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.