TAD polls

Developers and development advocates prepare a make-or-break campaign to save tax allocation districts. But will voters give a TAD?

Charles Molineaux

August 1, 2008

T he stakes are potentially enormous, in the billions, affecting education, housing, transportation and jobs. But this political campaign has -so far - been quiet, the arguments still being formed.

"We're trying to figure out how we best boil it down so the average voter can get why they want to do this," sighs Ken Bleakly, founder of the Bleakly Advisory Group.

In November, Georgians will consider a statewide referendum on whether to restore a popular financial tool for communities and developers trying to rebuild troubled neighborhoods: the special tax allocation district, or TAD.

Dozens of development or redevelopment projects have had to be downsized, put on hold or scrapped since a February decision by the Georgia Supreme Court, which ruled that taxes collected for local school districts may not be used for purposes other than schools. That deprived most TAD initiatives of more than half their funding. The referendum seeks to overturn that decision.

Advocates say they're struggling against misconceptions, confusion and the issue's unfortunate tendency to make voters' eyes glaze over. "It's certainly not the sexiest topic in the world," Bleakly grants. "It's like financial exotica that brings a response of 'What is this and why would I get involved in it?'"

Critics see a potential boondoggle of what they label corporate welfare. State Rep. Steve "Thunder" Tumlin of Marietta cautions, "I just ask, 'Should school dollars be spent investing in the real estate market in a speculative situation?'"

Sharpest tool in the box?

Indeed, at its heart, the TAD concept can have the look of careful real estate speculation.

Suppose a piece of property in a depressed part of town is valued at $1 million. Its municipal and school system property taxes are based on that assessment. A developer might propose a project for the location, which could increase dramatically the property's value to, say, $10 million.

Ordinarily, that extra $9 million in increased value would mean the local government and school system would be entitled to a corresponding increase in their taxes.

In a TAD, local governments and schools instead can agree to take only the amount they were getting already and set aside that future additional cash.

In anticipation of those new collections, TAD bond issues let developers borrow money to help pay for the project. Then, once the property's value - and taxes - go up, the added new money pays off the bonds.

"We're using the potential money a development can create to lure that development to parts of town developers have not been willing to go," explains Cheryl Strickland, managing director of TAD programs for the Atlanta Development Authority, ADA. "To date, we've brought in about 7,300 housing units; 2.2 million square feet of retail; roughly 2 million square feet of office; and 680 hotel rooms."

But critics claim TADs can become a giveaway for developers at the expense of Georgia school kids. "It's supposed to be 'but for the tax allocation district there would be no development,'" insists Cobb County school board member Lindsey Tippens. "Well, it quickly evolved into the tool of first choice instead of last choice for developers."

"If you look at these areas before the TAD was created, nothing was happening," Strickland retorts. "We're looking at slow-to-no-growth areas where the private sector has been reluctant to come. We're trying to lure development back."

Bleakly agrees, saying successful developments look inevitable only in hindsight. "Everybody looks at Atlantic Station now and says 'Gee, that was so obvious!' Go back and look at the pictures from 1998. It's not that obvious that Atlantic Station was going to be a home run. Certainly that's the story in East Point. Look at Camp Creek Marketplace. That land sat there for hundreds of years undeveloped. The city created a TAD district and in three years, it got a million square feet of new taxable tax base for the city."

Legal train wreck

Atlantic Station remains the icon for TAD advocates. Once the disintegrating, polluted Atlantic Steel plant site, this still-growing 138-acre city-within-a-city was made possible by funding from its own TAD.

At the beginning of 2008, TADs seemed a proven, win-win, strategy to resuscitate the most troubled communities, and was even on its way to bringing salvation to Atlanta mass transit.

Until it was clotheslined in court.

"We were really shocked at the ruling," recalls Bleakly.

Proponents of the Atlanta BeltLine envision a ring of parks, new development and mass transit along a series of abandoned and current railroad right-of-ways encircling central Atlanta, paid for in part through a series of TADs. But on Feb. 11, 2008, the initiative was thrown for a loop when the State Supreme Court decided Georgia's constitution bans such uses of tax money meant for schools.

"The Supreme Court ruling has just about neutered the effectiveness of TADs," says Lawrence Gellerstedt, president, office/multifamily division, Cousins Properties.

The ruling already has forced cancellation or rethinking for plans from Smyrna's Jonquil Plaza and Woodstock's downtown redevelopment to a series of projects in Northwest Atlanta. "It's a huge disappointment to the community," frets Atlanta City Councilwoman Felicia Moore, whose district encompasses redevelopment projects under the Perry-Bolton TAD such as the Birch Street housing development and the Moore's Mill Shopping Center.

The court's decision prompted a lightning response from the state. The legislature quickly approved SR 996, which, if approved in a statewide referendum, amends the state constitution to allow the use of school tax funds for redevelopment projects.

Voters will consider the SR 996 amendment during this year's elections in November, where advocates hope it won't get lost. "Just think about how much time you normally spend understanding a constitutional amendment," chuckles Gellerstedt. "You probably read it for the first time when you see it on the ballot."

A Pandora's box?

Opponents express hope for the amendment's electoral defeat. "You're opening Pandora's box," says Tippens. "Every developer is going to be saying, 'I want a TAD.' School tax revenues are in decline. It's going to be taking dollars away from students' classrooms and that's wrong."

"So much of the public doesn't understand the word 'increment,'" complains Sonia Mosby with the Atlanta Development Authority. "A lot of people think you're taking away existing tax revenues to do things. And you're not. You're using projected future tax revenues - incremental tax revenues - that wouldn't have happened had it not been for the creation of the TAD."

TAD supporters say they already have proof that school boards are perfectly comfortable in opting out. Atlanta Public Schools said "No, thanks" to participation in the Princeton Lakes TAD and Cherokee County schools also limited their involvement in Woodstock's new downtown TAD. Both school systems decided not to forego new tax revenue from new residential developments, because the developments would bring additional new students.

"In each of our TAD districts," Strickland proclaims, "we've gone to the schools and we've had to negotiate the terms of their engagement."

In this fall's referendum, advocates on both sides of the issue are concerned that voters understand the decision they're making.

"It's not easy to explain this to 7 or 8 million voters across the state," admits Gellerstedt, who predicts the measure is in for an uphill battle. But Bleakly sees historic reason for TAD supporters to be optimistic.

"In 1985, more than 70 percent of Georgia voters originally approved the formation of TADs," he says. "We're asking if we can do it again."