Waller Creek Tunnel Project TIF Analysis

Last week’s meeting of the Waller Creek Citizens Advisory Committee hosted an update on the Tax Increment Financing district that was established to fund the construction of the Waller Creek tunnel.  Below is a summary of Q&A between WCCAC and Leslie Browder with the City Budget office

Waller Creek District Master Plan - Open Spaces

1. How much land is in the TIF (acres)?

TIF Reinvestment Zone No. 17 includes approximately 126 acres.

2. What are the geographic boundaries of the district?

The boundaries of the zone are within the area bounded on the west by Red River Street from 12th Street south to 3rd Street, then west along 3rd Street to Trinity Street, then south along Trinity Street to Lady Bird Lake; on the south by Lady Bird Lake from Trinity Street east to Cummings Street, then east along Cummings Street to East Avenue; on the east by East Avenue from Cummings Street north to the south bound access road of IH-35, then along said access road north to 11th Street, then west along 11th Street to Sabine Street, and north along Sabine Street to Red River Street; and on the north by 12th Street between Sabine Street and Red River Street.

3. What is the term of the TIF Reinvestment Zone No. 17 and who are its participants?

The duration of the TIF Reinvestment Zone No. 17 is 20 years. The Austin City Council has established January 1, 2008 as the first year of the TIF Reinvestment Zone No. 17, with the TIF base valuation dated January 1, 2007. Under the terms of TIF Reinvestment Zone No. 17 and the Agreement to Participate in Tax Increment Reinvestment Zone No. 17, between the City of Austin and Travis County, the City of Austin will contribute 100% of its tax increment, and Travis County will contribute 50% of its tax increment.

4. What are the constraints on the use of the funds generated within TIF Reinvestment Zone No. 17?

The approved purpose of the Waller Creek Tunnel project, which is to be financed through TIF Reinvestment Zone No. 17, is to provide 100-year storm event flood protection with no out-of- bank or roadway flooding for the lower Waller Creek watershed. The current scope of the approved project plan does not include improvements associated with master plan design and implementation.

5. What is the decision making process by which the uses of funds generated within Reinvestment Zone No. 17 could be expanded?

Expanding the allowable uses of funds to cover project elements that are not specifically within the scope of the approved project plan would requirement an amendment to the TIF Reinvestment Zone No. 17. The amendment process essentially mirrors the process required for the establishment of the Zone, which would include the approval of the TIF Reinvestment Zone No. 17 Board, the City Council and the Travis County Commissioners’ Court. An amended project plan and financing plan would need to be prepared as part of this process. The financing plan would need to demonstrate sufficiency of TIF revenues to pay for additional project costs. The TIF approval process also includes public hearings and presentations to all local taxing jurisdictions included in the applicable reinvestment zone. 1 Waller Creek Tax Increment Financing (TIF) Reinvestment Zone No. 17 Questions and Answers May 20, 2010

6. How much entitled square feet are in the TIF (currently)?

Existing land use includes commercial, residential and public use, including park land. The consultant did not conduct an inventory of existing improvements in the TIF study. As far as entitled square footage, the consultant is aware of planned and proposed projects that have a certain level of entitlements. But, since none of these projects are currently under construction, it is not guaranteed that their scopes will not change in response to market conditions, which could potentially alter their entitlement needs.

7. Is the TIF consultant using current entitlements or development potential to assess the future value?

The consultant did not base their analysis on current entitlements. Their approach was demand-focused, using market and demographic indicators to assess future demand for various land uses in downtown overall and the share of that demand that is estimated to be directed to the TIF by the market, including the impact of the Waller Creek Master Plan. They did note, however, that within the zone, certain development types were appropriate to the zoning and height restrictions over that area. For example, the consultant concluded that low-rise multi- family (instead of high rise) made the most sense in the central part of the zone from a market feasibility perspective. This corresponds to the area impacted by the Capitol View Corridor.

8. What is the estimated current value?

The latest estimates from the Travis County Central Appraisal District reflect a total assessed valuation within TIF Reinvestment Zone No. 17 of $376.2 million. The baseline assessed valuation when the TIF Reinvestment was established in June 2007 was $236.2 million, so the current estimated increase in property values since tax year 2007 has been $140 million.

9. TIF values have been used as arguments for (1) need to redevelop Lakeside and (2) need to support “up zonings” in the northern part of the district. Were the original TIF estimates based on existing entitlements on the parcels within the district?

