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Submitted by on 1, February 13, 2009 – 8:00 am6 Comments

In the interest of giving you as complete a record as possible on Alameda Point and its erstwhile developer, SunCal … One of the things I’ve asked about regarding SunCal’s plan to develop Alameda Point is tax increment financing, which is bond money raised by the city to pay certain development costs that would be paid back with future property tax dollars generated by what is built there.

Apparently, there are only two other projects where they’re asking for this type of financing – Oak Knoll and Westland, the company’s 55,000-acre mega-development in New Mexico. And apparently, their request that the state allow it to set up tax increment development districts (TIDDs) for the latter development (a bill to give them $408 million is making its way through the state Legislature) has caused a wee bit of controversy there.

Typically, tax increment financing is used to draw developers to contaminated land or blighted properties (like a 770-acre Superfund site) they might not ordinarily consider. But the Westland project would sit on an enormous greenfield, leading some to question why the state needs to provide an incentive to develop there.

New Mexico liberalized its tax increment development district rules in 2006, and since then, two developers – SunCal and Forest City Covington – have requested TIDDs that would allow them to go out for hundreds of millions of dollars in bonds. (California, of course, was the first state to legislate the use of tax increment as a development tool, in 1952.)

Some members of the Albuquerque City Council tried to limit the use of the districts, which they said were promoting suburban sprawl instead of the infill development and urban renewal they are supposed to promote. They also questioned the economic impact of the bonds, which in New Mexico, unlike California, are backed by that state’s gross receipts taxes.

Here in Alameda, SunCal has said it will ask for tax increment dollars to help redevelop the former Alameda Naval Air Station. The cost for rebuilding water pipes, electric and other infrastructure there have been listed at $679 million, and the city has said it could seek bonds for up to $184 million, an amount that is required by state law to include money for affordable housing.

I didn’t manage to connect with a SunCal rep for comment by deadline. But this paper in the American Planning Association’s Planning & Environmental Law journal lays out the company’s rationale for requesting the TIDDs, as laid out by its New Mexico division president:

On the issue of whether SunCal’s greenfield new urbanist project needs to be subsidized, the executive also offered conflicting messages. On the one hand, he declared “[n]ot true” the “popular misconception that a TIDD is a subsidy given to developers by the city.” Later,
however, he argued the need for a subsidy by asserting that mixed use projects can cost substantially more to build than conventional single-use developments, writing: “the city should be incentivizing this development. . .”

Indeed, the nub issue about SunCal’s need for a “public-private partnership” came in its discussion of financing and risk. The company wrote: because “new urbanist, mixed-
use developments work on a slower business model than standard developments,” “the phases of development must be designed to guarantee a cash flow as quickly as possible in order to attract investors and keep up with the required rates of return needed due to higher perceived risks.”

SunCal’s submission cited a 2000 paper by University of Pennsylvania professors Joseph E. Gyourko and Witold Rybczynski in support of this argument. Their paper, a survey of 23
real estate industry practitioners commissioned by the Congress for the New Urbanism, finds that mixed use new urbanist projects are viewed by investors as riskier than single-use projects, especially because of their complexity which makes them harder to evaluate.

For SunCal’s pro-TIDD perspective, click here; an opposing view, held by groups including 1000 Friends of New Mexico, is here.


  • DL Morrison says:

    I've been reading bits and pieces about this project for some time, and I'm glad you've summarized this info here, as it gives a good overview. Here's some of what I've read: First and foremost, concerns that the project will not increase the tax base so much as entice businesses to move from other nearby locations to this newer (presumably more attractive) site, as well as concerns about the impact of the bond liability on the state — that's the entire state of New Mexico — and concerns about the water supply.

  • David Kirwin says:

    "Typically, tax increment financing is used to draw developers to contaminated land or blighted properties (like a 770-acre Superfund site) they might not ordinarily consider."

    This sounds familiar – I think a lot of people in Alameda were saying the same thing when CC was going with Staff's recommendation to float the cost of the megaplex/parking tower with the TIF from such a large portion of our city – thus greatly reducing the amount of tax increment going to the City General Fund. It was cited as a “self-contradiction” to call the site "blighted" yet requiring a parking tower to help handle the higher level of downtown activity. And the two projects were even being considered independently of each other – as we 'needed' more parking, we wanted the historic theater re-opened. I think it is clear that this City was an abuse of CA redevelopment law, and by the time it is paid for will have cost the state's taxpayers over $40M.

    Do you know how much the city of Alameda is paying each year to service re-dev debt, and the total re-dev debt the city owes, and the amount we will have to pay (at current schedule) before we are clear of current re-dev debt?

  • DL Morrison says:

    If you should ever have the inclination, I would appreciate an article on ERAF (the Educational Revenue Augmentation Fund) by which the state shifts money away from redevelopment agencies to replace state funding for schools. The article in today's Alameda Journal on the city budget made a reference to ERAF, which will "seize" (as the CRA puts it) about $900,000 of Alameda's redevelopment revenues. I have read about ERAF from time to time, but I'm still pretty vague about what it means.

    It's not clear to me whether more redevelopment means more exposure to seizure of funds by the state, or whether it's possible to reliably plan on redevelopment funding so long as the state can take the money whenever it chooses. The CRA has brought suit against the state claiming that the seizure is unconstitutional, so perhaps it will eventually be forbidden.

    I'm posting a link to an East Bay Business Times article that covers the topic in general terms.

  • Hey David,

    I don't know that I can say with confidence what the city is paying per year to cover its redevelopment debt, but I can give you a little information. It looks like we owe about $86 million, plus the $7 million loan for the parking garage. Last year's comprehensive annual financial report (the new one's not online yet) shows about $1.42 million in payments on that debt (minus the garage) for that year (and there are additional amounts for loans, leases and equipment purchases that I don't have any info on). This amount doesn't include bonds for the library, city hall and police HQ.

    As far as a repayment schedule, they vary based on which piece of the debt you're talking about. The current budget has a list of all the debts we owe, which will be on page 50 in your reader; for the repayment schedules, check out last year's comprehensive annual financial report. The narrative note that addresses this starts on page 100 in your reader.

    Both of these documents are available on the city's website, on the finance department page (scroll down til you hit it). The link is http://www.ci.alameda.ca.us/finance/.

  • Hey Michele,

    The concise answer is that the City of Alameda does not pay for the redevelopment bond debt. That debt is paid for by the the city's redevelopment agency, which like the Alameda Unified School District, is a separate entity in Alameda. Redevelopment bond debt is as separate from the City of Alameda's general fund as School Bond debt is.

  • Money Lorax says:

    And since tax dollars grow on trees, there's nothing to worry about! We can have guns AND butter, or rather Smart Growth AND a finqancial future.

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