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Project is full of financial twists

Central to the pitch: New Port Richey and the developers of Main Street Landing need each other to get the project built and to make money from it.

By JODIE TILLMAN
Published July 16, 2006

NEW PORT RICHEY - Construction stopped last month, but Main Street Landing is not yet dead.

On Monday, City Council members, meeting as the Community Redevelopment Agency, will discuss whether to reopen talks with developers over their request for additional public financing for the project, which includes 55 upscale condo units and 20,000 square feet of retail space.

The city originally agreed to pay the developers an incentive of $1.25-million.

But costs of the project soared from an estimated $17-million in 2004 to $33-million because of industrywide construction price increases.

Lead developer Ken McGurn and his partner, former Mayor and county Commissioner Peter Altman, asked the city to increase its financial support.

Their proposal is complicated. In simplest terms, it works like this: When Main Street Landing is completed, it will generate more tax revenue than the vacant land does now. The developers want a portion of the additional revenue. That revenue would be used to pay off a bond to pay for cost overruns.

This proposal would give the project $6.7-million over the next 23 years, replacing the city's original $1.25-million contribution.

Here's a primer on some of the basic points about the proposal.

How would it work?

Creatively. First, a quick refresher on the city's redevelopment efforts: Remember that the entire city was designated a "community redevelopment area" in 2001, a label that allowed officials to use a tool called "tax increment financing."

What's that?

A tool that works like this: The city uses the 2001 property values as a base. Taxes generated by that base level each year go into the general fund for bread-and-butter items such as police and library services. But as property values rise, the new taxes that the city collects over the 2001 levels - the "tax increment" - are put into a trust fund to be used solely for redevelopment efforts. (The $1.25-million incentive promised to the developers would have come from this trust fund.)

What Main Street Landing developers essentially have said is this: Let a portion of those property taxes that they expect the project to generate above that 2001 base level - money that would otherwise go to the redevelopment trust fund - go instead toward servicing construction debt for infrastructure such as storm drainage and paving for Main Street Landing.

So developers want the project to get $6.7-million by the year 2031. How much are we talking about each year?

That depends on how much citywide property values go up. The higher the values, the greater the city's share of the tax money.

If values go up 3.5 percent a year, by 2031, the project will have generated $10-million in tax increment money. Nearly $6.7-million of that would be used to retire the debt, while $3.4-million would go into the city's trust fund.

If the city's property values grow by 7 percent, however, the project will have generated nearly $16-million by 2031. The project would still have gotten its $6.7-million, but the city share would increase to $9.3-million.

Wouldn't the developers be getting tax money that could pay for other projects?

Yes.

That doesn't seem fair to the taxpayers, or other developers who don't get the subsidy.

Judging by the letters to the editor, lots of people feel that way.

Is there another point of view?

Yes.

Okay, what is it?

Keep in mind, the developers propose keeping a portion of the additional tax revenue that their project would generate. No project, no additional revenue.

So, are the developers proposing that the city write them a check each year?

No. Adding another ingredient to the alphabet soup, Main Street Landing proposed creating a "community development district" around the project. This CDD's board of directors would be in charge of paying off the bond with the tax money.

What is a CDD, and how does it work?

A CDD is an independent, special purpose taxing district that the state Legislature created to shift the burden of building roads and utility lines to developers. Developers in turn use the designation to borrow tax-exempt bonds to pay for construction costs, then repay that debt through mandatory assessments that appear on the property owners' county tax bills.

So why don't the developers just do what developers of other CDDs do and assess its landowners?

That's exactly what critics like City Council member Tom Lackey have asked. After all, politicians usually love CDDs because they add lots of upscale homes to the tax base and the project's residents - not everybody else in the county - pay the infrastructure costs.

Why doesn't Main Street Landing do it that way?

The developers said they could not make the costs of condos and shops feasible with an assessment on top of city and county taxes. Getting people to live downtown is an uphill battle, given the continued migration of people to the suburbs. McGurn likes to say that he's competing with developers in Trinity and other areas popular with commuters who go to Tampa every morning.

