posted by Mike Madison at 5:33 PM /
Rats. There's an interesting Letter to the Editor in today's PG South section from the lawyer for the Washington Park development proposed for the Bower Hill Road/Washington Road intersection, but so far (at least) it hasn't shown up on the paper's website. So I'll type in and critique the relevant statements. The title assigned by the paper is "Mt. Lebanon TIF won't drain coffers," and the basic argument is that the TIF requested by the Washington Park developer (Zamagias Properties) will add tax money to the town's and district's bank accounts. It won't divert tax resources.
The author of the letter isn't just the lawyer advocating for this TIF. She makes a good part of her living representing real estate developers seeking TIFs. It's an honest living, and TIFs, in appropriate circumstances, are valid development vehicles. But the letter should be understood as what it is -- advocacy -- and not as what it purports to be -- fact.
The letter starts off by criticizing a "campaign of misinformation, broadcast via Internet blogs." So first, thanks for reading! This blog, I mean, not the misinformation. I'm not aware of other Mt. Lebanon blogs that have addressed this project, but commenters can correct me. To the best of my knowledge, neither I nor Joe Polk wrote the actual blog-words that the letter quotes, but that's a quibble. I can't speak for Joe, but I was clear in earlier posts: I think that this TIF is a bad idea.
Next, the letter sets out some important assumptions -- without acknowledging them as such. When economists make assumptions, which they always do, those assumptions are front and center, so that the assumptions can be critiqued and the analysis refuted. When lawyers make assumptions, which they always do (I'm a lawyer, and I teach law, so I'm on pretty solid ground here), they are as careful as possible to hide their assumptions behind a facade of objectivity. Done well, that makes their arguments seem both right and inevitable, and the lawyers get what they want for their clients. Done badly, the arguments seem clumsy, and the lawyers and clients get nothing -- or worse.
Here, the assumptions are presented smoothly, which means that it's all the more important that they get exposed, so that the argument doesn't carry any more weight than it should.
Letter assumption #1: the Bower Hill/Washington Road intersection is "a prime location." That sounds plausible, since that's an intersection where two major roads meet, and it sits at one entrance (not the entrance, but certainly one entrance) to Mt. Lebanon. The argument that follows the assumption is this: This is a prime location, but it has been vacant for more than 20 years, and the vacancy stems from the fact that development would be profitable only if it were publicly subsidized. In other words, the private sector can't develop this "prime location" on its own. But wait. Real estate developers are acutely profit-sensitive, and their informal global motto is "location, location, location." If this really is a *prime* location, then it should have been snapped up and developed long ago. Maybe the location isn't so "prime" after all, and the lack of development reflects market reality. It turns out, however, that the assumption is true. At least I'll grant the assumption. But the argument above doesn't follow logically. If the location really is so special, then maybe the location is profitable even without the TIF. All you need is the right market and the right loan. And if you examine Zamagias's submissions carefully, as Bill Matthews and others have done, you'll see that this is actually the case. Zamagias could develop this site with its own (private) money, and without a TIF, and still make a reasonable profit. Read this letter carefully; it doesn't say otherwise.
Letter assumption #2: "But if we want a signature residential and retail building and the related public amenities that have been proposed, and if we want the significant increases in tax revenues that this project will generate, Mt. Lebanon and its school district can facilitate this substantial addition to the tax base by using the TIF." But wait! Why does the project need to be a "signature residential and retail building"? The scale of the project is flattering to people who like to think of Mt. Lebanon as an upscale community. I, for one, am endlessly frustrated by that image. Mt. Lebanon needs more housing that's affordable, not more half-million-dollar residences like the ones in Washington Park. Can Zamagias could make its intended profit by forgoing a TIF and building $250,000 condos? If so, I'm all for it. I'm sure the building would still look nice. Just remember: The TIF proposal and half-million-dollar condos go hand in hand.
