Madison and Jefferson at Washington Park

I was just searching the web for some kind of site plan for Washington Park, when I came across the official Mt. Lebanon website's promo page for the project. It contains this tidbit (emphasis mine):

Units will be located in two unique buildings, the Madison at Washington Park and the Jefferson at Washington Park.

No mention of Polk anywhere, though.

Now, I can see how they would want to name a building after Mike, in recognition of his efforts in educating the Lebo public about Tax Increment Financing, but I'm a relative newcomer here, so I would figure that the second building would be called "Matthews Hall," or something.

[Still haven't found any kind of plans for the site, besides the one corner rendering that everyone has seen.]

Commonwealth Financing Authority and Washington Park

The office of Governor Edward G. Rendell this week said that millions of dollars of tax guarantees will allow communities, such as Mt. Lebanon, to develop new housing, retail and recreation areas on abandoned and undeveloped sites.

The guarantees, part of what's called a tax increment financing district, are created when a municipality determines it wants to use a parcel of land -- primarily a brownfield site -- for economic development. After members of the community, the local redevelopment authority and the school district determine how to use the land, a forecast of how much tax revenue the site can generate is developed. That forecast is then used to calculate the bond amount the district can issue for development.

Link: www.postgazette.com/pg/07179/797620-55.stm

Commissioners Support TIF For Washington Park

A majority of Mt. Lebanon's five commissioners said they'll vote to approve a controversial tax-increment financing plan for a proposed luxury condominium and retail complex.

The board will vote Monday on the plan to give a $6.1 million tax break to developer Zamagias Properties for the $42.8 million project at Washington and Bower Hill roads. The Mt. Lebanon School Board approved the financing plan by a 6-3 vote last month.

Only Commissioner Keith Mulvihill said he hasn't made up his mind on which way he'll vote next week. "It's a good project ... but I'm not sure whether it makes sense for us to provide that amount of support," he said.

Link: www.pittsburghlive.com/x/pittsburghtrib/news/southwest/s_503364.html

No TIF?

Karen sent me this image. If you like it, use it.

Lebo News Roundup

"There are a number of questions to be answered about the pending sale of the Covenant retirement community in Mt. Lebanon, but the most pressing one for residents is: Who will be the new owner?"
Link: http://www.post-gazette.com/pg/07088/773167-55.stm

"More than half of a nearly two-hour public hearing on a proposal for tax increment financing in Mt. Lebanon comprised a presentation from the developer, a county official and a financial consultant. But in the 45 minutes that the public had to speak, five of seven people were against giving the developer a tax break."
Link: http://www.post-gazette.com/pg/07088/773233-55.stm

(Related: Tribune Review "lance" to Zamagias Properties attorney Sara Davis Buss, which strikes me as completely unwarranted, whatever the paper's view of the merits of the Washington Park TIF proposal. Anyone who opposes the TIF should be critical of Zamagias Properties itself -- not the developer's attorney.)

Allegheny Institute on the Lebo TIF

The local free-marketeering Allegheny Institute is unhappy with both the Mt. Lebanon School Board and the municipality. Here's a taste of a long post from the Allegheny Institute blog, today:

The real problem is that local officials want to control who does the building and what type of residential development gets built. They do not trust the market to do the job. So, we have years of behind the scenes deal making to get a project done that suits the officials. Meanwhile, hundreds of thousands in potential tax revenues have not been collected as would have happened if the property had been turned over to a developer and developed years ago.

Lebo School Board Signs on to TIF

From the Tribune-Review:

The Mt. Lebanon School Board on Monday night approved a controversial tax-increment financing plan for a proposed luxury condominium complex.

The board voted, 6-3, to give a $6.1 million tax break to developer Zamagias Properties for the $42.8 million project at Washington and Bower Hill roads.

Board members Mark Hart, Jo Posti and Susan Rose voted against the plan, which moves to the Mt. Lebanon commissioners for consideration.

[MJM note: Hart and Posti were the School Board members of the TIF committee.]

The commissioners will have a public hearing on the proposal at 6 p.m. Monday and vote on the tax break in April.

At least one commissioner told the school board last night that he is in favor of the plan.

"It's important to move forward with this project," Commissioner John Daley said. "It's an important project."

If the commissioners turn down the tax break, Zamagias officials have said the project -- planned on a vacant strip owned by the municipal parking authority -- likely will not happen.

Under tax-increment financing, money that would have been paid as property taxes can be used for infrastructure improvements. The Zamagias project calls for the addition of 50 public parking spaces; a new park, plaza and bus shelter; and road improvements along Bower Hill Road.

"The issue at hand is whether we should divert tax dollars for elements of this project," Hart said.

