Spotsylvania: A Looming Tiff over TIFs?

Developers of the proposed Summit Crossings project in Spotsylvania County have proposed creating a Tax Increment Financing (TIF) district to pay for $127 million in road, water and sewer projects. Says Hart Rutherfoord, spokesman for Tricord Companies: “We’re doing the work to create the funds to deliver the infrastructure, and the county doesn’t have to do a thing. All they have to do is say yes.”

Tricord wants to rezone 925 acres south of Fredericksburg near the Massaponnox interchange on Interstate 95. Built in three phases over 20 years, the project would create a high-density, mixed-use community with 3 million square feet of office space, 185,000 square feet of retail, a hotel and nearly 6,000 homes, mostly condos. The existing road infrastructure would not adequately serve the traffic generated by the project, so Tricord also proposes building a four-laned Summit Crossings Parkway and upgrading the interchanges at I-95 and U.S. 1, as well as adding to water-sewer capacity.

The way Dan Telvock explains the TIF district for the Free Lance-Star, Tricord would create a special tax district — presumably encompassing the property subject to rezoning.

Local governments earmark tax revenues from property value growth within a designated area to finance development in that same area. For example, if undeveloped property in a TIF district is worth $10 million in tax revenue and the value rises to $30 million when developed, all or a portion of the $20 million difference goes to the TIF.

The county would still receive the $10 million it was getting prior to development, and could get more depending on what percentage of the increase it dedicates to the TIF. Once the TIF expires, the county receives the entire tax benefit.

I don’t know how the numbers will all crunch out — a key unknown is what percentage of the increased property tax would be dedicated to the TIF and what percentage would flow into county coffers — so I’ll withhold judgment. But if I were a Spotsylvania supervisor, I would inspect the numbers very closely. The county will incur a growing cost of school, public safety and other services as those 6,000 homes are built and new families move in. Not only will the county have to pay those operating costs, it will have to pay the up-front capital expense of building new school buildings and fire/police/rescue stations.

Will Summit Crossings generate enough tax revenue to do all that? If it can attract enough commercial tenants to its technology center and federal corporate campus, maybe so. But that’s an iffy proposition. Even if the TIF revenues were split in such a way as to cover all the county’s costs on paper, Spotsylvania would be taking a risk that Tricord would line up those commercial tenants — even though Spotsylvania has no track record of luring major commercial investment — and that the revenues would come in as projected.

Tricord should assume the risk of real estate development, not Spotsylvania County. One possible way to get around the problem might be to use TIF financing as overlay tax district — generating a stream of tax revenues over and above what the businesses and homeowners ordinarily would pay. If tax revenues met or exceeded the amount required to pay for public services, perhaps a portion could be rebated to property owners.

Bacon’s bottom line: TIFs can create useful options for financing growth. But they’re tricky. The risks are difficult to appraise. Private businesses are accustomed to dealing with risk — that’s what they do for a living. Municipal government employees aren’t trained to evaluate real estate development risks. County supervisors and City council persons, most of whom know even less about municipal finance than government employees, need to make sure they know exactly how the financing works and what risks they are assuming.

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  1. andrea epps Avatar
    andrea epps

    I know nothing about this proposal, but they should consider a CDA. It would put the improvements on the ground much faster.

  2. Larry Gross Avatar
    Larry Gross

    The CDA is the correct way. The paper said that they felt that the TIF was a better choice – but for who?

    CDA’s layer an ADDITIONAL tax on the folks in the CDA to pay into a fund that will pay off the bonds that allowed the infrastructure to be built “Up-front”.

    The TIF actually diverts the property taxes on newly-built development inside the TIF to the TIF – completely unless otherwise negotiated.

    So the property taxes in the TIF go exclusively for the infrastructure and one of it goes for the other county services.

    In effect, the folks outside the TIF are paying extra taxes to provide non-infrastructure services to the folks inside the TIF.

    Additionally, as JAB pointed out, if the “projections” on how fast the development … develops .. turn out to be wrong – the payback time could be extended and/or the county might have to supplement lower than expected revenues.

    This whole deal.. development, infrastructure, proffers, impact fees, etc – they all go back to the scope and scale of infrastructure needed to serve new development AND maintain the existing LOS – and WHO is responsible for paing those costs.

    The property rights/homebuilders believe that EVERYONE should pay – both newcomers and existing residents – apparently no matter what the RATE of growth is.

