May 18, 2008

District Improvement Financing (DIF)

What is it? Click here for an explantion.

Here is my explanation of DIF. Cities and Towns are given money (Bonds) for infrastructure improvements to lure businesses to expand the tax base. The theory is that without these infrastructue improvements, the project would not be feasible for the developer.

The City or Town must then prepare a plan showing how once the infrastructure is done and the developer finishes their project, the increased tax revenues will pay off the bond. In other words, if all goes well, the bonds are paid by new revenues from the project thus costing the underlying City or Town nothing, while expanding tax base. Make no mistake about it, however, the City or Town must pay back the bond, even if there is no increased tax revenues so there is RISK.

Here is analogy. Assume you have a business, but decide to build an addition that will cost $200,000 or $2,000 per month for 10 years. You build the addition and your profits go up $2,000 per month. Theoretically the $200,000 loan cost you nothing, since your profits went up and eventually the business will be more profitable when the debt is paid back. There is RISK to the business-owner. If the business does not increase with the addition, the owner still has to pay back the $200,000.

Just like the business who takes out a $200,000 note, there is risk for the City of Worcester with District Improvement Financing, but it is to the tune of $64,000,000. Originally the Commonwealth required that the underlying project had to have 300,000 square feet leased. Why? The Commonwealth wants to make sure that there will be additional tax revenues to pay the bond. This week I read the Commonwealth has dropped this requirement to 140,000 of square feet. This concerns me. Where will the increased tax revenues come from to pay some 64,000,000 in DIF bonds if there is only a commitment of 140,000 square feet to be leased?

Here is a real good summary of the project, click here. Bottom line is we need alot of increased taxes from this district and new revenues from the parking garage to pay back 64,000,000 in bonds. If we do not come up with the additional revenues, the payments still need to be made from the General Fund.

City Square is very important to the future of downtown, but do we not want to be in the real estate speculation business? I think we are taking a big business taking on this debt not having at least 300,000 square feet (as originally planned) in a good market. Now that the real estate market has turned, we are willing take this risk with less commitments?

Reminds me building a train station without parking? Seriously we need to think twice about reducing the initial development requirements, especially when we are on the hook for $64,000,000.


Anonymous said...

When municipalities are running the numbers for these DIFs, do they factor in the lost tax revenue that results when old structures are razed?

For example, I raze a 3 decker and build 3 new townhouses in its place. Shoudnt the overriding concern be " 'NET' NEW ADD'L TAX REVENUE"? Also the real estate tax on the raw land will always be a revenue source, with or with old or new structures on the land.

This moring after reading T&G i am thinking to myself about the 4business closings that will result from the Hanover Theatree folks buying up the building next door and converting it to a restaurant. Clive says a pool hall, a hair braiding saloon, a nail saloon, and a barbershoip will all be displaced and/or closed once The Hanover Executives (THE-HEX) buy this adjacent property. Goral Opticians who currently owns (or owned) the building will be allowed to stay as part of the reported negotiated deal.

Granted, many will think of the new eatery as an upscale improvemnt vs. the existing businesseses (I agree), but how would any of you feel if you had been in business there for 20 years (the poolhall) when you take look at what has basically stolen your businesS and earnings from you.

BY that I mean a major upscale theatre renovation project that was probably AT LEAST 1/4 to 1/3 subsidized by a combination of city give aways, city loan guaranteees, City grants, private donations, and State & federal tax dollars comes in and takes away your livelyhood. My position is that w/o all the freebies, goodies , & giveaways The Hand It Over Theare wouuld not even exist. The taxpayers are the proximate, if not the direct cause of privete businesses being exterminated in this situation.

IMO, The manner in which this Hand It Over Theatre has been financed has resulted in an almost eminent domain like taking of four private business.

Paulie, did you know that I am going get funding from Washington & Beacon Hill to put on a marathon through the streets of downtown Worcester (The Jahn Jog) and you should the deal I got on police details b/c I got juice.

Bill, I will soon be applying for 503b (non profit) status to commence building housing in Worcester. My salary will in $100,000 range plus great bennies and worse yet, I am going to push you to sell a piece of your propertry to me for re-developoment and if you resist, I'll apply political pressure. Thank You Jim, Teddy, Deval, & Tim.

Paulie & Bill, are you gents happy campers about my new endeavors?

Bill Randell said...

I do feel bad for the tenants, but that is why leases are important. If I was any one of those tenents, I would have been worried about this exact situation and would have demanded a lease before I sank one penny into my spot. Putting themselves in as tenants at will put them in a very vulnerable position.

Again I feel bad for them, but that is what you call "business."


Anonymous said...

Sorry Bill, but I think it s/b qualified as non profit business "taking" aided and abetted by the taxpayer...which aid was at least the proximate cause of four private busineeses being forced to close up shop.

It is quite possible these businesses had an initial lease and then when the lease ran out (maybe 5 or 10 years) they became tenants at will? What could they do given that they may have already sunk money into the premises? Are they going to just pick and move b/c they couldnt get a lease renewal after being at a particular location for a number of years or are they going to stick it out...given that they had money already invested at this particular site.

My point is the Hanover would not exist, were it not for the generosity of the taxpaying public and if the Hanover didnt exist.......these 4 retail outlets would, in all likelihood, still be there.

Put yourself in their position, esp. after putting up with the constr in that area for what...2 years?

I see this as somewhat analogous to what happened in New London, Ct. The local municipality gets in involved with private business affairs and others are adversely effected by the use (or abuse) of taxpayer money to further private business interests. But at least in New London, Ct the local municipality realized property taxes from the newly formed Worcester after the city fronts the Hand It Over Theater all kinds of money..........the theater turns around socks it to the city by going non profit.....under the guise of not being able to afford property taxes. Talk about an opening act.

ThinK about it, they cant afford to pay property taxes but they can afford to buy up the abutting property for how much money.......what a charade

If this happened to me, I'd be screaming like hell.........and think others would do likewise.

Are these 4 business on the list of the recetnly deceased?