Letter assumption #3: "I don't know about you, but I like it when my elected official figure out how to pay for public improvements without increasing my tax burden." But wait again; there is a tax impact here, but it's hidden, and it's hidden in much the same way that the public subsidy for the proposed Isle of Capri hockey arena was hidden. It can be teased out with a little hypothetical: Here, Zamagias has come to Mt. Lebanon and the School District and made what amounts to the following offer:
I look at that hypothetical offer -- which I think is economically equivalent to the TIF proposal itself -- as an offer to increase my taxes more than those taxes otherwise would increase (the contrast isn't a tax decrease; taxes around Mt. Lebanon never seem to go down). In other words, Mt. Lebanon residents can see their taxes go up a little, relatively speaking, without a TIF, or a lot, relatively speaking, with a TIF.
Letter assumption #4: "At a time when the school district is considering large capital expenditures and the municipality is attempting to hold down residents' taxes, it would be absolutely outrageous to turn our backs on this proposal." But wait! No. It wouldn't be outrageous at all. It would be the height of political, and fiscal, wisdom.
The author of the letter isn't just the lawyer advocating for this TIF. She makes a good part of her living representing real estate developers seeking TIFs. It's an honest living, and TIFs, in appropriate circumstances, are valid development vehicles. But the letter should be understood as what it is -- advocacy -- and not as what it purports to be -- fact.
The letter starts off by criticizing a "campaign of misinformation, broadcast via Internet blogs." So first, thanks for reading! This blog, I mean, not the misinformation. I'm not aware of other Mt. Lebanon blogs that have addressed this project, but commenters can correct me. To the best of my knowledge, neither I nor Joe Polk wrote the actual blog-words that the letter quotes, but that's a quibble. I can't speak for Joe, but I was clear in earlier posts: I think that this TIF is a bad idea.
Next, the letter sets out some important assumptions -- without acknowledging them as such. When economists make assumptions, which they always do, those assumptions are front and center, so that the assumptions can be critiqued and the analysis refuted. When lawyers make assumptions, which they always do (I'm a lawyer, and I teach law, so I'm on pretty solid ground here), they are as careful as possible to hide their assumptions behind a facade of objectivity. Done well, that makes their arguments seem both right and inevitable, and the lawyers get what they want for their clients. Done badly, the arguments seem clumsy, and the lawyers and clients get nothing -- or worse.
Here, the assumptions are presented smoothly, which means that it's all the more important that they get exposed, so that the argument doesn't carry any more weight than it should.
Letter assumption #1: the Bower Hill/Washington Road intersection is "a prime location." That sounds plausible, since that's an intersection where two major roads meet, and it sits at one entrance (not the entrance, but certainly one entrance) to Mt. Lebanon. The argument that follows the assumption is this: This is a prime location, but it has been vacant for more than 20 years, and the vacancy stems from the fact that development would be profitable only if it were publicly subsidized. In other words, the private sector can't develop this "prime location" on its own. But wait. Real estate developers are acutely profit-sensitive, and their informal global motto is "location, location, location." If this really is a *prime* location, then it should have been snapped up and developed long ago. Maybe the location isn't so "prime" after all, and the lack of development reflects market reality. It turns out, however, that the assumption is true. At least I'll grant the assumption. But the argument above doesn't follow logically. If the location really is so special, then maybe the location is profitable even without the TIF. All you need is the right market and the right loan. And if you examine Zamagias's submissions carefully, as Bill Matthews and others have done, you'll see that this is actually the case. Zamagias could develop this site with its own (private) money, and without a TIF, and still make a reasonable profit. Read this letter carefully; it doesn't say otherwise.
Letter assumption #2: "But if we want a signature residential and retail building and the related public amenities that have been proposed, and if we want the significant increases in tax revenues that this project will generate, Mt. Lebanon and its school district can facilitate this substantial addition to the tax base by using the TIF." But wait! Why does the project need to be a "signature residential and retail building"? The scale of the project is flattering to people who like to think of Mt. Lebanon as an upscale community. I, for one, am endlessly frustrated by that image. Mt. Lebanon needs more housing that's affordable, not more half-million-dollar residences like the ones in Washington Park. Can Zamagias could make its intended profit by forgoing a TIF and building $250,000 condos? If so, I'm all for it. I'm sure the building would still look nice. Just remember: The TIF proposal and half-million-dollar condos go hand in hand.
