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As we all look down the road toward the next cresting of the real estate wave, we can't help but observe with interest the initiatives and decisions of our cities, states, and national leaders. Because real estate local, I am paying close attention to what is happening in my own backyard, recognizing that my observations may reveal a  symptom of a local ailment or national malaise.

Mesa del Sol

In Albuquerque we are wrestling with tax incentives for a particular type of real estate development. It all started with Mesa del Sol's-negotiated deal with the city of Albuquerque to be the beneficiary of the first Tax Incentive Development District (TIDD) to be granted by the city for the development of 13,000 acres on the  edge of the city-greenfields. The granting of the incentives has attracted wide attention, including that of Sun Cal developers whom I wrote about in SunCal's Westside .  Suncal wants to have similar incentives for their proposed development of  55,000 acres southwest of Albuquerque.

Also paying attention are city councilors who seem to have missed the vote that granted the groundbreaking incentive Mesa del Sol. They are weighing in to say that granting greenfieldsTIDDs to real estate developers is risky and/or wasteful and is not the way to finance development. Business groups, like the Greater Albuquerque Chamber of Commerce (GACC) are  recommending flexibility and making decision on a case by case basis.

Tax incentives are not new. Government has long used them to encourage development and businesses and developers have depended on them for helping to finance startups.

Many Albuquerque residents are not familiar with this incentive, its terms, its acronym, or the other name to which it is sometimes referred, Tax Increment Financing (TIF). Thanks to TIDD's fiercest local critic, City Councilor Michael Cadigan, residents are being educated about this incentive possible ramifications.

Councilor Michael Cadigan's Memo to his Constituents (Excerpts)

Definitions

Tax Increment Financing (TIF) - A financing method which uses the additional taxes generated by a completed development to pay for development costs such as land acquisition and site improvements. The difference between the taxes before the development occurs and after its completion is referred to as the "increment".

Tax Increment Development Districts (TIDDs) - a district formed for the purposes of carrying out tax increment development projects

Greenfields- land that has not been previously developed and is usually outside of the existing urban edge.   Generally has a gross receipts tax base of zero, and relatively low property tax base.

TIDD Background

Nationally, TIDDs have been used as a financing tool for urban areas in need of redevelopment or revitalization.  They are often used to help finance specific infill, brownfield or redevelopment zones that require some amount of financial incentive to become feasible.

The state Tax Increment Development Act allows cities and counties to create TIDDs that can leverage the future gross receipts tax and property tax revenues within a defined area to finance the sale of public bonds.  Bond dollars are then allocated to the project developer to pay the infrastructure costs of the new development.

Reasons for concern

How will we take care of the existing community and the additional burden of new development on the fringes when most of the new tax revenue will be siphoned off to large out of state developers?

• What does the rest of Albuquerque get out of this diverted revenue stream?
• What happens if the diversion of up to 75% of the gross receipts tax revenue for 25 years reduces state capital outlay funding for other projects in Albuquerque? 
• What happens if the TIDD does not generate enough revenue to cover the city's operating costs within the TIDD? This includes any City costs, including police, firefighters, parks, senior centers, solid waste, transit costs, etc.

If the TIDD revenue is greater than the costs of the public infrastructure, who gets the excess revenue and for what purpose?  Will we even know - will there be transparency?

• What happens if the TIDD revenue is not sufficient to pay the bond payments?
• Is it truly a no net expense to the City of Albuquerque?
• The proposed retail development will divert dollars from existing retailers and those tax dollars that would have normally gone to the entire city will now be trapped in the TIDD.

Does Retail truly need to be subsidized?  Furthermore, will these retail workers be able to live in this new community?  Will the housing be affordable to them? Or will they have to commute? 

Weigh In

• What's happening in your neck of the woods?
• Do you have TIDDs?
• How are they structured?
• Do you think TIDDs are a dependable source of revenue?
• Should governments make ad hoc decisions on the financing of development or have rules set in stone?

I know the market is cyclical, but  I am curious and excited to discover what it is going to take to make the wave start cresting again.