The consultant’s value projections estimated the total square feet of new development for each land use that the market might demand within the zone over time. This projection of demand was translated into a development program to project actual construction of new buildings over time, based on an assumption of typical building size. Using the TCAD valuations of existing comparables within downtown, the consultant projects an average valuation per unit of measurement (per square foot, hotel room, etc.) to arrive at estimated future assessed value added due to new development. 2 Waller Creek Tax Increment Financing (TIF) Reinvestment Zone No. 17 Questions and Answers May 20, 2010

10. What is the expected future value?

The projections that were included as part of the preliminary financing plan adopted in June 2007 were completed based on 2006 property values and the future outlook for development within the TIF Reinvestment Zone No. 17 at that time. After the 20-year term, the increase in property values over the baseline established in 2007 was estimated at $3.6 billion. The Travis County Central Appraisal District is projecting that property values across Travis County will decline in the upcoming tax year and remain relatively flat in the next year or two. If these predictions are accurate, then growth in incremental taxable property value in the next year or two will likely be affected. The Travis County Chief Appraiser expects to certify the 2010 tax roll in late July or sometime in August.

11. What is the current estimated bonding or debt authorization capacity, based on the current projection of the annual increase in value of the property within the district from the base year until the end of its term?

Tax revenue from the City and County are expected to provide sufficient funds to pay the costs of the project over the life of the TIF; however, there are timing issues associated with the cash flows during the early to mid years. Collection of TIF revenue began in fiscal year 2009 and will end in fiscal year 2028. To smooth out the cash flows during the life of the TIF, an additional source of funding for the project was approved as part of the financing plan from within the Convention Center/Waller Creek venue to supplement the available TIF revenue when needed to help cover project costs or debt service.

12. Since the participants in the TIF include the City and Travis County, how are big decisions [like the timing of bond sales, etc.] made?

The City is responsible for carrying out the project and financing plan. Any amendments to the project or financing plan require approval of the TIF Board, which includes the City Council and a representative of Travis County. City financial staff periodically updates County financial staff regarding TIF status and the Commissioners’ Court is apprised as needed. In July 2009, a presentation was made to the Commissioners’ Court to update them on the project and TIF valuations. A similar update is planned during the summer of 2010. State law also requires annual TIF reporting to all taxing jurisdictions with any TIF reinvestment zone and the City prepares and issues these reports to the appropriate entities, including Travis County, on an annual basis.

13. When does staff expect the first bond sale to occur, and what is the current planned schedule of bond sales?

The approved financing plan projected that the first bond sale would occur in 2012. Staff will monitor and adjust this date as needed, and will include an estimated schedule in the proposed 2011 capital improvements plan, which will cover the five-year period beginning in 2011. 3 Waller Creek Tax Increment Financing (TIF) Reinvestment Zone No. 17 Questions and Answers May 20, 2010

14. What is the current financial status of the TIF and where are we in comparison to the anticipated revenue from redevelopment within the TIF boundaries?

Tax revenue has been collected and deposited into the TIF fund in fiscal years 2009 and 2010. The original projections developed in 2006 totaled $1.2 million for both the City and County contributions. Actual contributions have totaled $1.1 million. Given that it is difficult to precisely predict the increase in property values or changes in the tax rate in any given year, revenue collections are substantially on track since establishment of the TIF Reinvestment Zone No. 17.

15. How does the goal of putting affordable housing within the TIF zone potentially affect the TIF payback?

If the City’s housing arm, Austin Housing Finance Corporation (AHFC), were to retain ownership of the affordable housing property and/or land, the development would be deemed tax exempt. Under State law, if a development is owned by a non-profit affordable housing organization with the majority of the apartments or homes designated as “affordable,” it is eligible for up to a 50% tax exemption as long as all the taxing entities, except the applicable school district, agree. (School districts are not permitted to participate in allowing exemptions.) If the affordable units are incorporated into a market rate development, the property is not eligible for an exemption and therefore would not negatively affect the TIF.

16. Do the projections assume maximizing private sector value throughout the TIF?

Yes, but the projections do not contemplate the conversion of property that is currently tax exempt into taxable property.

17. The draft master plan shows a 3-D rendering of the maximum build-out potential. What percentage of the new development shown on that rendering is actually required to meet projections to pay back the TIF?

Many of the proposed master plan improvements would need to be made during the earlier years of the TIF in order to encourage development within the TIF Reinvestment Zone No. 17 once the tunnel becomes operational and flood concerns are addressed. If Council adopts the master plan after consideration of the plan this June, staff will begin to explore funding options to implement the plan as part of the City’s capital budget development process.

About Jude Galligan

Jude Galligan, REALTOR, Principal of TOWERS Realty and publisher of Downtown Austin Blog (aka. "DAB"), spends his time matching remarkable people with remarkable properties in Austin’s urban core. A resident owner in downtown Austin, Jude has served on the Board of the Downtown Austin Alliance (DAA) and the City of Austin Downtown Commission. Contact Jude.

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