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http://www.news-sentinel.com/opinion/your-voice/guest_column_taxpayers_should_understand_what_they_are_paying_for_20170726&profile=1049
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IN RELATED NEWS:
http://www.news-sentinel.com/opinion/editorial_a_good_start_on_rethinking_abatements_20170727&profile=1049
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CAPITAL STACK
- ONE OF MY FAVORITE GOVT SPEAK TERMS.
THE OTHER IS WHEN THE CITY OFFICIALS AND OTHERS REFER T OUR TAX MONEY AS "POTS OF CASH OR POTS OF MONEY-
HONEY POTS? BUCKETS OF CASH? WTF??
ANYWAY MR CITY COUNCILMAN ARP:
YOU HAVE THE FLOOR:
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Wednesday, July 26, 2017 12:01 am
In the town where I serve on City Council we have had several “quality of place” projects come before us. These real estate developments will supposedly attract and retain young talented workers to our fair city by having more things to do and upgrading the scenery.
The theory is that by sprucing up our downtown we won’t lose our youth to Chicago or New York. These projects have required escalating amounts of government funding, have shown few results, considering each subsequent project has required substantial subsidy from the taxpayer. I will describe the most egregious to date.
Our City Council was presented with the “capital stack” for this proposed mixed-use real estate venture (to be constructed across from the county jail and city police headquarters). Its $4 million senior mortgage is lent by the Illinois Finance Fund, a U.S. Treasury Community Development Institution that provides passive investment opportunities for community development entities.
The source of these funds is New Markets Tax Credits. There is direct New Markets Tax Credit investment of $6.7 million through the Fort Wayne New Markets Revitalization Fund, a joint venture CDE between the City of Fort Wayne’s Community Development Division and PNC Bank.
The Indiana Economic Development Corporation is contributing a $7 million Regional Cities grant. The Ohio Capital Corporation for Housing (another nonprofit arranger of tax-credit investments) is putting up $4 million of National Park Service Historic Tax Credit equity investment. The Downtown Development Trust (a Fort Wayne nonprofit) is providing a subordinate loan of $1.2 million, which was previously seeded from the Fort Wayne Legacy Fund. The Downtown Development Trust began purchasing properties in the Landing footprint in 2014 and will sell them to developer. The board of the DDT includes several high profile members of the local Chamber of Commerce as well as the deputy mayorand the publisher of the major daily newspaper .
The Legacy Fund, which is a trust created by the City of Fort Wayne to invest the proceeds the city receives from the sale of its electric utility. City Council approval is required for disbursement of loans or grants from this trust. The council approved a $2.5 million below-market-rate, interest-only 15-year loan with a 7-2 vote.
The City of Fort Wayne Community Development Housing And Neighborhood Development board has committed to a $1,million forgivable HOME (a pass through of HUD) loan. City Community Development is also providing a $2.5 million Tax Increment Financing bond. The city has also committed to streetscape grants totaling $2.5 million, according to an application from the developer to the Regional Development Authority.
Finally, the sponsor, a newly created limited-liability company with the developer as the general partner, will provide only $3.25 million of actual private equity. Of the $34 million dollars in this menagerie, $31 million originated from taxpayers.
When The Landing is complete, then, it will have used $10 million of local money, $7 million of state money and $14 million in federal money to build apartments at $280,000 a piece (where the average home price is $100,000), that will rent for $1,100 a month (two-thirds more than the average rent in the city). It will include thousands of square feet of commercial property to be offered at subsidized rates to compete with properties that are already struggling with occupancy.
The present value of the cash flows (the rents less expenses) of the development is worth $11 million (using a 6 percent discount rate), fully one-third of the stated construction costs and dollars “invested.” (This is not in dispute, the developer states as such in the Jan. 6 application for a Regional Cities grant: “Using comparable market data and standard underwriting assumptions, the project supports $7.67 million of debt and $3.25 million of equity at market rates of return.”)
The best part is that the developer gets all of his $3.25 million “equity” returned at deal-closing as a “development fee.” The $20 million-plus in overpayment will go to inflated costs of design, construction and legal fees, since most of these contracts are estimated based on a percentage of the total project cost. There is the natural incentive to make these public-private partnerships yield such economically infeasible ventures, especially when most of the capital at stake is public money.
Much of this was discussed when two city councilmen sat down in the office of a local newspaper reporter. The councilmen detailed their concerns about: a. the layering of government subsidy: b. the obfuscation, with different presentations of the capital stack depending on which government authority was being addressed; and finally c. the direct repayment to the developer (the sponsor) of all his capital contribution, a fact that debunked the claim that the public money was attracting private money.
The response from the reporter was disappointing: “I thought all these deals looked like that.” His resultant article was about two disgruntled councilmen, not what some would consider a less-than-forthright arrangement. Few of the councilmen’s details made it to print, and no mention was made of the upfront return of capital to the sponsor.
When this project is completed, the taxpayers will have paid three times what it is worth to construct it, given it away to investors that have no skin in the game, and put significant competitive pressure on the property owners in the area who have their own money at stake.
Jason Arp is the city councilman for Fort Wayne’s 4th District.
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COMMENTS BY OTHERS:
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THE REST OF THE STORY:
HANDING OUT TAXPAYERS CASH LIKE CANDY FOR CORPORATE WELFARE WHILE STIFFING THE WORKING CLASS POOR FOR SAME TAX PAYER CASH:
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EDITORIAL: A good start on rethinking abatements
Thursday, July 27, 2017 12:01 am
The City Council's unanimous decision Tuesday to fine tune its tax abatement policy was a good start on a comprehensive study and possible overhaul of the whole abatement system.
The council decided that to get an abatement for expansion, a business must invest at least $5 million, generate at least 25 percent of its revenue or customer base outside Allen County and to be located in an economic development target area created by council. The effect of the change will be felt mostly by professional offices like dentists and insurance companies that already have a pool of local customers.
Council's reasoning is sound. Such companies would likely expand even without an abatement, and if they don't attract out-of-area business, they would just be stealing customers from other local companies.
The ordinance approved on Tuesday states that council “must temper its economic development incentives with fiscal responsibility,” and it's hard to argue with that.
But as we said, it's a good idea and a good start. The same logic used by the council here could be applied to requests for abatements from other companies.
Abatements distort the marketplace by granting favors to some but not all businesses — government is helping pick winners and losers instead of letting the market sort things out. And the city can really create some unfair competition. Recall when it spent millions to subsidize opening a Menard's at the former Southtown site at the same time the Do It Best hardware store in the same area of town was paying its own way to double in size.
In giving a tax abatement, we say we are encouraging business growth and economic development. Isn't that a tacit admission that the existence of the tax discourages growth so maybe we wouldn't have it? Instead of abating some taxes, why not determine the optimum rate for growth and development and set it there for everybody? There's a question worth answering.
Tax breaks have been used for so long that we no longer seem to question what their goal is and whether the goal is being met. For example, how many jobs have ever really been added in Fort Wayne because of abatements? Abatements are like candy we give out because it's always been given out and everybody expects it. It's long past time to rethink the whole concept.
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