Tax Increment Financing 101
September 14th, 2007 | by Eric Raasch | Published in East Campus, Route 1 | 18 Comments
As Route 1 redevelopment progresses with the East Campus and other projects, there may be opportunities for the public sector to use tax increment financing as an incentive for developers. Tax increment financing, a form of a public-private partnership, is an agreement between a developer and municipality in which future tax revenues are used to subsidize infrastructure or other public amenities.
The idea is that certain projects have such positive economic impacts that municipalities are willing to provide financial incentives to the development community in order to help the projects get built. Because the municipality is borrowing the money, it receives discounted rates on bonds from financial lenders. The money is then used to fund improvements to the project site, which can range from land acquisition to infrastructure improvements.
The municipality realizes that the development will increase its tax base over the life of the project. A percentage of the increase in tax revenue collected within the district is then used to pay off the bonds used to finance the improvements. In Prince George’s County, tax increment financing is typically, if not always, used for specific project sites rather than districts, so the percentage of the increase in tax revenue from each particular project is used to pay its bonds.
Although this method of financing appears to some as a solution to all of Route 1’s problems, too much tax increment financing can be risky for a municipality or county to undertake. Some issues with the financing methodology include the over-allocation of future tax revenues and the unpredictability of future tax revenues. All things aside, if used correctly these partnerships can have positive economic impacts on entire communities.
September 14th, 2007 at 3:32 pm (#)
The key phrase here is ‘future tax revenues’. Forecasts of the future are notoriously awful.
I’d like to know what ‘positive economic impacts on entire communities’
means to an individual of modest means.
Like or Dislike:
0 
0
September 14th, 2007 at 3:38 pm (#)
TIFs in College Park are a hard sell to the County which views TIFs as way to incentivize development in the most blighted areas of the County. The Vogel Hilton Hotel project at Northgate was abandoned because of lack of County interest in providing a TIF to help pay for the parking structure. The only real incentive that has been used to date has been revitalization tax credits. These can provide a very modest subsidy if approved.
Like or Dislike:
0 
0
September 15th, 2007 at 1:20 am (#)
Jane Doe,
Most of PG county is of modest means. I’m not exactly sure what you are looking for…
Positive economic impact refers to a net increase in tax revenue. So if you have a vacant property and it’s replaced by a building that nets the community a few 100K a year, that is a positive economic impact. If you don’t want to use your real name, feel free to stop posting on this site any time because we are tired of it.
Like or Dislike:
0 
0
September 15th, 2007 at 8:54 am (#)
David-Your failure to understand property owners’ concerns too frequently leads to a breakdown in civil discourse at RTCP. Could we just agree to disagree–without the rudeness? Homeowners, parents and longtime residents are going to have a different viewpoint than students (and yes, we know you are no longer a student). RTCP site provides a great resource and excellent coverage on a number of issues, but gray areas do exist.
Like or Dislike:
0 
0
September 15th, 2007 at 9:01 pm (#)
Ever once in awhile we get some comments that suggest that the writers of this site are elitist. I do agree to disagree and I recognize why that disagreement takes place. That being said, I refuse to allow our writers to be so blatantly criticized on our site (especially as students of modest means who are paying a considerable amount of money to keep the site running and who have dedicated an unbelievable amount of time to making this project work). I especially won’t tolerate criticism from folks who continually refuse to use their real names when posting.One central premise we work on here is that rents are high in College Park because there is a scarcity of housing (very low vacancy rates). This problem is compounded by the fact that very little development is making its way through the approval process. More housing means a dampening of rents for people of any means.
Like or Dislike:
0 
0
September 17th, 2007 at 1:20 pm (#)
“Cant We all just get along”
Jane: I really am sorry about my post a week or two back. I was just horsing around, trying to add a little levity. I hope the new name in your post is just you having some fun with it as well. If not, and you were offended, I truly sincerely apologize. While I may not agree with you and may get upset with your negativity, I am thankful you care enough to view this site regularly. At least you are engaged in the discourse.
Here is what frustrates me and lets my passion cloud my better judgement in what I have posted in the past: College Park has so much untapped potential. It truly could be one of the hippest most desirable places to live, yet we seem to run up against such a large contingent of “oh it will never happen” or “leave the town alone, we dont need you university types telling us how to live” or “that damn U of M is at again”
We have to move beyond this “us versus them” thinking if we are going to move forward. And for those of you who seem to not want to move forward, that is really a shame. A revitalized corridor with CP as a cool college town would do so much for the value of your property.
I am a staunch advocate for every aspect of the Univ. (Academics, Athletics, etc) so I engage with many different constituencies on a regular basis. When it comes to athletics I pay attention to what visiting teams’ fans say about us. Too often I hear “what a dump” – “another DC slum” – “DC’s version of Tikrit” etc and that hurts. We have a fine University that has made unbelievable strides in becoming recognized as one of the nation’s best. And that benefits everyone in so many ways. Even beyond the beltway. It really is hard to handle CP locals who want to fight and disagree instead of partner and engage.
