That means the bonds sold to finance construction will be financed by the presumably higher sales and property tax revenues that would accrue to the city when the development opens.
TIFs are beloved by most city governments, but counties, school districts and special districts — which depend more on property than sales taxes — are often not consulted on the plans and end up being deprived of revenue.
Legislators from both parties often speak against TIFs. As House Speaker-elect Dickey Lee Hullinghorst, D-Boulder, said a year ago, when the bonds for a project are typically paid off in 25 years “you’re about ready to tear it down and build another one. So you never get any of the tax increment.”
Baker maintains the development advocates have been slow to share “specific numbers and costs” with council members, who have okayed several interim steps but have yet to approve the final contract. He claims that residents should be given a vote on the latest Westminster project since they are the ones that will have to pay for any losses should the project go belly up or be aborted.
“There’s no transparency in the process,” he said.
The city has had other, smaller projects fail in the past, he noted.
The latest project will be financed by “certificates of participation” instead of bonds, which would require a public vote. COPs are secured by lease money, and the entity “holding the bag,” as Baker puts it, would technically be the urban renewal area alone.
If the project fails, why should taxpayers worry? Doesn’t the burden fall on the buyers of the COPs? Technically yes, agreed Baker, but cities feel a “moral obligation” to make their debt instruments whole and they do. They fear that failure of the COPs will drive up future borrowing costs — or the creditors might include “somebody’s brother-in-law.”
To justify TIF financing of new projects, cities have to come up with a justification for the subsidy, and that is often a so-called “blight” designation. The old Westminster Mall may have failed, but was it blighted? Baker didn’t think so, but blight is in the eye of the beholder, and city leaders saw blight.
The city has spent about $37 million so far on land purchases, consulting, demolition and operation of the new “transit oriented” development, which will feature up to 1,500 residences, a million square feet of office space, and 700,000 square feet of retail space. It will be next to a bikeway connecting Denver to Boulder and the new bus rapid transit line along U.S. 36.
Last session House Minority Leader Brian DelGrosso, R-Loveland, managed to get a bill passed that would have given county officials a minimum of one seat on urban renewal authority boards and, more to the point, would have mandated that the percentage of property tax increment not exceed the sales tax increment.
Gov. John Hickenlooper, under pressure from the Colorado Municipal League and commercial developers, vetoed the bill just a half-hour before it would have become law. Gini Pingenot, a policy specialist for Colorado Counties Inc., the commissioners’ trade association, said a similar bill will be introduced in the session beginning next month in hopes the governor might change his mind.
The problem is that school districts and counties are forced to give up their incremental tax revenues to pay for the development, even though they may not have a vote on the issue. Westminster is in Adams and Jefferson counties but the mall is entirely in Jeffco, whose unified school district will take the hit.
Pingenot produced charts showing that counties and school districts are having increasing amounts of revenues diverted because of TIFs. In fiscal 2013, for instance, counties lost $44 million and school districts $81 million, both figures about twice what they were in 2007. The state “backfills” some of the money lost by the schools, she said, but no more than half of it. The school districts then have to raise mill levies to cover the rest of the loss.
Since many developers are able to finance projects without TIFs, why should they exist at all? They probably shouldn’t, and California — which pioneered them — has abandoned them. Development continues.
Colorado could and should do away with TIF financing too, but there’s too much support for them from established interests. Even the counties agree on the general principle; they just don’t like losing more money than the cities.
Baker is afraid that the seven-member city council has taken so many little steps down the TIF path that his colleagues will be reluctant to call a halt now. But the standards the developer has to meet are still being negotiated behind the scenes.
“I call it cronyism and that’s corrupt government,” he said. “Everyone else said we want to see something great happen at the mall. I do too but it shouldn’t be subsidized by taxpayers.”
Longtime Rocky Mountain News political columnist Peter Blake now writes every other Thursday
for CompleteColorado.com. Contact him at firstname.lastname@example.org You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and http://www.CompleteColorado.com.