The City Council is considering a revision of the property tax break given to the developers of Laurel Mall that could result in $15.5 million in public infrastructure improvements to the area around the development.
According to Mayor Craig Moe, the purpose of the tax break, known as tax increment financing or TIF, is to increase the developer's cash flow to help fund public improvements — which would include a parking garage — and to protect the city if the project is not completed.
"I think it's a good opportunity, and the protection is there for the city," Moe said at the City Council work session Dec. 5. "My concern was, if something were to happen where the project didn't get completed, the city would be protected."
In 2008, the city issued a similar TIF to the mall's original developers, AEW Capital Management and Somera Capital Management.
According to Michele Saylor, the city's director of Budget and Personnel Services, if the new TIF is implemented, the mall's owners — Greenberg Gibbons Commercial — will take out bonds issued by a third party to finance the public improvements around the mall, which could include streetscapes, road and sidewalk improvements, parking facilities, lighting, utilities and traffic signals.
Under the TIF program, Greenberg Gibbons will continue to pay the city's full property tax bill, Saylor said. As the property value, $130 million, of the mall increases, so will the tax bill — which is approximately $180,000.
That's where the TIF comes in.
Saylor said, each year, the city will take 70 percent of the increase in property taxes over the baseline $180,000 and use it to pay the debt service on the Greenberg Gibbons bonds.
Each year, the city will retain the baseline $180,000, in addition to the remaining 30 percent of the property tax increase.
Saylor added that the city will be responsible for paying the debt service on $10 million of the bonds, while Prince George's County, through a similar tax increment financing program, is responsible for paying debt service on the remaining $5 million.
According to the city's bond counsel, Bob Doory, the developer, or whomever the developer sells the bonds to, is liable if the value of the property does not increase as anticipated or the project ultimately fails.
"The bondholders take the risk that the thing never works, that's a very important feature," Doory said. "The city will come out ahead if this thing works, and if it doesn't work, the city is protected."
Doory added that if the property value sky rockets, and the property tax along with it, the city will have an opportunity to refinance the bonds after 10 years.
"If we get to the point where this is going gangbusters, and the tax increment is way up and there is plenty of money to support these bonds. ... We would be in a position to require that the bonds be refinanced," Doory said.
Doory added that any remaining surplus from the money allocated to pay the debt service on the bonds will be rolled into a special reserve fund that would be used to refinance the bonds.
"Just like with your home, you would be able to take advantage of declining interest rates and appreciation of the value of the property," Doory said.
The council discussed the new TIF, which would place a TIF district around the mall site, at the work session and held the first public hearing on the issue at its meeting Dec. 10.
In order to implement the new TIF district, the council must repeal the resolution granting the original special tax district — also on the mall site — created for the original mall developers.
Moe anticipates the council will take action on the agenda item at a meeting in January.