He explained that he doesn't believe school tax dollars should be used for improvements -- such as building a turning lane -- which he sees as the responsibility of the municipality.

But board President Joseph Rodella and others who supported the plan said it is important to look at the increased revenues the project will bring the school district.

"It's a pretty difficult issue. ... We're a landlocked community with escalating costs," Rodella said.

An independent financial analysis by Janney Montgomery Scott said that the amount of money that would be pledged by the school board and municipality is reasonable because it represents new income rather than an existing revenue source and would not impact their budgets.

The report said that when completed, the assessment of the 1.71-acre site will increase $845,000 to $37.3 million and generate $20.7 million in tax revenue over a 30-year period.

Any revenue generated by increases in the property tax rate would go to the taxing bodies, not the project.

The 72-unit condominium complex would be built in two phases with a total of 14,000 square feet of retail space. Condo units will cost from $290,000 to $1.1 million.

Bottom Line TIF Analysis

In anticipation of the Mt. Lebanon School Board's upcoming vote (next Monday, March 19) regarding whether to participate in the Washington Park TIF, Bill Matthews has assembled the following quick guide to the proposal. As the infamously pseudonymous Watergate source once said (in the movies, if not in real life): Follow the money.

Fundamental Question

Since June ‘05 a fundamental question regarding the TIF has been:

--- Will Zamagias Properties receive an excessive financial return on their investment?

Essentially: What dollars will they put in and what will they take out?

There is no argument Zamagias Properties should make money, otherwise there would be no point. However, if there is to be a public subsidy, the financial return should be sensible. Without a subsidy, the return should be unbounded. The analysis below, uses the developer’s projections from the March ‘07 TIF Plan. The model is also Zamagias Properties’ model, first used in June ‘05.

In other words, these are THEIR numbers in THEIR model. EXCEPT, the developer never calculated beyond “Total Potential Project Return (On Cost)” -- the developer never illustrated “Return on Equity”.

Bottom line: Zamagias Properties is using TIF to minimize their equity investment and generate an inordinate Return on Equity.



A more complete feasibility analysis by Bill can be downloaded here: http://tinyurl.com/2v54mo

Town Posts Developer's Report on TIF

A feasibility study for the proposed Washington Park TIF has been posted to the Mt. Lebanon website. The full text of the report can be accessed via this URL:

http://tinyurl.com/2obvaa.

The report cost $20,000 to produce; half of that was paid by Zamagias Properties -- the developer. The balance was split between the Municipality and the School District.

The report contains many interesting statements. Among them is this:

As outlined in the Project Overview on page 3, the Project is primarily residential in nature. This is unusual for a Pennsylvania TIF financing. Most projects with associated TIF financings are primarily commercial, retail or industrial in nature. The preponderance of residential property in this Project creates some risks and produces some benefits versus other more traditional TIF financings.

Risks
· Once build-out is complete, there will be dozens of property owners in the TIF District instead of either a single owner or a handful of owners, as would be the case in an industrial park, a mall, or a corporate facility. This could potentially create problems should legal issues arise in the future (assessment issues,
tax payment issues, zoning concerns). The Taxing Bodies will have to negotiate with many owners instead of a single owner, which could increase the Taxing Bodies’ staff time and legal / financial resources devoted to such issues if they arise.
· Due to the residential nature of the Project, there will be no legal agreements between the property owners and the Taxing Bodies prohibiting the property owners from appealing their assessed values below the levels set forth in the TIF plan. This prohibition, common in single-owner financings, works to reduce uncertainty surrounding possible future assessment appeals. No such prohibition is contemplated for this Project, which creates the opportunity for possible assessment appeal issues to affect the TIF cash flows in the future. This risk would be mitigated on the Phase I debt by the Commonwealth Guaranty.

Benefits
· Residential properties will by their nature generate ancillary incremental tax revenues (real estate transfer taxes, earned income taxes) that commercial, retail and industrial projects do not generate. These ancillary revenues are captured by the Taxing Bodies at a rate of 100% (none are pledged to the Project financing).
· Reliance on a single tenant / owner / taxpayer is reduced. By having 72 individual residential units (as well as several retail parcels), the concentration on the performance of a single tenant or owner (such as was the case in the Downtown Lazarus Department Store TIF financing) is therefore reduced.

Note that this section fails to articulate its central assumption: the proposition that 72 half-million dollar condominiums can and will be absorbed into the Mt. Lebanon/South Hills real estate market. Criticizing the lack of any evidence to support that assumption was a key point in Jo Posti's recent commentary.