Still, others say assessing Main Street Landing property owners should not be out of the picture. City Manager Scott Miller said the developers should "strongly consider" assessing their buyers as part of a compromise with the city.

Why not simply ask the city to increase the financial incentive already promised?

The city trust fund doesn't have that kind of money available.

Why don't the developers just take out a loan?

McGurn said he already did. First, he got a $13.5-million commitment from SunTrust. As construction costs continued to rise, he went back to the bank and got a commitment for an additional $3.5-million, raising the total to $17-million.

To get the project built, he said, Main Street Landing would hope to use the $17-million loan plus the $4-million CDD bond (Add in financing costs, and the total bond amount comes to $6.7-million.) Even with the city's help, and with $6-million of his own money invested, McGurn said he needs $6-million more. He said he thinks he could manage that.

Developers have said that they anticipate a total of $26.5-million in sales. Won't that help cover the costs?

Yes - once the project is built, McGurn said. Those sales are only anticipated and won't pay the up-front costs needed to get the project built.

Before construction halted, about 80 percent of the 55 condo units and 30 percent of the retail space had been sold, Altman said. Buyers signed contracts and put down deposits, McGurn said, and he could have used a percentage of those deposits to pay for construction costs. But he was hesitant to use the deposit money as a source of financing until he was more certain that additional financing would be available, he said. (Nearly all of the deposits were returned after McGurn's decision to halt construction, Altman said.)

What good is all of this going to do city residents who don't live in Main Street Landing?

Right now, the city is getting less than $7,000 in property taxes at the site. If the project were completed in 2008, it is expected to generate nearly $274,000 in taxes that year for the redevelopment fund. Future years would generate even more.

So, the central point of the developer's pitch is that without the help, the project won't get built. And without the project, the city won't see the increased revenue - or the increased foot traffic from shoppers?

Correct.

At any point in McGurn's plan do existing taxpayers pay more to make Main Street Landing happen?

No.

Miller has also made this argument: "Can somebody else take over and get this project built? Certainly. But when? And will they build this same project?"

What do the critics say?

That the developers miss the point. Why shouldn't other people get to keep some of their property taxes to do their own projects? Why make an exception for Main Street Landing?

Council member Marilynn deChant has said that the city would be making a mistake to pin all of its redevelopment hopes on Main Street Landing. That project, she said, had its chance. What if other developers could make it work - without the kind of deal that Main Street Landing has asked for?

Isn't this just a bailout for private developers?

That's certainly one way of looking at it. And, as deChant noted in a recent e-mail to the city manager, "that's the rub." Lots of business owners save and scrimp to make it work. Why, some residents have asked, should Main Street Landing developers be any different?

Have similar schemes been tried elsewhere?

Not quite. Combining the CDD with tax increment financing is unusual. But Florida cities and counties have long used community redevelopment area dollars to attract developers who otherwise would not bother, said Gene Boles, a University of Florida administrator who has worked with such programs. Dying downtowns that lost the battle to sprawl are a typical target. In Seminole County, officials designated a decaying stretch of U.S. 17-92 as a community redevelopment area and are using money from their trust fund to assemble parcels for developers and to pay property owners to spruce up their buildings.

Closer to home, and on a smaller scale, New Port Richey's redevelopment trust fund dollars already benefit the private sector. Consider the city's plan to pay as much as $20,000 per house to developers who build on at least five consecutive lots in the rental-heavy Schwettman Oaks neighborhood. The fund also provides matching grants to homeowners to encourage them to fix up their houses.

Are there any other parts of the deal I should be concerned about?

Yes. Bill Weaver, a University of Central Florida real estate professor, said the city needs to retain enough oversight to ensure that the property tax money is spent on the kinds of infrastructure work that the developers say it will. "The kick," Weaver said, "is to follow the money."

[Last modified July 15, 2006, 22:09:09]