A referendum on the November ballot will ask voters to allow the City to create Tax Allocation Districts (TAD) to help finance redevelopment projects.  There is a lot of confusion and misinformation about what a TAD is and how it works.  The following example should help explain it.

First, a TAD is not a tax increase.  It does not raise the millage rate, neither does it take any revenue away from the City’s general fund. In fact, a TAD can stop further decay of declining properties and the resulting loss of tax revenue.

Second, a TAD is a proven method of funding large, usually commercial redevelopment projects. There are other options but, in many cases, a TAD can be the best option because it essentially makes the redevelopment pay for itself.

Finally, this referendum does not create a TAD. If the referendum passes, the City will have at its disposal one more tool for financing future redevelopment projects.  If the referendum does not pass, this funding option cannot be used.

How it works

The City, either on its own or in collaboration with a developer, identifies a property in need of redevelopment… like an old shopping center where the major tenant has moved out and most stores are vacant.  The property in this example is valued at $2,000,000 for property tax purposes; the tax bill is $96,000 per year.  A plan is created to transform the vacant shopping center into a new retail center with office buildings.  The proposal will require redevelopment of the public infrastructure to serve it, such as new water and sewer pipes, and new roads. 

A Tax Allocation District (TAD) is simply the designated area of redevelopment.  The proposal goes through the normal public hearings and City Council vote.  The baseline tax value (in our example, two million dollars) is established in the year that the TAD is created. The City votes to allow TAD bonds to be sold to bring investors into the project; to generate the capital needed to build the public infrastructure without tapping into public money.

(Note: While most bonds are backed by the “full faith and credit” of the issuing government entity, the state Tax Allocation District law prohibits local governments from putting taxpayers “on the hook” in the event that the TAD redevelopment fails to materialize. The investors assume the risk.) 

The project is built.

As the redevelopment progresses, the property’s taxable value increases as well. The yearly ”tax increment”– which is the extra tax dollars collected from the TAD properties each year over the baseline value– goes to pay down the bond debt. For our example, for instance, the property’s value increases to $6,000,000 and the yearly tax revenue increases to $288,000.  The increment over the baseline ($288K minus $96K, or $192,000) is paid in that year toward the bonds that were sold to finance the project. When the bonds are retired, the local taxing authority (in our case, the city) would begin to receive 100% of the now much-higher tax revenue.

TAD financing is a “win-win” for all. Even though no money is paid directly to him, the property owner wins because his property is revitalized even though it wouldn’t originally qualify for a traditional bank loan.  The City wins because an old, vacant shopping center is now a new retail/office center with new businesses in it.  These businesses create more jobs and provide additional revenue to the City in the form of business licenses, sales taxes and property taxes.

Even better, nearby property owners are no longer impacted negatively by the higher crime, lower property values and general sense of community decline associated with the deteriorating property.

(Pictured: Atlantic Station, one of the most successful TAD projects in the southeast. The area was formerly Atlantic Steel (top), an approximately 135 acre, 90-year-old steel mill near Atlanta’s central business district.)