Economic development officials in metropolitan Atlanta's first-tier suburbs are establishing tax allocation districts (TAD) in an effort to attract developers to potential commercial sites that were previously overlooked due to development challenges. A TAD is neither a tax break for developers, nor a tax increase for residents.

Rather, TADs are a way for a local government to make challenging sites attractive to developers by leveraging property tax revenues from the new development to offer bonds to pay for infrastructure improvements.

How Does it Work?

Once a TAD is approved, counties and municipalities may issue bonds to finance infrastructure and other development costs within that district. These bonds are secured by a “tax increment,” which represents the increase in property tax revenues resulting from redevelopment activities within the TAD. This is also known as tax increment financing (TIF) and is being successfully used in 40 states.

Here is a simple example of how TAD financing works: A piece of property has a pre-development value of $10,000. Once the new development is complete, the estimated property value will be $10 million. Therefore, new development caused a $9,990,000 increase in property value, subsequently generating an increment of $195,000 in new property taxes.

Over the term of a bond issue, this increment will be set aside to pay debt service on the bonds. Once the bonds have been retired, this increment goes back into the general funds to be spent at the municipality's discretion. Additionally, throughout the term of the bond issue, the municipality continues to receive property tax revenue on an annual basis that is computed upon the pre-development value of the property.

TADs in Action

North American Properties and Duke Realty were among the first developers in Metro Atlanta to prove the usefulness of a TAD as a financing tool and development catalyst. In late 2001, the City of East Point, Ga. established a TAD at the NW and SW quadrant of I-285 and Camp Creek Parkway — the last undeveloped tract of land at an I-285 interchange. This location had been passed over for decades due to topographic and technical challenges of the site.

The $22 million in tax allocation bonds issued in May 2002 helped to finance infrastructure improvements, such as site work to address topography and wetlands, construction of water and sewer systems and the creation of new streets, sidewalks and walking trails. These improvements enabled North American to develop Camp Creek MarketPlace, an enormously successful 1.2 million-square-foot superregional power center.

The proven success of the Camp Creek TAD led other municipalities in Metro Atlanta to utilize this effective economic development tool. In 2003, Cobb County approved its first TAD on U.S. Highway 41 near the intersection of Mars Hill Road in the city of Acworth to redevelop a landfill that has been occupied by an outdoor weekend flea market. The $7 million in tax allocation bonds will finance the brownfield infrastructure and environmental improvements needed for North American to transform the site into Lakeside MarketPlace, a 330,000-square-foot power center anchored by SuperTarget Stores and scheduled to open in 2005.

Benefits of TADs

These redevelopment projects and several others in the Atlanta metro area have transformed lands that for decades had been eyesores for the surrounding communities or sites prime for development, but with significant challenges. Without the TADs and the associated bond financing, these developments that will significantly increase long-term property values would never have happened. There are numerous ways TADs benefit municipalities including:

  • The power to establish a TAD attracts developers to an area that would otherwise be undesirable or unsuitable for development.

  • The ability of local governments to leverage the tax increment to get millions of dollars worth of new public infrastructure and private investment without spending current tax revenues.

  • During the the incremental period or term of the bonds:

    a. A tremendous increase in sales tax revenues to cities, counties and school boards as a result of new retail, restaurant and hotel offerings in the area;

    b. The creation of new jobs;

    c. A multiplier impact on the areas surrounding the TAD. For example: 1) Redevelopment of challenged sites will lead to further development and redevelopment of nearby properties that are outside of the TAD. 2) Property values will increase for surrounding neighborhoods, which generates additional revenue for the city. 3) Employers and employees of the new businesses attracted to the TAD buy homes and spend money throughout the area.

  • A tremendous increase in property tax revenues for areas within the TAD once the bonds are retired.

TADs are powerful economic development tools for municipalities looking to improve property values and attract developers to challenging areas prime for development or redevelopment. As undeveloped land becomes scarcer and TADs more popular, redevelopment sites, even those with significant challenges, will get a second look from developers.

PUBLIC/PRIVATE PARTNERSHIPS

JEFF PAPE

VP of development for North American Properties, where he oversees entitlement, design and construction of power centers, grocery-anchored centers and mixed-use projects. Pape has developed more than 5 million square feet of retail space.