By Cathi Harris, contributor
Decatur, GA – Decatur officials are considering establishing a tax distribution district (TAD) in the city center to support the development of affordable housing and improved infrastructure.
The city already has a TAD for the area around the Avondale MARTA station in East Decatur and a second could be a useful tool to foster the kind of development the city needs at its core, Geoff Koski, an advisor the KB Advisory Group announced to members of the Decatur City Commission and the Downtown Development Authority (DDA) on Monday evening.
During a joint working session of the two groups, Koski explained the fundamentals of Tax Increase Financing (TIF), the more general term for what the State of Georgia calls tax allocation counties.
“The first thing to remember is that this is not a tax hike,” said Koski. “It’s all about how property taxes are distributed after they are levied. It is a mechanism for circulating tax revenue in a location or district. Once you have set the TAD limits, all future tax revenue will be diverted within that TAD for the time it has been set up. “
When a TAD is established, it uses the assessed value of the properties within the boundaries to establish the “base value”. The property taxes levied on the basic values of the properties flow into the city’s general fund both this year and in all subsequent years, but after the first year in which the TAD is in force increase The income from property tax would – due to rising property values - flow into the TAD fund.
It is this incremental increase in revenue that is captured by the TAD Fund and used to pay for infrastructure improvements within the border or to incentivize the development that the city wants to see there.
“An owner within TAD wouldn’t necessarily know there was one,” said Koski. “There is a note on the city tax bill, but in and of itself it does not affect the amount of tax, it affects what happens to the money after it is collected.”
What can a TAD be used for?
Georgia law, which allows local governments to use TADs – the Remediation Powers Act – states that they should be used for areas suffering from either disease, lack of investment, or infrastructure needs.
Few people would consider downtown Decatur tainted or uninvested, but the city could stand in the event that the lack of affordable housing is a problem and could even be seen as a necessary infrastructure, Koski said.
“The state has always said that they interpret the law generously and they want it [governments] to achieve their goals, ”he added. “We have determined that it is permissible, when the law does not specifically state that you cannot use the TAD for this purpose.”
TADs are used to support new developments in two ways, Koski said. For one, the city is issuing income bonds against the expected future growth of the TAD fund. Second, the city could take a “pay as you go” approach and use the TAD funds raised to pay directly for infrastructure improvements or discounts or grants to developers who build or deliver the targeted development.
Affordable property developers will often use TIF finance as part of their “capital stack,” the tiers of finance required by various companies to finance major construction, Koski said. The TIF financing offers additional money and makes the project more attractive for banks and investors.
“Normally we do not want to have more than 10 percent of the funds for a particular project in public dollars in our advice,” said Koski. “And normally the developer would have to pass a so-called” but for “test, which means that he demonstrates that” without “the additional public investment, the development will not be built.”
An important restriction is that the income generated through the TAD is only intended for part of the city taxes, unless the school district and the county have agreed to participate in the TAD. This is in contrast to tax reduction programs for individual developments, noted Koski.
“If a development agency may be able to provide a tax break that includes portions of property taxes that go to counties and schools, it doesn’t apply to TADs,” Koski said.
Possible problems
The law on the powers of redevelopment stipulates that no more than 10 percent of the total property tax digestion of a city or a district may be subject to a TAD. Since Decatur already has a TAD, the second might not be so big that the sum is over 10 percent, Koski said.
During the discussion, Commissioner George Dusenbury wondered if Decatur would get the cart before the horse in terms of downtown planning.
“When I ran for the city commission, I worked to develop a master plan for the city center,” said Dusenbury. “We haven’t made any progress with that yet. Should we have a plan for the cleanup [of downtown] If we haven’t decided what the community would like to see there? “
The city is expected to work on the downtown master plan once the city’s strategic plan update is complete, said Angela Threadgill, director of planning and economic development at Decatur. But she also said she had questions about how the two efforts would work effectively together.
“We will push ahead with the development of the master plan, which is expected to start in the fall,” she said. “But I had similar questions about how the recovery plan for the TAD would correlate with the master plan if you had created a TAD just a few months before the master plan.”
Typically, a city wants to complete a strategic planning process and set its updated targets for an area to feed into the TAD redevelopment plan, Koski admitted. However, there could be good reasons why Decatur might consider establishing a district.
“That is a good order, but it is not necessary – and by law it does not have to be that way,” he said. “If the large residential building (Modera Decatur on Bank of America’s redeveloped site) is nearing completion, it would be great to generate this income for TAD. Sometimes you have the situation: ‘We generally know what kind of area we want to be, but we don’t have a master plan. However, we know a big project is about to be launched and it would be great if that growth spurred development for the next 20 years. ‘“
Setting up a TAD downtown wouldn’t mean the character of the downtown area would change quickly, Threadgill added. “Even with a TAD in the city center, we don’t expect everything to be redeveloped within a short period of time. This would be a longer term plan. “
The city is currently working with the KB Advisory Group to define the proposed boundaries of a TAD in the downtown area, as well as the redevelopment plan that will govern the use of the funds, as well as a process by which the city would evaluate applications for TAD funds.
Before the city can nominate a TAD, they must hold two public hearings and then the city commission would have to take a decision approving the TAD.
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