    So the more/faster growth a locality has – the higher the taxes on existing residents to pay the additional infrastructure costs.

    It’s either that or don’t raise taxes and let the LOS deteriorate (the more common response from many localities because if the voters figure out you’re raising their taxes to pay for new growth -you get voted out fairly quickly.. so better to just let the infrastructure go to hell in a handbasket).

    Of course the handbasket strategy has shortcomings also.. but it takes citizens a bit longer to figure out that they’ve been “had” but eventually they figure that approach out also and then throw the BOS out – ala Loudoun county style.

    I appreciate “innovation” even with financing but my primary objection here is that citizens should be told UP FRONT the pros and cons of TIF financing ESPECIALLY compared to CDAs.

    If citizens are told and they understand and they still agree -then fine.

  3. Wants Affordable House Avatar
    Wants Affordable House

    Hello. Why would a CDA be better if I wanted to live in the development? That means I am paying an additional tax. WIth this TIF, the way it was explained, the county doesn’t get all or some of the tax revenue from the development until the bonds are paid. They still get the money they are getting now for the land.

    But services go up to support the development. There’s no win with development. Proffers don’t work because all they do is increase the price of a home. Impact fees don’t really work because governments collect so little (but the benefit to them is nasty by right development pays impact fees).
    When it comes down to it, the homebuyer pays. This is why there are so few if any affordable homes in high growth areas because of proffers, impact fees and CDAs.

    There is no answer yet. I think the TIF might be the best option.

  4. Larry Gross Avatar
    Larry Gross

    I think the affordable housing aspect is not an intellectually honest aspect of proffer/impact fees and TIF/CDA issues.

    Most folks would support reduced proffers for affordable housing that meets the median salary threshold for affordability – as opposed to trying to get a competitive edge on more upscale market housing.

    I’d support shared TIF for TRUE workforce housing that actually meets affordability thresholds, but not for market homes costing twice as much or more.

    TIF development does not pay for services … since the taxes are reallocated for infrastructure.

    This smells a lot like an really bad policy.

    GOOD water & sewer authorities are fairly scrupulous about the separation of capital and operational revenue streams- for good reason.

    and there is seldom heard a complaint that the water/sewer hookup fee makes the house less affordable (even though if judged on the same basis as other infrastructure.. it too .. adds substantially to the price of a home.

    But folks know that that house won’t “work” without water/sewer and it’s a really hard sell to have 3rd party taxpayers kick in money directly for water/sewer hookups.

    But, if water/sewer were done like the TIF proposed.. the residents would not be paying a monthly fee for service because the money would be diverted to pay for the infrastructure and so the other folks paying monthly for water/sewer service would have to pay more to make up for the revenue loss.

    I think that ALL infrastructure should be handled just like water/sewer are

    For those who don’t agree then how about explaining why water/sewer should work differently for roads/schools.

    It would be helpful to have some consistency in the overall infrastructure philosophy.

  5. Steve T. Avatar

    If the real “risk” here is if the commercial/industrial parts of the project would get filled, you can rest assured. Spotsy has had a severe lack of Class A space for quite some time- especially space near where people can go eat, near transportation, with the ability to hold conferences/events- and now they get that, and near AP Hill to boot. The Spotsy Tech Center will fill up very quickly- the tenants are already lined up for that- and the 50 mile blast zone regulations are forcing government agencies to look for space over 50 miles away from DC (nuclear blast zone). Puts Spotsy as a prime location, especially since so many of their workers live here, except that no good space now exists.

    I don’t know about the growth effects of the residential part- I suspect that will be tweaked some- but the commercial part is a total go, and will deliver hundreds or thousands of high-paying jobs to Spotsy for the first time.

  6. Larry Gross Avatar
    Larry Gross

    wait a minute.. there are two giant Capital One buildings at Massaponax are there not?

    and from what I understand they are not filled…

    Fredericksburg has a Convention Center that is on life-support and they’re looking at a waterpark instead of high-end office buildings which they would take in a heartbeat if there was any chance that they’d attract the same business that you’re claiming are going to drive 5 miles further south to get to.

    This project is heavy condos to boot.

    If this project is so good on the Commercial then let’s limit the TIF to the commercial only and let the commercial do what you’re claiming…

    and let’s put a performance requirement on it also to insure that the county does not eat the loss if it goes belly up.

    Make the Condos do regular proffers and let the commercial do the TIF and we’ll be fine.

