THE PEOPLE’S BUSINESS – 9/29/14 SPECIAL MEETING: MALL TIF Changes

Governments that are oblivious to the burdens they have placed on their taxpayers do not hold the prescription for our economic maladies. And though Oak Ridge has substantial history that proves this, we refuse to learn from our past mistakes. Instead, year after year, the same players push their solutions wrapped in the flag of “Economic Development” that ultimately end up adding to the already-excessive burden on our taxpayers. We have yoked our residents for decades to come with poor decisions like the golf course, the 40+ year high school mortgage and a surfeit of tax-abated and tax-free properties.

Fifteen years ago, “Partners for Progress”  (advocated by some of the same folks behind the chamber’s Progress PAC) successfully acquired over $15 million of taxpayer money to launch a major development on the West End to include Rarity Ridge. The promises, much like those of the mall TIF, were enough to make people starry eyed. It was to be a picturesque subdivision of nearly 4,000 homes (2,500 were to have been built by now) along with an industrial complex that, when all was said and done, would produce significant ROI in the form of 17,000 jobs, $1 BILLION in payroll, and nearly $13M in additional annual property taxes.  To date, I don’t think they’ve met even the initial year’s benchmark of 88 homes in RR and the Horizon Center has only one or two tenants. In every possible way, this project has failed, horribly.

David Bradshaw, a staunch advocate of the project and mayor at the time, blames Rarity Ridge’s failure on the 2008 crash saying that, “no one could have predicted it.” I disagree; there were economists who did, in fact, predict the mortgage crisis. Some of those same economists are also predicting an impending crash that will result from our $1.2 TRILLION collective national college debt. 

Oak Ridge is no less vulnerable to the economic instabilities of our nation than the U.S. is to those of the global market. Had we listened to someone other than ourselves and had we perhaps did a little more digging into the developer, we could have avoided one of our most costly mistakes.

The following represents an unofficial account of the items discussed and/or voted upon during the September 29, 2014 City Council Special Meeting. The complete agenda packet as well as a video of the meeting can be viewed here and here. Draft meeting minutes will be posted at the city website as part of the October 2014 Regular Meeting Agenda packet.

Council voted on three resolutions:

1. An amendment to the TVA power contract that passes along their increased rates to our customers in the estimated amount of 1.38% for the average small commercial user and 1.45% for the average residential user. Motion passed 7-0
2. An amendment to the previous agreement on the Mall TIF extending the repayment period from 20 years to 30 years. Motion passed 6-1 with Baughn voting “Nay”
3. A resolution authorizing the allocation of $1M from city reserves and another $1M from a possible EDA grant for infrastructure costs (roads and power lines) of the mall project. Should the grant not come through, the IDB will apply $500K of their funds (which are actually the taxpayer’s funds derived from other tax abatement deals) towards the project. Motion passed 6-1 with Baughn voting “Nay”

I stated my desires to see the project succeed, but could not vote in favor of resolutions b & c for the following reasons:

1. As I discussed here , the risk to the taxpayers has been significantly understated. There are absolutely no safeguards or claw backs contained within these agreements to mitigate the risk of a permanent suppression of property tax revenue.  In other words, no matter what happens, the 60+ acres will produce only 10% of its original value for the next 20-30 years.  
2. The trade off of forfeiting future property tax revenues is claimed to be new sales tax revenue. However, the projections are grossly overstated and are unattainable. The claims have been that the project would produce $80M in additional annual sales which equals $2M in additional sales tax revenues , of which $1M would come to the city.
3. That represents a 20% increase over city total sales tax collections, which are currently at at about $5.1M ($8.5M – 40% that come from DOE.)  Historically, the national retail sales growth rate range is between -11.4% to +11.18%. This past year, it was 5%.  It is absolutely impossible to expect these projections to materialize, since, even in the best of times, we’ve not seen half that level of growth.
4. The developers were already getting a great deal in that they were purchasing prime real estate at a 90% discount ($6—$60M); had thousands of administrative and application fees waived by the IDB; and were to be the beneficiary of a $13M loan to be paid out over 20 years. To come back and ask for another 10 years (without providing the total costs of that extension) AND another $2M of taxpayer monies was in no way fair to the majority of our businesses and homeowners who pay their full rate and who will most likely suffer lost revenues to the newly subsidized businesses as we have seen with the Woodland TIF. I also questioned how we had $1M “just laying around” given how frequently we are told that money is tight and the budgets are bare bones.

The $13M TIF Extension Details

This is a no-collateral, no-guarantee loan for $13M to be funded by four financial institutions. One being Capital Mark, whose president is David Bradshaw and the other being ORNL FCU, whose president is Chris Johnson.  The other two banks have yet to be disclosed. Both Bradshaw and Johnson were discussed this past Friday regarding their roles on the Chamber, the Chamber’s PAC and the IDB.

The justification for needing to extend the repayment period from 20 to 30 years hinged on the stated claims that the deal is very high risk, no outside banks wanted to touch it and the added repayment time would give local lenders comfort that they would eventually be paid. As Mr. Ray Evans stated, “The banks don’t really care when they get paid, only that they will.”

The TIF is to be paid by the increased property tax revenues (once the property is redeveloped) generated for both the county and the city; however, the responsibility for additional 10 year period will be borne only by the city.

Weeks ago, I posed this question to the city manager and Ray Evans: What will the total P&I be for 20 year and for 30 years?  Mr. Evans provided the 20 year amount ($20,476,962), but not the 30 year.  During a discussion a few days prior, I posed the  same question to Mr. Bradshaw. He did not answer then and did not answer tonight.  My projections, based on a 4.5% rate, indicate a conservative total P&I for 30 years to be $23.7M. This means that the banks stand to make roughly $10M off this loan. There’s certainly nothing wrong with that, but it does weaken Mr. Bradshaw’s claim that the banks were not going to really benefit from this deal, that they saw this more as an obligation to the community.

Unlike at the IDB meeting, public comment was permitted. Six residents spoke. Two in favor of these resolutions and four who questioned the merits. All four of gentleman who had concerns have lived in Oak Ridge for decades and understand the history of our failures enough to know that all of the celebration is premature. You can read Mr. Abbatiello and Mr. McBride’s concerns in their own words here: Abbatiello 2014 TIF Response The Oak Ridge Mall Saga and  McBride 2014 TIF Response.