Letter assumption #3: "I don't know about you, but I like it when my elected official figure out how to pay for public improvements without increasing my tax burden." But wait again; there is a tax impact here, but it's hidden, and it's hidden in much the same way that the public subsidy for the proposed Isle of Capri hockey arena was hidden. It can be teased out with a little hypothetical: Here, Zamagias has come to Mt. Lebanon and the School District and made what amounts to the following offer:
We propose to build a fancy residential/retail building in your town, a building that will generate $XYZ thousands of dollars in tax revenue. We know that Mt. Lebanon and its citizens already pay high taxes, and we know that there are pressing capital and other needs around the town -- renovation of the high school, special needs programming in the schools, library services, public safety, sewers and street repairs, and so. Town residents will be taxed for years to come to pay for all of that. However, Zamagias will build our proposed building on one condition: That a large proportion of the new $XYZ thousands of dollars be given by the town and the School District back to us, and dedicated to fixing up the roads around our new building, rather than applied to more significant existing and future needs of the citizens.
I look at that hypothetical offer -- which I think is economically equivalent to the TIF proposal itself -- as an offer to increase my taxes more than those taxes otherwise would increase (the contrast isn't a tax decrease; taxes around Mt. Lebanon never seem to go down). In other words, Mt. Lebanon residents can see their taxes go up a little, relatively speaking, without a TIF, or a lot, relatively speaking, with a TIF.
Letter assumption #4: "At a time when the school district is considering large capital expenditures and the municipality is attempting to hold down residents' taxes, it would be absolutely outrageous to turn our backs on this proposal." But wait! No. It wouldn't be outrageous at all. It would be the height of political, and fiscal, wisdom.
Labels: TIF, washington park
17 Comments:
Oh my goodness!
I don't know where to begin - so for now:
Say what you will, but a shoe on your head does not make it a hat!
More later ...
Hmm. Correct me if I am wrong, but Lebo would receive the income taxes from the people who would live in this building (I agree, Lebo wouldn't get the property taxes for 20 years).
I am not sure how that would increase our taxes. Please explain.
To me, it is simply something instead of nothing. Developers are not throwing money at Lebo. If this has been empty for more than 20 years, that says a lot.
Although I do not agree that this is a prime location, I do agree that if you have a home in this place, you could have an incredible view, walk to uptown, and be only 15 minutes from the city of Pittsburgh....Not bad at all.
Again, my main point is, if developers could make money there, they would have already. It seems that, even if they could make money without a TIF, they have the upperhand because there isn't anybody else trying to get in there.
Read this earlier post regarding the Earned Income Tax argument. The short version is that there is every reason to expect that *if* the half-million-dollar condos get sold, then they will be sold to wealthy people. There is *no* reason to expect that they will be sold to wealthy people who work for a living. In other words, I expect that the target market here is wealthy retirees and/or wealthy couples living off of investments. If you're young and working and willing to spend a half million dollars on a condo, you're more likely to buy a unit Downtown.
Anonymous, please help yourself to using your Google account to post under your own name. That way your arguments can hold more weight, with your own credibility and reputation backing them up.
Don't have one? it's super easy: All you need is an email address and a willingness to participate in community discussion as a recognizable member. (psst! I'm trying to help you anonymouses out here...) Click here and you're on your way!
Now, allow me to retort.
We are anticipating a large capital outlay in the community for the HS renovation and the pool. The likelihood is high that the overall tax burden on the residents will go up, up, up as a result.
You are suggesting that the "added" income tax from the new property residents is what makes this development worth doing, because "hey, it isn't all the money, but it's more money." More money will help, right?
I am arguing that the "net actual tax", considering TIF payments as potential but not actual tax, makes this property a reduction of the future tax base. The one that will be paying for the big projects. The extra income taxes don't outweigh the property tax gift.
In other words, of the options "I pay more in future taxes for stuff because we decided Zamagias shouldn't have to" and "Zamagias pays a fair share just like the rest of us and still makes a profit on their investment", well, I go for B. Win win.
A couple points:
1) Going forward, the School and Municipal budgets will be what they will be, nothing more and nothing less. If +/- $500,000 of new taxes are diverted each year to pay the debt service on the project, that leaves +/- $500,000 to be made up by the rest of the community for education and essential government services. The condominium owners pay their normal taxes in full – but a significant portion of the new taxes never make it to the taxing bodies. They are “diverted” from the school and municipal budgets to the TIF. The developer seems to argue, since the taxes are new and never get to the budgets, they are not diverted from the budgets …???