Sometimes students say the wrong thing. Heck Im what 14 years out and I still do. But it comes from an unbridled passion for all things U of Md. And each year the school is turning out larger numbers of people with a passion equal to or greater than mine. On the other hand, non-students or non U of Md affiliates interpret what we say incorrectly. I see this a lot from people who seem to have a very anti U of Md filter through which they see the world. Please help me understand why that is? What is the Univ doing wrong or what can it do better? Please dont confuse passion, excitement, energy, enthusiasm and some occasional frustration with elitism. I personally have encountered local residents who are a bit too sensitive and no matter what are going to view the Univ, its admin and its students in a negative light and thats really a shame. Sure, any large population like ours (meaning the Univ community) will have its bad apples, and even the good apples will have a bad day or two and say something not so nice, (my own personal mea culpa to the RTCP community) but in the end, we have an institution focused on excellence in all that we do. and why is that such a bad thing? why cant we work together? “why cant we all just get along?”
The Univ and any redevelopment in the area are such positive economic engines. Over 53,000 people visited the city last Thursday Night. I personally spent around $1,000 within the borders of CP on hotel, food, and misc expenses. We were the center of the nation’s sports viewing population for a few hours that night.
Come one folks, we are about to embark upon one of the most exciting times in the city’s history. We have first class leadership in Doug Duncan and F-P Argo. Lets not make things harder than they have to be.
and I have been fortunate enough to have met David and Rob and they are most definitely not elitist. (The “elitists” wouldnt even give this subject the time of day, let alone invest their limited resources – both time and money – in this initiative.) They have gone so far above and beyond the call of duty in creating a high quality product that keeps people as far away as California engaged and up to date on the issues. Where else can you go to find such quick easy access to the most up to date AND ACCURATE (note, other entities that try have really struggled with the accuracy) info on CP development issues.
Sorry for the long post.
Like or Dislike:
0 
0
September 18th, 2007 at 3:33 pm (#)
“Positive economic impact refers to a net increase in tax revenue. So if you have a vacant property and it’s replaced by a building that nets the community a few 100K a year, that is a positive economic impact.”
—–from David Daddio’s post of 9/15 at 1:20 p.m.
Does the calculation of ‘net’ take into account an increase in services that may have to be provided for the occupants of the new building? There could be an increase in police and fire calls. There could be more children in the local schools. There could be more automobile traffic. There could be increased stress on utility infrastructures. So development does more than increase tax revenues.
Like or Dislike:
0 
0
September 18th, 2007 at 4:43 pm (#)
Yes, it includes those things also.
Like or Dislike:
0 
0
September 18th, 2007 at 6:50 pm (#)
If development regulations are correctly worded to require public facilities capacity based on an adequate level of service, then the developer would be required to show that public facilities are available to serve the project or to provide them. As for an increase in police or fire calls, taxes are designed to provide for the continuation of these services. If this were not the case, local governments would operate in the red.
Like or Dislike:
0 
0
September 19th, 2007 at 1:36 pm (#)
Response to Daddio’s post of 9/15 at 9:01 p.m. that included this:
“That being said, I refuse to allow our writers to be so blatantly criticized on our site (especially as students of modest means who are paying a considerable amount of money to keep the site running and who have dedicated an unbelievable amount of time to making this project work).”
I don’t think I used the word elitist in any post in this thread. I may have used it in some other thread and that would be because I think you guys are elitist. You tend to see the world from your own privileged perspective. You tend to think that everyone is in approximately the same circumstances as you.
This is not true.
There are lots and lots of people who have not been able to attend a university and cannot look forward to the good jobs that result from getting a degree. You probably think you got where you are today through your own efforts and that people in lesser circumstances are there because of some personal flaw.
All they need to do is work harder.
If you are attending UMCP you are being supported by the taxpayers of the state of Maryland. Many of these people cannot afford a University education. Some have been lucky enough to be able to afford a house in Riverdale or Hyattsville or some other place you put down as a slum. They like their quiet suburban neighborhoods and are concerned about development changing things.
Let’s take a look at one of those developments–the EYA arts thing up Route 1 in Hyattsville. The website advertises urban row homes from the $400′s to the $600′s. That is expensive. And it is way beyond what I can afford. How does this kind of housing possibly help working people? Think about it.
Like or Dislike:
0 
0
September 19th, 2007 at 3:31 pm (#)
Wow this is one of the most intense threads of comments I have ever seen at Rethink, I’m not sure how a seemingly innocent post on TIFs started it all. I am tempted to add my own diatribe, but I wouldn’t even know where to begin, there are so many thoughts running through my head. Suffice it to say I think everyone has made some excellent points above, I just wish there was less negativity and people could respectully consider others’ opinions. The point of this site is in part to have dialogue this, and I commend those who contribute with posts and comments in a positive manner. College Park does have a lot of potential, and only through dialogue like this between the many different types of people that make College Park what it is will it ever change for the better.
Like or Dislike:
0 
0
September 19th, 2007 at 10:49 pm (#)
A marketplace of ideas, indeed! However one should note the City’s biennial survey of residents, the 2004 version of which states:
“Most residents wanted to see more restaurants (73%), music and bookstores (67%), grocery stores (66%), entertainment (58%), clothing and shoe stores (57%) and hardware and garden stores (53%) in College Park.”