The report is also quite clear in *not* stating that the project will be profitable only if it is supported by a TIF. In other words, the consultant could have asked (or could have been asked): Without a TIF, would Washington Park make a reasonable profit for the developer? The report chooses not to answer that essential question.

Update: The Almanac's story on Monday's meeting raises similar questions about the report.

Lebo School Board Member Jo Posti on the Washington Park TIF

Thanks, Bill, for sending along the full text of Jo Posti's remarks at last night's School Board meeting regarding the proposed Washington Park TIF. I've reproduced those remarks below.

The Board is scheduled to vote next Monday, March 19, on whether to participate in the proposed TIF. Jo Posti has been a school board member of the TIF committee.

Her email is jposti@mtlsd.net. You can send email to the entire School Board at schoolboard@mtlsd.net.

When we voted to participate in the TIF committee back in June, I voted “no,” explaining that my greatest concerns were process and policy. I was troubled by a process that excluded the District during the project discussion stage, asking us to help finance a development that we did not have the opportunity to help select. I was also concerned that we do not have TIF guidelines to direct our decision, only specifications of one particular project that we need to react to.

After participating in the TIF committee, I continue to have these concerns. There’s been much public debate over the TIF – debate that should have started, in my opinion, with the creation of TIF guidelines. While a TIF’s purpose is to provide economic development within a certain area, it is also an opportunity to provide a benefit to the community in exchange for the diverted tax dollars the project is financed with. Some of the public benefits a residential project like this can provide through policy are affordable housing, sustainable development through green building initiatives and an increased ability for District employees to live within the District. TIF guidelines can also spell out what level of increment a taxing body will entertain, a surcharge on any TIF to finance school projects and the mandate that the municipality provide increments for the taxes it levies but for which the District has lost right to, like parking taxes.

I am not against TIFs in principle. There are examples throughout the county of TIFfinanced projects that have made an economic impact in blighted areas. There are also examples of large-scale failures. A TIF is not at all a “sure thing” or “something that’s better than nothing.” In the end, a TIF does not solve all of a blighted area’s problems - market conditions and the free market play a role in the success of a TIF. For me, an understanding of the market demand for this project as well as our community’s market conditions was important in determining my support of the project since I did not have District policy to fall back on. If I wasn’t able to refer to our District’s collective values, I had to determine the project’s value to the community.

Unfortunately, the market study provided did not adequately present a case for units of this price point. Rather than describing current market conditions or illustrating a demand for housing that is more than twice the median sales price of homes in Mt. Lebanon, it was a historical analysis of similar housing sold in communities with similar demographics during recent years. The change in the scope of work from a two-phase project to a one-phase project with an option for a second phase does not affirm my confidence in the project. As a quality-driven organization, much of our decision-making rests on data and I need data that supports market conditions that demand half-million dollar units in Mt. Lebanon vs. housing priced closer to our median. The municipality itself has reported that our community lacks the level of affordable housing that would entice the employees of our largest employers – the school district, St. Clair Hospital and Asbury Heights – to buy homes within the municipality. Municipal officials have indicated that the high level of turnover at our health care facilities is related, in part, to the commuting challenges those employees face. As for the school district, I would like to help entice our employees to live in the District; this is something that I personally feel strengthens our community and enhances the connection our faculty and staff have with their students and parents.

Public improvements – while the elements financed by the TIF qualify by law, they do not, in my opinion, offer substantial public improvement that would warrant diverting taxes should the project be built. Many of the public improvement elements include in the TIF are improvements that would be made by any development, regardless of funding source. The Bower Hill turn lane is important to the community and while I’d be willing to help the municipality fund it, I’d also like to explore partnership opportunities that help the District accomplish its capital improvement goals, not just the capital improvement goals of the Parking Authority.

The delays associated with this project are unfortunate as this property has, in essence, been off the market for so long that it’s tempting to move forward in order to quit wasting time. However, I can’t overlook the fact that while the competing project had elements that would have qualified for a TIF, they were of the opinion that they could have moved forward with their project without one. That project would have developed the entire block, to Kenmont and Oak Way, rather than limiting development to what may just be Phase 1 of the Washington Park project. I do believe that this parcel can be developed without TIF financing if given the opportunity for the free market to work.

Allegheny County’s relatively short history in TIF projects has produced mixed results. In my opinion, this is due in part to their origins being largely developer driven rather than driven by the taxing bodies impacted. This results in precedent rather than policy. My fear is that our participation in this particular project would be a decision made not on data but because it’s the only offer on the table. Rather than believing that something is better than nothing, I need to be convinced that we haven’t limited ourselves or Mt. Lebanon’s ability to develop the entire block.