    OR do the whole project as a CDA.

    if the BOS goes for this project – as is – we’re back to turnip truck politics… and the rubes are not the BOS but the folks who elected them.

  7. Steve T. Avatar

    Larry, not to single you out- I don’t really know what’s been said publicly about the whole project yet- but here’s my understanding….

    1. The Capital One buildings were, in fact, made for Capital One. As a result, there were several features that make them poor for multi-tenant usage (think of erecting walls, security, bandwidth, etc), and most companies simply won’t foot the bill for renovations like that when other places around us are building to suit their needs. That said, they are still largely taken, despite having no renovation to make them user friendly. Also, no place to walk to lunch (unless you count Hooter’s as a business expense).

    2. STC and the Government complex would be a part of the development. We have nothing- and nor does anyone else- that could securely handle a government agency. This would provide that.

    3. F’berg did a tremendously bad job planning Central Park (surprised?). I think they are nuts for incenting a company to come and sap millions of gallons of water from a draught stricken area for hundreds of minimum wage jobs. They never even for a moment considered putting Class A space there. Pity- they would have done well with it. But now that boat has sailed. Why not benefit from their stupidity?

    4. STC already has all clients lined up- but they need an incubator-like space, one that allows for research and collaboration in a way that having a 4th floor office here and a 2nd floor office there, with no security controls, cannot do.

    Ultimately, I’m concerned about the condo element too, and I suspect they will revisit the mix and size of the development. But keep in mind that the GA actually tasked county governments in 2007 with doing more mixed use high density spaces- and this would qualify. I’m more excited about getting high paying jobs here than about the growth, but if they mix it right it should be plausible.

    As for the TIF… anything that doesn’t increase taxes, I’m in favor of. It would seem stranage to add a CDA to the mix where part of the benefit is to have some affordable housing in the development- and the CDA makes it less affordable.

    It could also add in a new 95 interchange, a desperately needed one. If it does the TIF will be well worth it, handsomely well worth it.

    As with anything else, I think we need a bit more info to come out and tweak the plan to benefit all involved.

  8. Larry Gross Avatar
    Larry Gross

    Steve –

    Cap One is standard office space (with key card security) and you Forgot Friendly’s and Golden Corral.

    and there is more available land around the Cap One buildings ready to build on.

    Celebrate – where Kalahari would go has quite a few available acres for Office Space… probably several hundred.

    Are you sure you understand the difference between a TIF and a CDA?

    I would urge you to learn about how they differ before you support a TIF. TIFs were originally used as incentives for redevelopment of blighted areas – where no developer wanted to risk it. They are very controversial when it comes to Greenfield development.

    A TIF.. DIVERTs taxes that would normally go to the county for services towards infrastructure.

    County taxpayers outside of the TIF area will pay for all services in the TIF area whereas a CDA (like the one set up for Cosner’s Corner AND Central Park AND Celebrate VA) adds an extra tax to the regular taxes inside of the CDA to pay for the infrastructure that benefits the new development.

    I think that ultimately that area IS destined for office space (and perhaps a new interchange) but there is plenty of ready-to-build land available in the area without moving one bulldozer.

    At any rate – the county taxpayers under no circumstances should assume major risk for ANY development by accepting a TIF arrangement which would also likely include using the county’s bonding authority.

    I support commercial development and than includes incentives including a TIF but only on a performance agreement basis.

    The Condos need to be a CDA with or without proffers – period.

    Any use of a TIF to provide anything other than median income affordable housing is a bad deal because they services for them will be subsidized by county taxpayers – and that will in all likelihood require a tax increase.

    I don’t know the specifics so probably need to wait and listen but the proposed use of a TIF is not a good sign in my view.

  9. Steve T. Avatar

    My suspicion is that they need to do a better job of getting the word out on more of the specifics of the plan…. But the way it was explained to me, the TIF would not only include no new taxes either on the new residents or on the other residents of Spotsy… but also that this type of vehicle would indeed ensure the transportation improvements move forward quickly.

    I can tell you however, I have heard numerous things about the lack of suitability of the Capital One buildings- especially for small or collaborative businesses. And the security component is not sufficient for government work, I’m told.

    Ultimately, we do have some high-end tech businesses in Spotsy, but they are here and there, not connected and not near retail etc… this would give them the chance to be in the same place and work together on research etc, which is significant.

    So for me, it comes down to the residential part, if they get the mix right there- and that includes proffers, which would help the county too.