(This morning I told someone at the Municipality – the next time they raise taxes, if I divert my share of the increase to my family, they won’t miss it because they never had it in the first place. The Municipality was not about to buy this proposition.)
2) This land has been under developed for 20+ years under the direction and guidance of the Municipality. Not because it was effectively abandoned or somehow otherwise undesirable. The Municipality, which cannot buy land and hold it for development (land bank), directed the Parking Authority to buy and hold the parcels many years ago until a development plan could be formulated and executed. In the mean time, it became the home of Medical Rescue Team South for many years, an active parking lot with spaces for lease and the temporary home for the library while it was being renovated. All of which generated revenue to the Parking Authority. To infer the land was an inactive “empty lot” is disingenuous, at best.
3) Lastly, maybe some of the improvements are desirable, if this is true, they belong in the Municipality’s budget. They should compete for our limited resources with all the other essential services of the Municipality – but then again - this would preclude the Municipality (and Parking Authority) from funding their projects with dollars rightly intended for the school budget.
More later ...
I have a google account, and a hotmail account. However, I believe being anonymous gives me the ability to speak what is on my mind without the possibility of reprocussions. (sp?)
We talk about the future tax burden going up for families in Lebo when the taxes of people living in Washington Park will be going to the Developer. Sure, that is true. But that $500,000 in new taxes is coming anyways, with or without this development. We will be paying the $500,000 either way.
But I believe the reality is there isn't a list of people wanting to do this without a tif. If there was, I would say go for it.
When I lived in Florida, it was common for Govts to pay for companies to come to their location. It truly does help with growth. If a nice elite condo building is built, it may bring up the value of everything else around it. Maybe those other buildings would get a face lift, and be fixed up too. Maybe more and more development will come in.
Just some thoughts on a Friday.
To me, it truly is, we either get something, or nothing.
There was a competing plan that would not have required a TIF. In its first phase, the plan would have had a lower build out cost, and consequentially a lower market value - BUT without a TIF it would have returned $3,000,000 to $4,000,000 (net present value) more to the taxing bodies than the Zamagias Properties project.
Both the Parking Authourity and Municipality panned this alternative without good reason (in my assessment - and certainly nothing worth $3-$4MM).
To quell any concerns in the comunity - both the Parking Authority and Municipality are on record - that - the fact that the 1st Vice Chair of the Parking Authority is also the Zamagias Properties project manager had no bearing on the decision.
More on the Zamagias Economics:
The first Zamagias feasibility study showed a "Combined Potential Value of Project" (i.e. the project return) @ $5,565,646 on a $2,000,000 equity investment or a 278% Return on Equity (ROE). $3,500,000 of the project return represented TIF proceeds.
This was the 2005 plan the Municipality bought into when it selected Zamagias Properties as the developer.
15 months later, in 2006, after refining their plans, Zamagias presented new a feasibility anlysis with a project return of $7,962,009 on a $5,870,486 equity investment -- or a 135% ROE. Still inordinate, but now includes $4,600,000 in TIF proceeds.
If one takes out the $4.6MM in TIF proceeds and replaces it with additional equity, the project can still return a competitive 30% ROE.
As Mike noted in his original post, the Zamagias advocate never indicated the project could not make a customary return on investment without the TIF. Further, no Zamagias official has ever made that representation in a public meeting.
Yet, the Municipality is still committed to fleecing MTL taxpayers.
I forgot to mention ---
Over the last 10 days Zamagias has threatened to pull the plug on the project.
But - the Municipality is committed to this fleecing and is administering advanced life support measures to keep the project alive.
Could there be a link between Zamagias Properties' threat to take their ball and go home and the assault on "misguided bloggers"?
Anonymous is back. Bill, you certainly know a lot about this stuff.
If there are Politics involved (1st Vice Chair of the Parking Authority is also the Zamagias Properties project manager), then it all makes sense. This is how Pennsylvania has been doing business for the past 100 years. Screw the citizens as long as a few buddies get some cash. Just look at the whole gambling mayhem that just occured. From day 1, it was extremely corrupt.
If Politics is not involved, then I would assume that if another company would do it without a TIF, they would have already. I am all for it. Maybe Lebo should try 1 last time, make an offer for any company to come in without a TIF. If nobody responds, it's all TIF.