Another large concern is the impact Act 1 would have and for this we have neither precedent nor policy. We cannot predict whether our Act 1 referendum will pass in May and even the Janney report identifies it as an issue to which they have no answer. We would probably be the first TIF project in the County to see Act 1’s impact. Again, I need data to better analyze how much real estate assessed values may be reduced and how this would effect the District’s tax increment. Unfortunately, there’s nobody who can predict what that impact may be.

Mt. Lebanon School Board Meeting -- TIF Preview

The school board will hear a TIF presentation from Allegheny County on Monday evening (3/12). If you can make it, please stop by. The meeting begins at 7:30 in the High School Library. Or (and) share your thoughts with the school board at schoolboard@mtlsd.net.

Bill Matthews, who has been tireless in his efforts to explain what the TIF is about and to explain why it's a bad deal for the taxpayers, has circulated a summary of the current proposal. I've copied the main points of Bill's presentation below:

Tax Increment Financing (TIF)
Basics of the Zamagias Properties Final Plan

1) The Washington Park project includes 72 condominiums (projected average sale price of over $550,000), 14,000 square feet of retail space, associated parking and open space along Washington Road.

2) Condominium owners of the Washington Park project will pay their ordinary property taxes to the school district and municipality just like every other property owner in Mt. Lebanon.

3) A significant portion (72%) of their “incremental” taxes will be diverted and used to pay TIF funded project debt, in lieu of being used for education and essential government services. (Incremental taxes are calculated as the difference between taxes payable on the properties today and taxes payable after the development.)

4) No taxes will be diverted from Allegheny County. The project does not meet the County TIF guidelines and therefore the County will not participate in the TIF.

5) The TIF Plan indicates “net” TIF proceeds of approximately $4.6MM for Washington Park. However, to net $4.6MM for the project, approximately $6.1MM will be borrowed. Please see the allocation and use of TIF funds listed on next page.

6) The total tax diversion over the life of the TIF will approach $9,000,000, including principal and interest payments. 82.6% of the diverted funds will be from the school district.

Allocation and Use of TIF Funds
Washington Park Tax Increment Financing Plan
$ 1,651,122 - Parking Improvements
$ 1,301,251 - Public Park (Plaza fronting Washington Rd., outside storefronts)
$ 1,088,329 - Land Acquisition
$349,029 - Utility Improvements
$ 155,801 - Funded Soft Costs
$ 64,138 - Intersection Improvements (Bower Hill & Washington Road)
$ 4,609,670 - Total Project Uses

$568,514 - Debt Service Reserve Fund
$502,514 - Capitalized Interest
$160,000 - Miscellaneous Costs
$140,000 - Legal Fees
$61,000 - Issuer Fee (1% - Redevelopment Authority of Allegheny County)
$57,951 - Underwriter’s Fee (0.95%)
$1,490,330 - Total Issuance Related Uses

$6,100,000 - Total TIF Borrowing

The Never Ending Saga of the Mt. Lebanon TIF

The Allegheny Institute published a new brief today regarding the TIF issue being discussed for the Washington Park project. It's available on their web site at the link below:

Link: www.alleghenyinstitute.org/briefs/vol7no10.pdf

Final TIF Proposal Submitted to Lebo

Zamagias Properties has submitted its final proposal for a TIF (tax increment financing) for the development proposed for the intersection of Bower Hill and Washington Roads.

The document is available online at the Municipality website. A link is a available on the "What's New" page at www.mtlebanon.org OR directly at the link below. WARNING - - It is a 41 page, 2.2 MB document.

http://www.tinyurl.com/2ptsb9

The next step in the process is the Mt. Lebanon School Board meeting on Monday, March 12, when the Board will hear public comments about the proposal. If you want to have face-to-face input on the proposal before the School Board votes, then go to the March 12 meeting. The vote itself isn't until later -- March 19 -- but there will be no meaningful opportunity for public comment at the March 19 meeting.

In related TIF news, the Mt. Lebanon Commission voted to extend the deadline by which Zamagias must get this deal done.

Link: http://www.post-gazette.com/pg/07060/765642-55.stm

Lebo TIF Defended

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:

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.

Lebo: Developer Seeks State Guarantee For Project

From Thursday's Pittsburgh Tribune-Review:

The developer of the proposed Washington Park condominium project at Washington and Bower Hill roads in Mt. Lebanon will seek a state guarantee for a special financing plan.

The Redevelopment Authority of Allegheny County last week approved submitting a request for the guarantee to the state Commonwealth Finance Agency to enhance the tax increment financing for the $37.7 million project.

Link: www.pittsburghlive.com/x/pittsburghtrib/news/today/s_485837.html