    I do know what a TIF is- but it is basically taking the tax on the difference between what the land was worth before and after the development. If you are simply taking the increased taxes to pay for infrastructure improvements- it’s a good deal, because we’ve all seen how quickly VDOT moves to help fast-growing communities.

    Like I said tho, I’m sold on the commercial part (Spotsy Tech Ctr and Government complex), need to see more on the mix of the residential. And I suspect we will.

  10. Larry Gross Avatar
    Larry Gross

    If I recall.. There were four buildings originally planned for the Cap One site. If you go down there you’ll see there is still land.

    I would like to see the Tech Center and Government Complex and would sign on to a TIFF for that component.

    But the residential.. they require expensive services – and what the TIF does basically is divert the property taxes for new condos to pay for the infrastructure instead of county services – schools, fire/rescue/law enforcement, libraries, etc..

    so the new condo folks will not be paying for these services that will be delivered so someone else will have to pay for those services and the only other folks are other county taxpayers.

    I’d sign on to a TIF for TRULY affordable housing – that is housing that sells/rents for about what the county median income is so that teachers, medical, deputies, fire/rescue entry level folks have an affordable place.

    Finally, I need to see a compelling argument why a TIF is a better BENEFIT to the taxpayers of Spotsylvania than a CDA.

    Citizens need to know why the TIF is better for THEM (and I don’t think it is).

    and to give you a good example.

    If Central Park, Celebrate Va and the Spotsy Mall were done with TIFs rather than CDAs – the taxpayers would be paying for those services for those developments.

    so, let’s hear the compelling argument for the TIFs.

  11. RJ, spotsylvania Avatar
    RJ, spotsylvania

    Most of this info I am getting from the FLS article which I enjoyed reading after several pieces of talking point from the Tricord people. Now it is time to really put this out to the public in a fair and honest way.

    With the TIF, the taxes the development makes minus the taxes of the openland are what goes into the tif. SOme or all of it will go into the TIF. The project is built in phases over 20 years. That lowers the burden a bit. The project begins with the technology jobs, and trying to get that off the road. Good jobs, reverse commutes. No real tax loss there but the benefit is the land is developed so the TIF gets the dough. Now. with few houses, and not many children, it is likely the early stages of building the TIF will have minimal impact. The county isn’t losing tax revenue. It is just not gaining any.
    The argument I think Larry is making is that new revenue is necessary to pay for the additional police services and the school services and what not. And the residents all over the county will be picking up that tab with a possible tax increase, right?
    Well, that depends, Larry. Maybe the TIF only need to be for 10 percent of the revenue. SO, if the county gets 100 million on the improved land, 10 million goes into the TIF and the rest is to the county coffers.
    Can’t the TIF be worked so that the county can get enough of the tax dollars to at least pay for the services the development creates, while supporting the TIF to build the road? Then, once the roads are building in 2029, the county has a windfall of new tax revenue and it can build a baseball stadium or a huge park for kids or whatever it wanted.

    I think a CDA Is bad news because it forces an additional tax on unwilling people who are already paying too much for a home. However if they buy it and the CDA is there, that means they are ready to afford it. Tough call. I will never do a CDA.

    None of these roads really improve anything.

    ANd what is interesting about all of Tricords advertising is “We are proffering $215 million”

    What a hoax and I was very happy to see the reporter grab that. These roads are not “proffered”
    If they proffer the roads, they build them and they pay for them. That ain’t happening here folks.

    These roads are on the taxpayers backs whether it is a CDA or a TIF.

    I do think TIF might be the best options because of the flexibility and possibility to avoid taxing anyone in the county to get it done.

    So what is Tricord really proffering? It seems they want credit for the affordable units ,fair enough. Are they proffering on the homes? Fair. A few school sites. OK, that’s land.

    This mixed use compact (is 1000 acres compact?) development is exactly what high growth area needs, but it is so much better suited for areas of redevelopment where you can tear down say a corridor like Rt 1 or LAfayette Blvd and make it anew.
    This is just taking open space and building more homes, office and stores with “14000 high paying jobs” which honestly seems ludicrously bold and absolutely NOT guaranteed.

    Is the Tricord people just trying to advertise this with bogus jewelry or do they want to present this fairly to the people of the county? I don’t expect one reporter at one newspaper to tackle this monster development in one shot. It’s up to Tricord, who does have a good reputation, to be upfront.

    So far, they are hiding behind these large placards of walkable communities and condos.

