As more local governments consider tax allocation districts (TADs) and the use of tax increment financing, it has become necessary for taxing jurisdictions to educate themselves on this issue. Though there is a growing body of research concerning the legal process and policy implications associated with TADs, analysis on the actual financial performance of existing TADs is limited.
In an effort to shed more light onto the practical applicability of TADs in the metro Atlanta region, the Council for Quality Growth researched where the region currently stands in its use of TADs, and explored what can be learned from earlier TAD projects.
The number of TADs in Georgia continues to steadily grow. From six TADs in 2002, to 27 by 2007, the state had 64 approved TADs by 2013.
The purposes for which communities create TADs tend to fall into three broad categories. First, they are created to encourage commercial development in largely undeveloped or under-developed commercial corridors where high infrastructure costs has inhibited quality development. Second, TADs have been created in order to build new town centers, redevelop downtowns, or revitalize other areas. Lastly, TADs have been formed to achieve multiple objectives, including the replacement of existing, lower valued development with mixed-use projects and other appropriate development. Typical targeted redevelopment sites are vacant shopping centers, obsolete public housing, substandard apartment complexes, and other under-valued commercial and residential properties. On a per acre basis, the taxable property digest within most Georgia TADs at the time of certification was substantially lower than surrounding host communities.
TADs in Georgia have experienced varying levels of success. For example, the Atlantic Steel Tax Allocation District (better known as the Atlantic Station TAD) was established in 1999 to facilitate the redevelopment of a 138-acre brownfield site. In order to subsidize a portion of development costs up front, TAD bonds were issues based on projected future increases in property tax revenues. In addition to the initial $76.5 million in bonds issued in 2001, the City of Atlanta issued an additional $166.5 million in 2006, and another $85.5 million in 2007 to refund the first series of bonds.
Though the financial crisis at that time hampered the project from growing at the forecasted rate, the success of this project is still yet to be unseen. Though many view Atlantic Station as an epic failure, land prices have finally climbed back to 2008 levels again. CBRE Global Investors bought pieces of the Midtown mixed-use district back in 2010, and now the Atlanta Business Chronicle reports that they are shopping 16 acres of that undeveloped land, including a “pinnacle” piece that juts out toward The Connector, promising major visibility. If developers are biting, and they seem to be already, Atlantic Station could see a resurgence up ahead. For one, Houston-based developer Hines is planning a seven-story office building near the Millennium gate on 17th Street, suggesting that this story is far from over.
Contrarily, the City of Smyrna may be re-teaching how to successfully implement TADs and reduce risks associated with an unpredictable market. Instead of issuing bonds to help the project’s developer, Halpern Enterprises, fund the development, Halpern instead agreed to be reimbursed for TAD-eligible redevelopment costs such as grading once revenues come in. In reality, regardless of financial incentives such as TADs, developers are unlikely to build unless they feel the project will be a success. Thus, by refraining from issuing bonds at the municipality’s expense, Halpern bears much of the risk of the development while retaining the benefit of TAD revenues if the projections come to fruition.