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VOL. 119 | NO. 119 | Thursday, July 7, 2005

City Explores Development Incentives

CCC studies funding mechanisms for Downtown projects

By Andy Meek

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NEW MONEY: The Center City Commission is examining new tax incentives, such as site-specific tax increment financing districts, to finance Downtown development projects. -- The Daily News File Photo

In Memphis and Shelby County, with a combined debt of around $2.7 billion and the highest property tax rate in the state, the million-dollar question about new development is how to pay for it.

With that in mind, the Center City Commission might soon borrow a page from the developer's playbook in Nashville. The CCC, which is coordinating more than $2 billion in redevelopment Downtown, wants to be able to offer more tax incentives to finance new projects - incentives such as "site-specific TIFs."

Up-front money. The CCC brought in Nashville attorney James Weaver last month to explain how site-specific TIFs are being used in Nashville. A TIF, or tax increment financing, district is a special district that could be created to generate up-front money to pay for parking, street improvements and other upgrades often needed for new projects.

Unlike the TIF district the CCC once proposed for much of Downtown, site-specific TIFs have smaller boundaries that surround a redevelopment area.

Gene Pearson, director of the University of Memphis graduate program in city and regional planning, said the theory behind TIFs is that they attract new investment in areas that wouldn't have received it otherwise - and that investment eventually leads to a boost in tax revenue.

"If there's somebody that you're trying to attract to do a business development in a certain area, they're going to either renovate something or build something - and when that action takes place, there's the presumed increase in value," Pearson said. "And the presumed increase in value, of course, turns into increased taxes, just based on the tax rate in effect at that time.

"So instead of taking the taxes from that private development and putting it into the government's general fund, they simply say, 'You can use those taxes that you would have paid the government to pay off a mortgage that you went out and got to finance the construction or renovation.'"

"On a TIF, the project would pay taxes at the normal rate, and a substantial portion of the increase in taxes as a result of the project would be used to pay back debt incurred to fund the front-end costs."
- James B. McLaren Jr.
managing partner, Armstrong Allen

Another incentive. James B. McLaren Jr., an attorney for the CCC, said there are only certain times TIFs can be used in Shelby County, according to state law. But he said the CCC is looking into using them as another incentive to pay for future Downtown projects.

Their biggest selling point, he said, is the fact that they're "front-end loaded," unlike payments-in-lieu-of-taxes (PILOTs), another popular incentive used to finance expansions and new construction. That up-front money is debt that's secured by future growth in the project's tax revenue, he explained.

"There are two mechanisms under Tennessee law where you could have a site-specific TIF in Shelby County," McLaren said. "One would be using the powers that Memphis Housing Authority has for TIF financing. The other is to have a TIF financing which would ultimately require City Council and County Commission approval. The biggest distinction between those two mechanisms is if you use the powers of (MHA), the property has to pass through (MHA's) hands. They have to own it.

"On a TIF, the project would pay taxes at the normal rate, and a substantial portion of the increase in taxes as a result of the project would be used to pay back debt incurred to fund the front-end costs."

Local example. In 2001, a TIF district was created for the Uptown redevelopment project on Downtown's north end, the 100 city blocks where the Hurt Village and Lauderdale Courts public housing projects once stood. Andy Kitsinger, director of planning and development for the CCC, said Hope VI grants were used as part of the up-front investment in Uptown.

However, incentives such as site-specific TIF districts only go so far. At another recent CCC subcommittee meeting, for example, talk was dominated by discussion of several vacant Downtown buildings that have withstood such tax incentives. Kevin Gallagher, assistant to Shelby County Mayor A C Wharton Jr., pointed to such prominent buildings as the Sterick Building as an example of "some of the best things that stand out Downtown and that are still empty."

"And too many empty buildings have been allowed to sit for too long," he said.

TIFs versus PILOTs. In his presentation to the CCC, Weaver told the group that, given a choice between PILOTs and TIFs, developers and public-private partnerships in Nashville usually favor TIFs. In Memphis and Shelby County, PILOTs are the major economic force; they're used to finance new projects and business expansions by keeping tax assessments at pre-development levels, Pearson said, allowing the money to be spent on other uses.

Locally, PILOTs are given out by the CCC, the Industrial Development Board and the Health, Educational and Housing Facility Board, in addition to boards in the cities of Bartlett, Arlington, Millington and Collierville.

Kitsinger said the CCC had no specific project in mind for the TIF discussion, just a goal of finding more ways to fund new projects.

"The purpose of the development and finance committee is really to explore alternate funding mechanisms for development and public infrastructure costs," he said.

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