New Rules for Development Loans Will Have More Community Input

From L-R, At-Large Councilwoman Erica Gilmore, District 5 Councilman Scott Davis, At-Large Councilman Bob Mendez, and District 6 Councilman Brett Withers listen to MDHA Board Chairman Charles W. Bone address the council on July 16. Bone urged them to approve Mendez’s bill to overhaul TIF loan rules.

By Peter White

NASHVILLE, TN – After six months of deliberation by a special 7-member committee, the city council approved a bill last month changing Tax Increment Financing (TIF). Metro TIF loans are administered by the Metropolitan Development and Housing Agency (MDHA) and their main purpose is to promote economic growth in one of the city’s twelve redevelopment districts.

At Large Councilman Bob Mendez sponsored the bill which ends a long-standing MDHA practice of using all increment tax revenues to pay back TIF loans. “That increment is pledged to pay the loans for as long as it takes to pay them off–usually 10-12 years,” Mendez said.

Mendez said that under the new rules, instead of using 100% of new tax revenues to pay back TIF loans, they will be split. Three quarters will pay back loans and one quarter will to the Metro budget to help balance the spending needs for the city. The last big change in Metro redevelopment policy happened three years ago.

“In 2016 we outlawed the practice which was used with the Omni (hotel). When the AT&T building was paid off we kept using the increment for other development loans,” he said.

“The owner always pays the taxes,” said Mendez. “It’s just a matter of what Metro does with the money it receives. Before the ATT building was built that property was paying $34,000 in property taxes. Today the owners pay $2.1 million dollars-worth of property taxes. The difference is the increment,” he said.

Currently, Metro doesn’t keep the tax increment from the Capitol Mall Redevelopment District. It uses all of it to pay back the development loan for the Omni Hotel. Mendez said the original balance on the Omni loan was $60 million and is now down to about $30 million.

“There are 18 buildings pledged to pay the Omni loan and about 6 for the baseball stadium,” said Mendez. That practice will stop with any new TIF loans.

The TIF Financing Study report, released in May, defines TIF as a pledge of future tax revenue to fund present‐day investments. Municipalities use TIF to fund improvements, typically utilities, transportation, or other types of infrastructure, in a designated area, referred to as a zone or a redevelopment district.

TIF financing uses the current base value of property in a district and calculates a future tax base determined by estimating higher property values from development and thus higher taxes. MDHA borrows money today and pays it back later with those higher taxes.

TIF loans often go to big projects like the ICON condos and the Laurel House Lofts in the Gulch. Sometimes TIF loans go to a number of blighted properties in the same area such as the 300-700 blocks of Church St. The assumption is that a rising tide will raise all boats.

But TIF critics argue that there are winners and losers when it comes to Metro’s development dollars and they say revitalization is more like a game of musical chairs or playing Three-card Monty. When he bets his own money the mark never guesses right and MDHA has been criticized for a lack of transparency when it comes to handing out TIF loans. The new rules are supposed to change that.

“Up until now redevelopment plans, once they are approved by the council, last for 30 years. MDHA gets all the decision-making,” Mendez said. Every 7-10 years, the new TIF law requires plans to come back before the council for a new agreement about what to spend the money on.

“And if there is no agreement, rather than continuing on, there would be no new TIF loans after the reassessment,” he said. But measuring the benefits of a plan or proposed project can be problematic.

“There is no standard way that we look at that… some people say it’s great. Some people say it’s terrible.Part of the reason why there’s disagreement is because there’s no agreed-upon way to measure the benefits,” Mendez said.

He noted measuring benefits and deciding priorities, although difficult, will at least be better than what’s been going on. “Nobody measures the benefits of redevelopment districts right now. Never have,” he said.

“Plans can be updated by MDHA or Council subject to the approval of the other,” MDHA Board Chairman Charles W. Bone told the City Council. “Ultimately, what we produce will allow TIF to be done in a more transparent way, in a more equitable way, and certainly in a way that has more confidence within the community. I would urge you to support this,” he said.

“I think it will be obvious when we have these look-backs in 7 to 10 years if we are having the impact that we set out for or not. Are we going to continue going forward by making more loans in this district or have we done the work that needs to be done?” asked MDHA Board Chairman Charles W. Bone.

Bone said that district reviews will allow goals to change, or not, but in either case the city won’t have to wait three decades to do it. He said MDHA will continue to review applications and make TIF loans but the City Council will have a role in shaping the goals and priorities of development districts.

Typically, TIF applications come through MDHA or the Mayor’s office and they are usually big projects. The legal costs are considerable whether it’s a big or small project. And that has been a problem. Bone said he wants MDHA to streamline the process. “We heard it loud and clear from the community: let’s be more intentional about trying to use this tool in some other parts of the county and in other redevelopment districts and let’s see if there are not some things that we can put in place that would help it to be used with smaller projects,” Bone said. He also said MDHA is committed to making TIF loans to a more diverse group of developers and to spread new TIF loans throughout the county.

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