August 18th is Developer Dollar Day!

[Traditional DDD rituals include "digging the celebration hole".]

Everybody get out your celebratory party hardhats, close your eyes, and get ready to blow out the acetylene torch. August 18th is now officially Developer Dollar Day, that one day of the year where we take time out to celebrate and recognize the link between real estate development and our different levels of government. A big part of any city government’s job is to figure out ways to get development started, working with the real estate crowd to subsidize, control, entice, manipulate, or be manipulated by developers seeking to make money off of building new buildings.

Each year, on Developer Dollar Day (Triple-D(!)) we look a little closer at how this works.

I’m no expert on this. It’s super-duper complicated, but here’s a simple DDD (Triple-D(!)) glossary:

  • Tax Increment Financing (TIF) – the city gives money to a developer up front to help fund a new construction project. The money is then ‘paid back’ in the added tax revenues from increased property values as a result of the development. The only downside of TIF is that it removes a bunch of land from the property tax rolls, essentially de-funding the city of a bunch of dollars that might otherwise be used for schools, roads, cops, etc., and essentially giving those dollars to the developer. The upside of TIF is that it might ‘kickstart’ a development that “but for the TIF money” would never have happened.
  • Public/Private Partnership (PPP… Triple-P(!)) – Code for the city becoming a ‘real estate developer’, in a way. The city ‘partners’ with a private developer to fund a project. These come in all shapes and sizes. Possible downsides include: public ‘stakeholder’ assumes all the risk while private ‘stakeholder’ makes all the profit. Upsides? Spurs development that may not happen otherwise. May add public goods and/or social benefits to an otherwise private project.
  • Straight-up Bonds – city applies for low-interest and/or tax-free public loans for development.

  • Special bonus: Recovery Zone Facility Bonds (RZ-FBs) – As the Strib explains, “The so-called RZ-FBs are part of a total of $330 million in temporary bonding authority the federal government gave Minnesota as part of the stimulus bill. The bonding authority, which also includes a different flavor of bond called the Recovery Zone Economic Development Bonds [(RZEDB?!)], went to 55 counties and to Minneapolis and St. Paul. But because of a lack of applicants, counties have returned about $50 million to Minnesota Management & Budget, which has been doling it back out.”
  • Other special bonus: Build America Bonds (BABs) – As Finance and Commerce explains, “Build America Bonds are a stimulus-related program meant to lower borrowing costs paid by local government for public works projects. … But the Build America Bonds program requires that projects be publicly owned.”

Saint Paul mayor Chris Coleman pulled out all the stops for his Triple-D(!) celebration, announcing a whole suite of ways to ‘kick-start’ and ‘leverage’ development in Saint Paul. His DDD (Triple-D(!)) list includes:

Not to be left out, the Hennepin County Board got in on the celebration with a big $40M in tax-free bonds for a new luxury hotel, to be grafted onto the current Mall of America (MOA). Apparnetly these were intended to help "economically distressed locations" and are somehow being used to fund the luxury MOA development that Triple-5 (!) Group, the mall's Canadian brother owners, have been trying to get some state money for many many years.

As the Strib describes,

The hotel qualified because in June Bloomington and its Port Authority designated the area south of the airport and around the mall a recovery zone -- by virtue of having a poverty rate of 20 percent or more, or having a median income at or below 80 percent of the state or metro area median income.

[After digging the "celebration hole", tradition states you must cut large ribbons with giant scissors.]

1 comment:

Daniel Olson said...

Yes, as a layman I've been eyeing the PPP's, TIF's, Recovery Zone, & BAB's & JOBZ programs warily. Jump starting urban development with the Farmers Market Flats and Penfield may payoff, but building the MOA luxury hotel with Recovery Zone Bonds makes my blood want to boil. Why again is the government subisidizing a luxury hotel connected to that ugly behemoth?