  12. Larry Gross Avatar
    Larry Gross

    This is an excellent dialog.

    re: partial TIF for residential

    Okay… in essence – what you are doing is providing the same level of services to the new homes for less taxes than what others in the county are paying and that benefits who?

    How does that benefit the county taxpayers as a whole?

    then I’d like to hear again why a CDA is “unfair” because if you’re going to build dense new residential near I-95 and Route 1/17, you are going to generate 10 trips a day… and ADD to the already significant traffic and why is it unfair to pay for improving/upgrading the infrastructure with a CDA on these folks that necessitate the upgrades?

    The current upgrades to the Route 1/17/I-95 area ARE made possible with a CDA am I correct?

    and those upgrades were planned on paper by VDOT for how many years before development with a CDA was approved?

    It appears to me that a CDA is an additional tax to provide the infrastructure/services that folks want/need for a particular area SOONER than if those things were put on a list to compete with other county priorities.

    and in this case, basically what this is about is the infrastructure needed for a new development so it’s totally appropriate.

    On the Commercial side, I support the TIF idea.. it’s really little different from offering tax-break incentives in return for something that could BENEFIT county taxpayers over the longer run by bringing in more revenues but there is a downside to the TIF even for commercial in that with incentives, they can be written to be keyed to actual returns.. so the county gets something and the developer gets something if the project takes off.

    But with a TIF, what happens if the project does not take off or seriously under performs the projections?

    Who loses then?

    I think in that case, the county ends up holding the bag because if the idea is to use the TIF to bond the improvements and the development does not end up providing enough increase in taxes to pay the debt service – who is responsible for make up the gap?

    and forget it with the residential, it will NEVER provide revenues in excess of services even AFTER the tif is paid off and in the interim, taxes that would have gone to pay for services that WILL be rendered get diverted to pay for the infrastructure.

    If the citizens of Spotsylvania don’t “get this”, and stand up to oppose this idea, then they deserve to pay the extra taxes that they WILL have to pay AND a precedent will be set for further/future development….done the same way.

  13. Larry Gross Avatar
    Larry Gross

    Two more things:

    First, if you know how to use GOOGLE NEWs – put the term “Tax Increment Financing” (with the quotes) into the search and you’ll see that these are hot topics across the country and in VIRTUALLY EVERY CASE – they are for redevelopment and/or commercial and not greenfield residential.

    then a second point.

    what is to prevent ANY subdivision or neighborhood from proposing to form a TIF – from which all future increases in tax revenues from increased assessments would be “captured” by that neighborhood for their own purposes?

    A new playground, or sidewalks or their own backup power facility, or their own WiFI or you name it…

    or let’s say they’ve got a dirt road and they are tired of waiting for the county and VDOT to “get to it” on the priority list so they’re going to prioritize it themselves.

    So.. you say… “well, the county would not approve that”…

    and so the neighborhood decides to sue because the county allowed it for a new greenfield residential and the lawsuit is about what criteria that the county used and whether or not it was/is arbitrary and capricious.

    TIF for residential is fraught with downsides IMHO.

  14. Steve T. Avatar

    This is a good discussion, and thank you both for having it!

    The trick in all of this is what we still don’t know (and from the first time I heard of this project to now, it’s already changed quite a bit):

    -what is the condo/house mix?
    -What is the commercial/residential mix?
    -In what stages will everything be built?
    -Whither the proffers from Tricord?

    I highly suspect all of these things are very negotiable, so let’s hang tight before we pass judgement here.

    I know Tricord is in favor of proffering as opposed to by-right- they know Silver is flying the coop and hope to build good community relations to take over after they leave.

    Keep in mind, 20 years is a LOT of time. 20 years ago, Spotsy had 1/8 the population it now has. And far fewer traffic lights. And much less traffic. So in the grander scheme of things, if we KNOW we’re going to get development anyways, why not have it be a little smarter and controlled rather then be haphazard and without planning?

  15. Larry Gross Avatar
    Larry Gross

    It is an excellent discussion – agree.

    Can we agree that TIFs are very similar to a local jurisdiction version of an earmark?

    I’m not using the term pejoratively but instead to describe a process by which part of a revenue stream is pre-allocated to a particular purpose rather than have that stream go into a general revenue fund administered via a budget process.

    If we agree on that – then the issue of discussion is whether or not such a thing is a policy deemed to be of benefit to all county taxpayers and if so.. what would be the benefits.

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