(Originally published in the January 2008 Housing Journal)
There have been news reports about requests by developers to have Tax Increment Development Districts (TIDDs) approved by city councils in both Albuquerque and Las Cruces. In both instances New Mexico Home Builders Association (NMHBA) has seen more misinformation printed than accurate information. Most of the misinformation appears to be from people coming from out of state (mostly California) and making statements based upon how other states’ laws are implemented.
New Mexico TIDDs are intended for new development areas.
A TIDD is identical in concept to a Tax Increment Financing district (TIF) which has become the most popular economic development tool across the country. The TIF program has been used for decades in virtually all of the states in some form or another and is primarily a tool to redevelop blighted or economically distressed areas. In 2003 New Mexico passed a Public Improvement District (PID) law that accomplishes this goal in our state’s smaller-scale inner-city areas undergoing redevelopment.
The primary purpose of a TIDD is to promote economic development. The value of the new economic development is what allows the TIDDs to issue bonds to reimburse a development company for the infrastructure work it funds upfront. The following are facts based upon New Mexico’s TIDD law that was passed by the Legislature in 2006.
TIDDs provide infrastructure for “Smart Growth” planned communities.
Planned communities integrate commercial development for jobs, retail development for shopping, and housing together. This concept is something New Mexico has had a hard time encouraging in the past because there was no funding mechanism to pay for the vast amounts of infrastructure required to do it correctly. The 2006 Legislature passed HB462 specifically to facilitate the Mesa Del Sol development planned for the area south of the SunPort in Albuquerque. The TIDD bill clearly was intended for large-scale development of vacant land.
TIDDs encourage “green” concepts.
When housing is located within walking or bicycling distance of work and shopping locations, fewer cars are on the road, and therefore less carbon dioxide is emitted to the atmosphere. This is something environmentalists have been asking to see in New Mexico developments for a long time.
TIDDs can have schools built faster, and at less expense.
A TIDD empowers the development company to construct schools within the District, and then turn over the operation of the school to the municipal school district. Because the development company is building the school (to state standards) with its own money, the work does not have to go through the onerous public works bidding process, and can be built at the same time as the homes are completed. Another variation on this concept is for the development company to build the school, and then lease it to the school district for 20 years, at which time it can be sold to the school district for a minimal amount.
TIDDs create new money for cities.
When a development is complete, it increases annual sales tax revenue for the city as it converts vacant non-revenue-producing land into places of employment and homes that generate gross receipts taxes upon sale, and higher property taxes from then on. That new money can be used to hire more police and firefighters, improve parks and libraries and achieve many other priorities. Without a TIDD, development of large tracts that generate new revenue is not possible.
Developers get no money from TIDDs until the end.
TIDDs fund, through business and other taxes generated from specific geographic districts, construction of public improvements and infrastructure. After the improvements are built and new tax revenue is in place, then reimbursements are provided to the developer. Only at the end, and only if the new revenue is in place, does the development company get reimbursed for the money it spent to build the public infrastructure.
The TIDD process is very straightforward:
- First, the TIDD’s geographic borders are set and the initial assessed value of all the land within the District is established.
- Second, the development company pays for all the costs of public infrastructure, such as roads, bridges, sewer and water systems upfront and out-of-pocket.
- Finally, TIDDs issue bonds based upon the new businesses and values generated from within the District. The bond sale proceeds reimburse the development company for the costs of the public infrastructure. The bonds are repaid from the new business taxes and other taxes generated within the Districts – NOT from current taxpayers or current businesses. By using TIDDS, the new development pays for its own infrastructure instead of having the City pay for it from its general fund.