Community Benefits Proposals A and B

**BankruptcyGuy** · November-03-16, 03:25 PM

Let me help out if I can. You can divide "tax breaks" that a developer receives into different categories.

Think of the problem as two questions in a grid, with four possible results. Question 1: are the improvements public or private? Question 2: are the funds used currently taxes being paid, or are they future taxes [[called an "increment", it's the "I" in TIF)?

Let's take the simple one first: public improvements funded by an increment. Let's say we need to widen a road or put new traffic lights in. Cities generally don't want to pay for that. In a unsexy residential development in the suburbs, the city will condition its approval upon the developer paying those costs. If the project is attractive enough, the city might want to pay for those improvements. If the city does, but doesn't have the money, they may capture some tax revenues from the new development to pay for the improvements. This is probably the least objectionable of the four.

If the improvements are public, but the development generates no new taxes [[or no new taxes are used), that's more like normal decision-making that municipalities make [[i.e. where do cities spend their taxpayers' money?)

If the improvements are private, that's where it gets tricky. This is done all over the country. The largest example is the Gigafactory in Nevada--states were throwing money at Telsa. If you want an example for a stadium, try the new Comiskey Park [[now "Guaranteed Rate Stadium--with its logo of an arrow pointing down--hilarious). The park is privately owned and funded almost entirely by public funds, some through tax increment and some through existing taxes. A deal where public taxes [[without an increment) are used solely for the construction of a private property has dubious constitutionality.

The LCA is financed almost 50-50. $450MM total cost, $250MM in DDA bonds [[increment unknown), $200MM from Mr. I. Now, how much of the construction is public [[roads, streetscape, etc.), I don't know.

I'm in the camp that I don't know why a "community benefits" agreement would be needed. Is the City Council that out of touch with its citizenry that it can't figure out what the voters really want? How you define "community" in this case? Is it downtown only? Why would that be; residents of the whole city pay taxes? A well-run city doesn't need it.

**erikd** · November-04-16, 10:17 PM

Originally Posted by BankruptcyGuy

Let me help out if I can. You can divide "tax breaks" that a developer receives into different categories.

Think of the problem as two questions in a grid, with four possible results. Question 1: are the improvements public or private? Question 2: are the funds used currently taxes being paid, or are they future taxes [[called an "increment", it's the "I" in TIF)?

Let's take the simple one first: public improvements funded by an increment. Let's say we need to widen a road or put new traffic lights in. Cities generally don't want to pay for that. In a unsexy residential development in the suburbs, the city will condition its approval upon the developer paying those costs. If the project is attractive enough, the city might want to pay for those improvements. If the city does, but doesn't have the money, they may capture some tax revenues from the new development to pay for the improvements. This is probably the least objectionable of the four.

If the improvements are public, but the development generates no new taxes [[or no new taxes are used), that's more like normal decision-making that municipalities make [[i.e. where do cities spend their taxpayers' money?)

If the improvements are private, that's where it gets tricky. This is done all over the country. The largest example is the Gigafactory in Nevada--states were throwing money at Telsa. If you want an example for a stadium, try the new Comiskey Park [[now "Guaranteed Rate Stadium--with its logo of an arrow pointing down--hilarious). The park is privately owned and funded almost entirely by public funds, some through tax increment and some through existing taxes. A deal where public taxes [[without an increment) are used solely for the construction of a private property has dubious constitutionality.

The LCA is financed almost 50-50. $450MM total cost, $250MM in DDA bonds [[increment unknown), $200MM from Mr. I. Now, how much of the construction is public [[roads, streetscape, etc.), I don't know.

I'm in the camp that I don't know why a "community benefits" agreement would be needed. Is the City Council that out of touch with its citizenry that it can't figure out what the voters really want? How you define "community" in this case? Is it downtown only? Why would that be; residents of the whole city pay taxes? A well-run city doesn't need it.

I tend to agree with this assessment.

I have serious reservations about handing hundreds of millions of public dollars to fund private developments without including benchmarks and covenants to ensure that the promised public returns are actually realized.

However, I am not sure if the proposed CBA proposals are a good idea.

The city council is supposed to be body that reviews these contracts, holds public hearings, and takes public input on such matters.

It seems that the proper course of action would be for city council to require developers who are receiving significant tax subsidies to sign contracts holding the developers to their promises.

If the developer is asking for public funding based on promises of increased employment, increased tax base, increased spin-off development, etc., then those promises should be written into a contract. If the developer doesn't deliver on these promises, then they should have to forfeit a portion of the subsidy.

**Wesley Mouch** · November-05-16, 12:31 PM

Originally Posted by erikd

I tend to agree with this assessment.

I have serious reservations about handing hundreds of millions of public dollars to fund private developments without including benchmarks and covenants to ensure that the promised public returns are actually realized.

However, I am not sure if the proposed CBA proposals are a good idea.

The city council is supposed to be body that reviews these contracts, holds public hearings, and takes public input on such matters.

It seems that the proper course of action would be for city council to require developers who are receiving significant tax subsidies to sign contracts holding the developers to their promises.

If the developer is asking for public funding based on promises of increased employment, increased tax base, increased spin-off development, etc., then those promises should be written into a contract. If the developer doesn't deliver on these promises, then they should have to forfeit a portion of the subsidy.

I'm against tax breaks. Thus I like the idea of writing iron-clad contracts overseen by a group of people [[Council) who have little idea what makes development really happen. It might be the best way to stop the nonsense.

Allow me to take issue with the idea of 'performance covenants'. I share the concern that businesses promise benefits that never materialize. And I've seen on the inside that businesses [[and the enabling politicians) do very optimistic math to support these promises of new jobs. They aren't necessarily lying... but their assumptions are about as accurate as the pension funding assumptions of 7.5% annual return. I get the concern.

But where I have an issue is that when you're in the business of development -- you expect some failure. If you don't have failure, then you make success harder. Bankruptcy, I've heard, is one of the western ideas that has made our economy successful. If you fail in your venture, you can go into bankruptcy, invalidate debts, and get another try. Before Bankruptcy Laws, when you failed you had to spend the rest of your life trying to pay off your debts. When lifetime debt is possible, people don't take risks. [[Do I have it right BankruptcyGuy?)

In Detroit, we want companies to take a chance on Detroit. Build that plant where everyone in NYC says it is sure to fail. Build it in Detroit. If we start requiring personal guarantees from company owners before granting tax breaks, we may find the fewer people take their risks in our yard.

We actually want people to be able to fail in Detroit. Because we want people to keep trying -- even when Version 1 doesn't work. A 'convenant' might discourage just what we want, and discourage jobs.

Right now, some companies exaggerate job creation. Look at the Poletown plant. They promised something like 15,000 jobs in that ring of death that currently surrounds the plant. Drive along the north edge and look at the green pastures. That's your 15,000 jobs that need appeared.

But we got an assembly plant. Was that plant being built in Detroit instead of Alabama worth tax breaks, even if it didn't produce all the promised jobs?