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Tax reimbursement district at core of Santolina debate

Copyright © 2015 Albuquerque Journal

An esoteric financing tool is moving to the center of the Santolina debate.

At issue is whether tax revenue generated by growth within Santolina should be diverted to reimburse the developer for building streets, drains and other public works there.

It’s something known as a tax increment development district, or TIDD. Authorization of a TIDD isn’t yet before the Bernalillo County Commission, but the concept has already surfaced in hearings.

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Supporters of the idea say it would provide an incentive for the developer to build public amenities more quickly – making the area more attractive to big companies considering a move to New Mexico.

Economic development is a key part of the development team’s argument in favor of the proposed Santolina Master Plan, which goes before the commission next month.

Opponents, meanwhile, say the idea is essentially a subsidy – a way for the developer to be reimbursed with public money for streets and infrastructure they would otherwise have to pay for themselves.

And the county government could lose out on tax revenue if growth in Santolina comes at the expense of other parts of the county that aren’t subject to the tax diversions.

“Why should we be giving part of our tax base away?” County Commissioner Debbie O’Malley asked in a recent interview.

“It’s important the public know where this is going – that their model for success is based on the tax increment district.”

Jim Strozier, an agent for the Santolina development team, says that isn’t the case at all. Santolina can be built without tax increment development districts, he said, but it would take longer and be more difficult to attract the big employers needed on the West Side.

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“It would potentially limit the ability to go after some of those economic development projects, the job-creating projects,” he told the Journal .

‘No net expense’

A01_jd_27apr_SantolinaThe dispute is part of a debate on how to guide development on 22 square miles of undeveloped land on the West Side. The property owner, Western Albuquerque Land Holdings, is seeking approval of a master plan and new zoning for the land, southwest of Interstate 40 and 118th Street.

It’s the largest master plan ever considered by Bernalillo County.

Also up for consideration is a development agreement that lays out in some detail who’s responsible for paying what at the site. County attorneys are still negotiating the agreement, and it isn’t public yet.

The goal is to ensure the development can be built at “no net expense” to the county government – in other words, that growth within Santolina generates enough tax revenue to pay for the public amenities and services needed there.

Authorization of a tax increment development district is not before the commission. The idea, however, may be mentioned in the development agreement, and it could be formally proposed sometime down the road.

Approval of the master plan doesn’t commit the county to approving a TIDD, the Santolina team says.

But it has certainly been a focal point of the hearings so far. O’Malley and Strozier sparred in a hearing last month over what TIDDs are and whether they can be considered a “subsidy” for the developer.

Here’s how they work:

• Whatever tax revenue the land is generating now is considered the “base” and isn’t part of the tax increment. In Santolina’s case, the land is undeveloped, so it’s not generating much in the way of gross receipts or property tax revenue.

• But as the area develops, the land should increase in value and there should be economic activity subject to taxes. That new revenue would be subject to the “tax increment.”

• Some of the new tax revenue could be diverted to reimburse the developer for the public infrastructure it builds. The county can decide what percentage of the new revenue to divert.

• If there is no TIDD, the developer would generally have to pay to build the streets, curbs and other infrastructure within the development. It would recoup the money by selling the land to homeowners and others who buy there.

Pros and cons

People involved in the Santolina debate see plenty of potential benefits and problems.

John P. Salazar, an attorney for the Santolina development team, said the diverted tax revenue can be used only for “public infrastructure,” not anything owned by the developer.

“You share part of the increase” in tax revenue, he said. “You never take away the base. It’s new money in the sense that it just isn’t there today, and it’s only if the county is willing to do it.”

Strozier said the state Legislature authorized creation of the districts as a way to promote economic development.

“Really the purpose of the TIDD is to incentivize the developer to spend their money quicker – maybe more and quicker than they normally would – because there’s a mechanism in place for them to get paid back over time,” he said.

But there are risks, said Kelly O’Donnell, a former deputy cabinet secretary for the state Economic Development Department and former senior economist at the state Taxation and Revenue Department. She initially was hired by residents concerned about Santolina to examine the project and she now volunteers her time.

One potential problem is “cannibalization,” skeptics say. That’s the idea that if people and economic activity now in the rest of the city or county – outside a TIDD – move to Santolina – inside a TIDD – the county will lose revenue for basic operations.

A tax increment development district might indeed be good for Santolina, O’Donnell said. But it won’t be good for the rest of the community if it’s just attracting development that would have happened elsewhere in Bernalillo County, as she believes.

“It has no advantage to the public sector,” O’Donnell said of a potential Santolina TIDD.

“It’s going to redistribute the economic activity. It’s not going to generate new economic activity.”

Strozier and the development team, of course, dispute that. They say companies considering Albuquerque often need large plots of land with easy access to the freeway.

“We really do have a lack of sites that are ready to go in the community,” Strozier said.

O’Donnell doesn’t buy it.

“There’s a lot of competing areas that are more proximal to the city and to the airport,” she said.

The public debate will pick up again May 11, when a hearing on the master plan is set to continue.

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