San Antonio Express-News

March 30, 2000

Coastal TIF requires close assessment

By Carlos Guerra

Section: Metro / South Texas
Edition: Metro
Page: 1B
Estimated Printed Pages: 2

Index Terms:
Column

Article Text:

There's a reason for being cautious before making a wish.

Corpus Christi's City Council voted last week to create a tax increment financing (TIF) district to raise one-third of the $30 million North Padre Island Storm Damage Reduction and Environmental Restoration Project.

Most of the cash will pay for dredging Packery Channel, a canal through Padre Island's loose sands from Laguna Madre to the gulf, and dumping the dredged sand on nearby eroded beaches.

Proponents say this could double tourism while improving circulation of Laguna Madre waters.

But detractors say it will increase the ferocity of storm surges, just so some underdeveloped real estate will skyrocket in value.

Neither TIFs, authorized by the Texas Legislature in 1981, nor this project is a novel idea.

Packery Channel is a natural waterway that has now been silted shut, as it has many times before, by winds and currents. But if boat traffic on the tenuous waterway has stopped, investment and speculation on the land along it have not.

In 1999, voters rejected a tax increase to dredge it, so city officials now say a TIF is the cost- and risk-free way of doing it.

Since few TIFs - which do not require voter approval - have been tried, few understand how tax increment financing works - or its perils.

This may explain why they are becoming increasingly popular with developers and local officials looking to stick a tax-weary public with high-dollar capital projects.

There have been good TIFs that revitalized decaying neighborhoods, built industrial parks and produced net tax gains. But TIFs have also funded huge projects that did little more than enrich a few handfuls of insiders.

TIFs only work well when the improvements they fund increase surrounding property values so rapidly that the additional property tax revenue - or "tax increment" - quickly retires the debt incurred for the improvement. This added revenue is then funneled to the participating jurisdictions to pay for the costs that are seldom mentioned in the sales pitches.

First, a TIF district is defined geographically and property tax revenues within it are frozen. Participating taxing bodies agree to freeze collections on TIF property and forgo all additional taxes until the TIF's bonds are retired.

But are TIFs really cost free?

Put a pencil to each one before deciding. The Packery Channel TIF, as presented, prompts some very serious questions.

A navigable Packery Channel will almost certainly increase surrounding property values.

But remember that increased human or economic activity also swells the demand for public services. More people and pricier property will mean more police, fire and health costs, and greater infrastructure expenses.

If the increased tax revenues from higher property values are paying off the reason for the values rising - instead of the costs of additional public services - taxpayers who are not in the TIF zone will make up the difference, either through higher taxes or diluted services.

Also remember that construction is seldom the only cost of big capital projects. Who will pay the maintenance and perpetual redredging of a canal through sands naturally prone to silting?

Finally, if the city, county and college district's TIF sells "risk-free" non-recourse bonds that leave all the risk on bondholders, expect to pay junk-bond interest rates. This will lengthen the time before the bonds are retired and participating jurisdictions can begin collecting increased taxes.

<HR><I>To leave a message for Carlos Guerra, call ExpressLine at 554-0500 and dial 4410, or e-mail cguerra@express-news.net.

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Copyright 2000 San Antonio Express-News

Record Number: 481492