Subscribe to the Journal, call 505-823-4400

          Front Page

Funding For Mesa Del Sol Debated

By Andrew Webb
Copyright 2006 Albuquerque Journal; Journal Staff Writer
    The private developer of Mesa del Sol wants to tap hundreds of millions of dollars in future tax revenue generated by the sprawling master-planned community to help pay for roads, sewers and parks needed there now.
    Forest City Covington would sell bonds to cover the upfront expenses for infrastructure, then pay back the bonds with gross receipts and property tax revenues generated by the new development.
    Proponents say it is an innovative way to build public infrastructure in new developments, but critics wonder if it will drain off tax revenue needed for schools, law enforcement and other essentials provided by state and local governments.
    Forest City, developer of the 12,900-acre project south of the Albuquerque International Sunport, expects Mesa del Sol to someday be home to 100,000 people and more than 10 million square feet of commercial, industrial and office space with tens of thousands of jobs.
    Its design calls for a self-contained, eclectic mix of housing, commercial space and employment centers arranged to encourage residents to live, work and recreate there.
    To attract employers and home builders, however, Forest City estimates it will need to invest $635 million in public infrastructure such as wide, pedestrian-friendly sidewalks and streets, between now and about 2022 on the first 3,000 acres of the project.
    That's where the new type of financing comes in.
    "In effect, the future people living in this subdivision are going to be paying their own way," said Fred Mondragon, director of the Albuquerque Office of Economic Development. "It's a good deal for the city, and a good deal for the developer."
    But there are concerns.
    State Sen. Joe Carraro, a Republican from Albuquerque, said that, on the surface, it seems like a good plan.
    "But I wonder if that (new tax revenue) could be spent on building a few classrooms on the West Side."
TIF districts
    In coming months, the Albuquerque City Council, the Bernalillo County Commission and the Legislature will consider creating the first of five so-called tax increment financing districts at Mesa del Sol.
    The districts would come on line in staggered fashion and each would have a lifespan of 25 years.
    The proposed "TIF" districts would funnel 75 percent of gross receipts and property taxes generated in each district back to Forest City, which will use it to pay back those bonds. Mesa del Sol expects the first tax revenues from the development to begin in 2007.
    The city, county and state would each be giving up a chunk of future revenue.
    Forest City estimates that more than $400 million in property and gross receipts taxes generated during the first district's 25-year lifespan would be transferred to the developer to pay off the infrastructure bonds.
    After the districts expire, the city, county and state would get the full benefit of tax revenues from the district.
    Mesa del Sol officials estimate that the city of Albuquerque alone will receive about $100 million in tax revenues over the 25-year life span of the first district, and about $20 million a year after the district expires.
    The rest of the projected $635 million infrastructure costs for that district could come from other proposed special taxing districts in the area, higher-than-forecast TIF revenues, and possibly Forest City itself, said Forest City Covington Chief Financial Officer Michael Daly.
    "It's important to note that none of this money can be used for anything but public infrastructure," Daly told the Journal in an interview.
    The company has not broken down projected figures for the other four districts, which will be developed later.
Growing popularity
    The use of tax increment financing districts is on the rise in nearly every state as federal funding for infrastructure dwindles. However, New Mexico didn't pass legislation allowing them until this year.
    Mesa del Sol's proposal would be the first used in the state.
    Supporters of the proposal say it will benefit the city, state and county because they won't pay upfront any of the costs of Mesa del Sol's needed network of streets and roads, interstate interchanges and other infrastructure.
    The infrastructure will be owned by the city, state or county, depending where they are on the vast plateau of land.
    They also point out that the 25 percent of new tax revenues that do go to the city, state and county will provide enough new tax revenue to cover the cost of police, fire and other services to the newly populated area.
    "The city gets the entire subdivision done at no cost, and this allows for the master planning of the community to create a quality development," said the city's Mondragon.
    City Councilor Isaac Benton, whose district includes Mesa del Sol, plans to sponsor a bill creating the first TIF district for Mesa del Sol at a Dec. 18 City Council meeting.
    He says the proposed tax districts would help ensure the quality, non-sprawl development Forest City has promised.
    Critics, however, say the complex deal could diminish future new tax revenues desperately needed for projects in other parts of the city, such as schools or road improvements in Albuquerque's South Valley or the congested West Side.
    And they question whether it is possible to accurately predict tax revenues so many years in advance.
Urban sprawl
    In other projects, especially on the city's West Side, developers have generally paid for residential streets, while the city has primarily used impact fees paid by those developers to build major roads, sewer lines and the like.
    However, that process has led to vast bedroom communities. Critics of urban sprawl point to widespread traffic congestion caused by what they call poorly planned development.
    "This is being considered a quality, model development that will make Albuquerque a more attractive city," Benton said.
    Other state officials, including Gov. Bill Richardson, have indicated support for the proposal.
    "These districts offer a creative way to pay for public infrastructure needs without burdening taxpayers," Richardson said in a statement. "In essence, growth pays for itself and communities are afforded the opportunity to avoid sprawl through better planning."
New jobs planned
    Forest City has already received about $24 million in subsidies from various city, state and county agencies, and says it has contributed about $40 million of its own money toward the project.
    That included about $8 million toward a recently completed, $25 million extension of University Boulevard. The company has said it aims to bring jobs first— 4,000 to 6,000 over the next year and a half— before it begins developing homes. Two businesses— photovoltaic panel manufacturer Advent Solar and film production facility Albuquerque Studios— have begun, or will soon begin, operations at Mesa del Sol. And a federal nuclear agency has announced plans to relocate about 600 jobs from Kirtland Air Force Base to the development.
    But Mesa del Sol says the project will stall if it can't secure funding for the needed infrastructure to bring in more businesses and, as Forest City begins residential development in 2008, home developers.
    Daly said various studies done by economists hired by Forest City, the state and city have shown the TIF districts would not leave city, county or state agencies in the lurch for services like fire and police even if the revenues fall far short of projections.
    "Forest City is looking to generate substantial gross receipts and property taxes once these bonds expire," he said. "We've done ... a series of analyses which say the fiscal impact is positive— that they'll collect more than they give up."
Questions raised
    The Bernalillo County Commission has yet to take up the tax financing proposal.
    County Commissioner Teresa Cordova acknowledged the challenge of finding funding for public infrastructure.
    But, echoing the concerns of some legislators, she wondered what, exactly, the city, county and state would be left with in 25 years, and whether some of the TIF revenues would be spent fixing aging infrastructure by then.
    "I'm open to considering it, but we'd be looking for an appropriate length of time," she said.
    And City Councilor Martin Heinrich said he supported the idea but added, "It will require a fair amount of oversight ... so it's not a sink to the overall tax base, but they capture enough to hold us harmless as a city, and to create a place with a much higher bar than some of the typical development we've seen in the past."
What is Forest City Covington?
    Forest City Covington is a subsidiary of Cleveland, Ohio-based Forest City Enterprises, an $8 billion publicly traded real estate firm with commercial, residential and master-planned land developments around the country.
    Forest City specializes in so-called New Urbanist developments— pedestrian-friendly, mixed-use neighborhoods. It has also rehabbed blighted neighborhoods with major commercial centers in several cities.
    The company is no stranger to tax increment financing and other special tax programs.
    It is about 35 percent done with an award-winning, 4,700-acre mixed-use development at the site of the former Denver Stapleton Airport that is very similar to Mesa del Sol.
    Stapleton's infrastructure was built using bonds issued on tax increment finance districts there.
    "They're well-known in the TIF industry," Toby Rittner, executive director of the Council of Development Finance Agencies, an Ohio-based trade group, said of Forest City Enterprises.