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.

Rarity Ridge Promises

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.

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

  1. Trina,
    I have a few questions:
    1. If the banks would say no to the deal at 20 years, and you wish to not extend to 30 what would you suggest the city do?
    2. Other than approving the extenstion that passed what other ways do you feel that as a City Council member you can have a positive affect on the future sales tax revenue for Oak Ridge?

    I watch every month as CC spends money and they are for the majority needed expendatures. Some are questionable. But for the mass majority of what CC approves to spend is purly and expense. This is a expense with the mall has a potential to increase a revenue stream in the city. After recently going thru the BOE budget request and seeing what they asked for its safe to assume that expenses will only go up. Oak Ridge must look at ways to increase the revenue stream to survive, or face harder times and cutting other expendatures.

    1. David,

      You asked, “If the banks would say no to the deal at 20 years, and you wish to not extend to 30 what would you suggest the city do?”

      Whether it was 20 or 30 years, at the very least, I believe the developers should have allowed from some measures of accountability, as I suggested here:
      https://trinabaughn.com/2013/11/17/my-suggestion-to-anderson-county-commission-regarding-the-mall-tifattorney-reply/

      As for your other question, I advocate for a laissez-faire approach as I outlined during my campaign:

      https://trinabaughn.com/stay-tuned-for-lets-be-7/

      https://trinabaughn.com/2012/10/09/does-oak-ridge-have-a-revenue-problem-or-a-spending-problem/

      Oak Ridge is a model for over-reaching, bloated government. In every way possible, we have thrown your money at our problems and it only ends up costing you more money. Right now, we are holding the Woodland TIF as a model but no one is talking about all of the other restaurants that have closed down since it was launched. I recognize that “everyone is doing it” but I do not believe that government should be in the game of picking and choosing losers….and that is exactly what both of these TIFS are doing. I’ve talked to countless commercial property owners in our town that have NEVER asked for or received a tax break, yet they are going to have to work even harder to compete with the businesses who do receive these breaks just to stay afloat. Competition in a pure environment is healthy, but how is it remotely fair that they must go up against businesses who have benefitted from some of the very taxes they pay? How does gaining 2 restaurants and losing 4 positively impact the city’s bottom line?

      I still believe that the very best thing that city government can do is to cut taxes so that we make our city both financially competitive, and thus attractive, to ALL businesses. We also need to work on turning around our reputation for not being business friendly…but that’s a whole other ball of wax.

      Thanks for continuing to come to our meetings and engaging in the public discussions. A more involved citizenry leads to better government.

  2. The fact that outside banks would not touch the Mall development is one whale of a red flag. David Allred’s comments on this subject on OAKRIDGETODAY are worth giving a lot of thought to

  3. I agree with Sam. If the banks want touch it then that is a big red flag.
    Oak Ridge doesn’t need a mall. No more than they need another restaurant or another golf course to lose money on. Oak Ridge is a small town that cannot support a mall. Look what happened the first time. Twenty shoe stores and a food court that lasted less than a year. Everyone is going to continue to go to Turkey Creek no matter how many malls Oak Ridge builds. They did the last time and they will this time

  4. When there is a TIF involved, that is an admission that there is an inherent weakness. This is indisputable. It may be the location is not suitable. It may be the local market is unsuitable. It may be the business model is unsuitable. It may mean the business doesn’t follow the laws of supply and demand. It may mean that the business is a loser that will not survive without the life support of tax dollars. As pointed out, this weak business is given a leg up over those businesses it competes against that have made it by hard honest efforts. The local banks can have the city take all of the risks is the reason they buy into it. They know how to manipulate the Council.

    If Oak Ridge gives a TIF for thirty years the life span of the businesses will have expired by that time and Oak Ridgers will once again be subsidizing slums.

    Oak Ridge officials always act in underhanded, sneaky ways. Only naïve people would trust them.

    Show me how many TIFs over the last thirty years have been given. Which companies (individuals) did they go to? (Buddies). What were the terms and agreements? (Vague). Who is checking that the companies lived up to their side? (Nobody). How many have been revoked? (None). All of this information is being deliberately hidden. Let me repeat that; ALL OF THIS INFORMATION IS BEING DELIBERATELY HIDDEN. Oak Ridgers need to wake up.

  5. In Tennessee Public Chapter 605, TIF plans have extra wickets for the TIF development to jump over if the TIF financing is greater than 20 years, and additional wickets if over 30 years. These generally come in the form of state mandated approvals or preapprovals by the Commissioner of Economic and Community Development. It is possible that by interlacing the sequencing of the TIF financing term with the state approval requests, and changing from 20 to 30 year financing, some steps may be circumvented. Also sequencing approval requests to certain times of year might increase the likelihood that the approval will default. Tennessee TIF approvals default to ‘approved’ if not acted upon by the state in 30 days. Maybe a 30 year TIF was anticipated from the inception by the detailed financial plan, but not fully vetted in local circles. Again, some of this line of thought is probably mere speculation.

    1. Interesting. I’m pretty sure that the “default approval” happened the first go round. I also expected them to come back for the 30 year as they alluded to it in the original request. No surprise that back then, the “spokesperson” banker of the new arrangement spoke in favor last November of the 20 year deal as a “ordinary citizen” during the IDB public hearing.

    1. Jeanne – CVMR has yet to do whatever it is they need to do to finalize their deal. Apparently the mayor is privy to more information regarding both projects than the rest of council, so you may want to contact him for additional information.

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