Though hardware and garden stores have never become topical, this site has advocated all those things in addition to more housing for more people. I’m not sure if this is elitism or populism!
All towns– even well-to-do Potomac– have deficiencies. However, not all towns have the potential College Park has.
Like or Dislike:
0 
0
September 26th, 2007 at 8:23 am (#)
“Though hardware and garden stores have never become topical, this site has advocated all those things in addition to more housing for more people. I’m not sure if this is elitism or populism!”
More housing for more people is neither elitism nor populism. Without more details I cannot tell. An urban town home from the $400′s is beyond what I can afford.
I could not find the part of the College Park survey where it says that College Park residents want more housing for more people.
Like or Dislike:
0 
0
September 26th, 2007 at 12:18 pm (#)
“If development regulations are correctly worded to require public facilities capacity based on an adequate level of service, then the developer would be required to show that public facilities are available to serve the project or to provide them. As for an increase in police or fire calls, taxes are designed to provide for the continuation of these services. If this were not the case, local governments would operate in the red.”
Thanks ofr the info re:development regulations.
Re: taxes
I realize that taxes fund the cops and fire department. It seems obvious to me that residential development would cause an increase in police/fire calla and this doesn’t seem to be considered when people discuss how great development is because it will increase tax revenues.
Like or Dislike:
0 
0
September 26th, 2007 at 11:29 pm (#)
I was being a bit facetious with the words ‘elitism’ and ‘populism.’ Both are just popular forms of rhetoric thrown around these days.
However, affordable housing is a worthy goal all communities try to achieve. A sure way to dash that goal is to restrict the supply of housing while the demand remains high. College Park has an especially high demand due to the 150-year-old university in town; a difficult development process (high market prices, odd property sizes, time-consuming regulations, etc.) only exacerbates the shortage. Though citizens certainly have the right to protest development they believe detriments the community, one must remain aware that strong opposition to development in College Park is antithetical to the goal of affordable housing.
Also consider that on Route 1, the alternative to new development is the status quo: a large array of blighted and abandoned properties. Certainly there are better alternatives to boarded-up shops and cracked, abandoned parking lots. Rather than adopting the role of obstructionist for developers or apologist for developers, a more sensible method would probably fall somewhere in between (depending on what features of development are valued and to what degree they are valued). For instance, though the View may be a bit tall for the city, its height does increase the housing supply. Which is more important: being free from the sight of a bland cornice peering above the trees or an increase in the housing supply in an under-served market? Different people have different answers.
As for 911 calls, the costs associated with responding to calls are probably lower than the total new tax revenue generated. People who make frivolous calls are already subject to hefty fines.
Like or Dislike:
0 
0
September 27th, 2007 at 8:02 am (#)
In my opinion, the View is ugly. But it’s been built and there is no longer anything to be done about it.
This is one reason why people are ambivalent about development.
So sorry I didn’t fully understand the subtleties of your post with respect to populism and elitism.
Like or Dislike:
0 
0
September 27th, 2007 at 8:23 am (#)
The EYA development south of the University on Route 1 has increased the housing supply. How much would it cost to live there?
Your monthly payment– for the mortgage *only* would be $2,435.
Add property taxes and insurance and I think this amount could rise to $3,000.
See below for the text of an email from EYA:
Thank you for your interest in Arts District Hyattsville, the DC area’s hottest new neighborhood.
We’re excited to share a new financing program with you. Our lending partner, George Mason Mortgage, and EYA have teamed up to offer you a reduced interest rate on your new home loan, called the 3-2-1 Loan Program. Here is a sample*:
New Home Sales Price $495,455
Monthly Payment $2,435
3.875% Reduced Interest Rate Year 1
4.875% Reduced Interest Rate Year 2
5.875% Reduced Interest Rate Year 3
6.875% Low Long-Term Rate for Years 4 – 30
Let’s schedule some time to get together this week and review how this new financing program might work for you.
I can be reached at (301) 209-0116. Our sales office, which is located at 4424 Longfellow Street, Hyattsville, MD 20781, is open daily from 11 am to 6 pm.
I look forward to seeing you at Arts District Hyattsville!
*See sales center for details. Subject to credit verification and application guidelines. Sample loan is based on a 1st trust of $396,000 at 6.809% and a 2nd trust of $74,250 at 8.538%. A 5% down payment is required. Payment does not include taxes, insurance, and homeowners association dues. Offer valid with the use of George Mason Mortgage and builder’s title company. Prices and incentives are subject to change without notice.
Sam Greer
hyattsville@eya.com
Like or Dislike:
0 
0
September 27th, 2007 at 8:57 am (#)
They have some stuff from the 200′s. I’m guessing those are condos. The point about hosing supply still stands. The development doesn’t occur in a vacuum… It is part of a bigger picture.
No development does not translate to affordable housing. Obstacles to development in addition to extreme housing shortage (these two things are not mutually exclusive) contribute to the price tag substantially. Also the cost of building materials is way up.
Like or Dislike:
0 
0