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.