(or did they already try that?)
Anonymous, it's a shame to hear you're worried about repercussions. When public speech is stifled out of fear, something has gone wrong.
Based on much of the anonymous commentary this blog has seen though, it's hard not to presume that the person posting is more motivated by spite than fear. (Plus it's hard to tell you all apart when things really get going.)
I agree that there are desirable elements of the plan. I could certainly benefit a lot from the planned Bower Hill turning lane. But Bill's powerpoint presentation from last year says it all - without a TIF, Zamagias still makes a good bit of money. Without a TIF, another developer was once (and may still be) willing to move forward on the project. And without a TIF, MtL taxpayers are getting the largest possible base and thus the lowest possible incremental increase to their taxes. Win, win, win.
Some background:
Two years ago, Mt. Lebanon set off on a fairly well designed process to pre-qualify potential developers and then accept development proposals from only those “qualified.”
(Design is one thing – execution is another.)
Submissions were requested from two developers. Both expressed initial interest in a TIF. (What developer wouldn’t, particularly when the Municipality made the initial overtures about the very possibility of a TIF?)
But only one (Zamagias Properties) indicated a TIF was absolutely mandatory to move forward. This was the developer the Municipality selected, without any - whatsoever – analytical evaluations of the competing proposals’ economics!
Further, the Municipality keenly turned a deaf ear to the representations by the alternate developer that, in writing and in person, clearly communicated a TIF was not required.
I have reviewed the documentation AND attended meetings where critical decisions were made AND pursued explanations from many of the folks involved, including the MTL Commission. Several times over these many months I heard about a “letter” from a prospective lender included in the second developer’s proposal that mentioned the possibility of a TIF.
Having heard way too much about this letter as the justification to question the second developer's sincerity about NOT needing a TIF, last month I did what no one in the Municipality had done in 18 months - I called the author of the “letter.”
Bottom line - the lender in mentioning the possibility of a TIF, in no way was representing that a TIF was in any way being required by the lender. I learned that to infer otherwise was clearly an incorrect application of the letter’s content. Tonight I shared the same with the MTL Commission at its regular meeting. The Municipality will undoubtedly press on – undeterred by facts and reason.
Fortunately for the Community, the School Board has taken a more thoughtful and purposeful approach AND is open to Community input.
Definitely not spite dude. Definitely fear.
If I put my name down, people can go to the Allegheny County website and see where I live. I definitely don't like. If I talk about base year vs annual assessments, somebody could easily stick it to me.
I would like to state my opinion without anyone knowing where I live, or who I am. That is the beauty of the Internet.
Also, I could have used a fake name, for it's worth.
When questioned why he would not sign his name,
"Anonymous said...
'Definitely not spite dude. Definitely fear.
If I put my name down, people can go to the Allegheny County website and see where I live. I definitely don't like. If I talk about base year vs annual assessments, somebody could easily stick it to me."
Hmmm! Sounds like anonymous is under assessed.
Well, my house is much less of a home than my neighbors, and their assessment is lower than mine.
But you are correct. They could easily add $80K to $100K to it.
I think the worst of all the assessment inequeties is Longuevue Drive. (one of the most expensive roads in Mt. Lebanon)
There are a bunch of homes that have an assessment of less than $200K. Some a lot lower.
A lot alone would cost $200K on that street. There are 2200 sq feet houses with an assessment lower than $200K.
As that 20/20 dude would say, "give me a break."
Not too many years ago the Galleria's owners declared they couldn't succeed without a tiff.
Seems to be succeeding w/o that tax break, parking lot ia always full on weekends, restaurants are thriving!
SInce when does gov't. absorb the risks for anyones busineess?
Regarding the Galleria - having been involved in that TIF debate ...
The Galleria principals never said they could not make it without a TIF - only that it would be easier.
I think the words were essentially: they could make money without a TIF, but they could make more money with a TIF.
Continental Real Estate is an experienced and respected firm and knew what it needed to do to make the Galleria successful. Good work!
It was the Municipality, and if I recall correctly - about the same players - that championed the diversion of tax dollars intended for education and essential government services into private hands.
Thank goodness for the School Board for staying focused in their priorities!
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