Lindbergh officials asking tough questions about TIF proposal
January 26, 2005 - By SCOTT MILLER
The Lindbergh School District could receive a financial boost from a proposed $163.9 million development in Sunset Hills, but district officials still are asking some tough questions about the tax-increment finance assistance the developer is seeking.
During the city's first TIF Commission meeting last week to consider the proposal, Novus Development Co. President John Browne said he would offset Lindbergh's loss of property-tax growth from the redevelopment area by providing payments to the school district and other taxing entities in amounts equal to the Consumer Price Index.
"That's a great concept, but it's not a lot of money," Lindbergh Assistant Superintendent for Finance Pat Lanane told the Call. "I was pleasantly surprised to hear him say that, but we still have to take a hard look at their proposal."
Lanane, who serves as the district's chief financial officer, and Lindbergh Board of Education President Mark Rudoff serve on the city's 12-member TIF Commission, which will make a recommendation on the Novus proposal to the Board of Aldermen.
At the Jan. 17 TIF Commission meeting, Lanane submitted a list of questions he wanted answered before the panel's next meeting Monday night — after the Call went to press.
In a TIF district, tax receipts for school districts, fire districts and other taxing entities are frozen at existing levels for the length of the TIF — up to 23 years. As land within the TIF district increases in value, the incremental tax revenue — 100 percent of property taxes and 50 percent of sales and utility taxes — is used to retire the TIF obligation.
As development occurs, property values increase, but only the city absorbs an immediate tax benefit. Other taxing entities don't see any of the tax growth until the debt used to fund the TIF is retired, a concern of Lindbergh officials.
In this case, Novus is seeking $42 million in TIF to offset the costs of a $163.9 million development at Watson Road and Interstate 44 by South Lindbergh Boule-vard. The 67-acre development would in-clude "high-end" outdoor shopping and restaurants along with grocers, office space or a hotel, Browne said.
While Lindbergh wouldn't see any tax growth from the project until the TIF obligation is retired, Browne noted that the new tax growth wouldn't exist without the Novus development.
"In a TIF, no existing tax dollars are lost," he told the commission. "(The tax-revenue increases) do not exist today and they will not be there in the future as long as the obstacles exist (to keep Novus from developing)."
Nonetheless, Browne said he was willing to negotiate a deal with Lindbergh and the other taxing entities affected to help offset the loss of property-tax growth.
"In every TIF we've done, we've done something to offset that 100 percent tax (growth) capture," Browne said. "If we didn't do this development, assuming (the land) isn't going down in value, it would be going up by inflation ... Our responsibility of payment to — and again we can't single out the school district, but all taxing entities that receive money from the property tax assessment — an amount annually equal to whatever the Consumer Price Index is for that year."
Plus, when the TIF debt is retired, Browne said, "Main Street at Sunset" will generate $3.5 million in property taxes to split be-tween the taxing entities.
But Lanane said the development could hurt business in other communities, particularly Crestwood, which also is within Lindbergh's boundaries. Novus' proposal, he said, could just shift consumer traffic, causing businesses in other communities to go broke.
"That's not good from the school district's point of view," Lanane said. "If one community wins at the cost of another, I don't agree with that."
Lanane also questioned whether the area is saturated with businesses and wouldn't have the consumer support to survive.
After reviewing Novus' proposal, Lan-ane submitted a letter to the TIF Commis-sion last week, stating, "This proposal has been very helpful in making an initial analysis of the materials, and as you might expect it has provided the basis for me to generate the questions the district will need answers to in order to ascertain our position regarding the proposal. I am submitting my initial questions and ask that a response be given in writing."
Lanane's questions include:
"$42,000,000 of TIF is requested as part of a total $137 million project cost, or 30.66 percent. Most TIF projects provide no more than 25 percent assistance. Please explain why this higher percentage is needed?"
At last week's meeting, Browne said the cost actually increased to $163 million before the projected started, decreasing the TIF assistance to roughly 25 percent.
"It is my experience that these things never cost less, they always cost more," Browne told the commission.
"The proposal does not indicate how the TIF funds will be utilized. What are the TIF funds to be used for and why is TIF funding required?"
At the meeting, Browne said, "We have the obstacle of highway modification, utility relocation upgrades, demolition of existing structures, abatement of hazardous ma-terials and most challenging of all, the cost of acquisition."
"How was the amount of assistance re-quested determined?"
"For developments involving TIFs and property acquisition, the developer sometimes offers property owners highly inflated purchase prices. This makes it easy for the developer to acquire the property. The inflated purchase price is paid by the TIF — that is, passing the inflated cost along to the taxing districts, passing it on to taxpayers. For the properties being acquired, how were the purchase prices determined? How do the purchase prices compare to the market prices?"
"This appears to be a speculative TIF. Does Novus have any firm tenants or an-chors? Will properties be demolished prior to having a significant number of firm tenants? What percentage of space will be leased prior to demolition of existing properties?"
No contracts have been signed, but Browne told the Call about 85 percent of the space has committed tenants, though he wouldn't identify those tenants.
"When a TIF is put in place and development does not occur, residential property values decline. What is the time line for terminating the TIF if tenants are not secured? What percent of space must be leased prior to Novus commencing the project? Will the city impose a deadline for obtaining tenants and for the TIF to be dissolved if tenants are not secured?"
"When the existing structures are de-molished the assessments will decline. Will the school district be compensated for the lost taxes prior to development?"
"The proposal states that a study by the ICSC, International Council of Shopping Centers, indicates that square foot sales are $400 for lifestyle centers compared to traditional malls, which average $330 per square foot. In other publications by the ICSC it is noted that lifestyle centers serve the high end of the urban market. How does Novus know that $400 of square-foot sales be realized for this development? Has No-vus had a market study to determine if there is a sufficient 'high end urban market' in the proposed redevelopment area to support this project?"
"Novus' experience is generally with projects in the 100,000 square-foot range and costing in the $20,000,000 range. Has Novus ever completed a lifestyle center? Has Novus ever completed a comparable sized development? Has Novus ever completed a hotel development?"
"The proposal indicates that the TIF obligations will be retired in 12 years. Is this a projection or will this be the stated maturity of the TIF obligations and set forth in the redevelopment agreement?"