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Independent report on downtown Columbia TIF proposal calls for more careful critique

Four developers with projects in Howard County are challenging the county's authority to use tax increment financing to help Howard Hughes Corp., Columbia's master developer, to finance a $51 million garage for public and private use.
Four developers with projects in Howard County are challenging the county's authority to use tax increment financing to help Howard Hughes Corp., Columbia's master developer, to finance a $51 million garage for public and private use. (Courtesy of Howard Hughes Corp.)

Although an independent analysis requested by Howard County Council Chairman Calvin Ball confirmed a public subsidy to finance public infrastructure is appropriate, the firm, TischlerBise cautioned it was unclear whether the amount was justified.

The council is considering a $170 million public subsidy to finance public infrastructure in downtown Columbia is justified as Howard Hughes Corp. redevelops the area into an urban core.

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TischlerBise, said that the county's financial analysis of the tax increment financing deal may overstate its economic benefit by projecting higher than expected revenues for the county, and uses an old development program that oversells the economic impact of the plan.

The council is considering the first in a series of bond sales to finance $90 million for public infrastructure improvements in the Crescent neighborhood. The overall development plan for downtown Columbia includes $2.2 billion in private investment.

The firm's analysis comes as MuniCap, a public finance consulting firm hired by the Kittleman administration to analyze the deal, defended the need for the deal. Tax increment financing is a public financing tool that earmarks future tax revenues generated from the development to pay back bonds and other costs associated with the deal.

In council meetings, Keenan Rice, president of MuniCap, has said the TIF is necessary to incentivize the developer to implement the county's 2010 master plan for downtown Columbia.

Howard County is seeking a $127 million tax increment financing deal - the largest in the county's history and one of the largest in the state - for the development of downtown Columbia.

"From the developer's perspective, they're going to make more money with suburban development," Rice said. "If the county wants the downtown development [to be] an urban type environment, it's probably going to have to help make it happen."

The plan, which establishes the framework for the overhaul of the area, suggests but not does not require the use of a TIF as an example of a public-private partnership.

But the plan calls for high development standards and structure parking, which is much more expensive than surface parking, said Stanley Milesky, the county's finance director.

The county estimates a structure parking space costs $15,000 — triple the cost of a surface lot space. Without the TIF, the developer would have a rate of return so low that it could preclude private investment or result in a lower-quality development, according to the county's financial analysis.

Greg Fitchitt, vice president of development at Howard Hughes, said the urban and dense environment envisioned for downtown Columbia necessitates the use of a TIF.

"There could be development, but it would not be the kind that the downtown plan envisions. You can have garden apartments and Walmarts, if that's the kind of development you want," Fitchitt said, adding that the market alone can support a suburban environment. "You cannot fulfill the downtown Columbia plan without the TIF."

He said the company was pleased the independent analysis confirmed the administration's TIF proposal is appropriate and will have a net positive fiscal impact for the county.

Over the next 35 years, the project is expected to generate $408 million in net revenue after accounting for costs like debt service and funds for capital projects.

Local governments determine if a deal is warranted and serves the public interest by answering a critical question: Would the development happen without a TIF?

That question, known in financial jargon as the "but for test," requires "a better presentation" from the county, said Councilman Greg Fox.

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"Items, such as escalation rates, valuation of residential real estate, costs of items both TIF- and capital project-related and timing of revenues and expenditures, all need to be looked at closely," Fox said.

Although the independent analysis concludes MuniCap's projections are "thorough" and "well reasoned," TischlerBise suggested the county revisit its analysis of the deal's economic impacts and provide a stronger justification for the "but for test."

The current analysis does not fully compare the rate of return for the developer with and without a TIF and should analyze the projected economic impact of the deal in the event of an economic downturn that "will almost certainly happen over the next 34 years."

The projections could overstate the development's projected value and revenue for the county and understate capital costs, according to the report.

Councilwoman Jen Terrasa, who opposes the TIF, said the report confirmed her long standing concern that the council is making decisions based on limited information.

"We need adequate information to make this decision," Terrasa said. "That's been my concern all along: that we don't have enough information."

The county's economic impact analysis is an outdated development program that is roughly three million square feet fewer than the Howard Hughes' plan used for the analysis last year.

Council Chairman Calvin Ball said the analysis raises "critical questions" about the economic impact of the deal and that MuniCap's initial analysis "could have been more thorough and more clearly communicated by the administration."

Andy Barth, the county's press secretary, said the administration of County Executive Allan Kittleman declined comment because it was reviewing the report.

If Howard Hughes fails to produce enough tax revenue in the TIF district, the county could levy a special tax against the developer or owner to cover the shortfall.

TischlerBise's analysis was limited to reviewing the findings of the administration's firmand does not offer alternative revenue projects as a result of the development.

Carson Bise, president of TischlerBise, is scheduled to brief the Howard County Council on the report Wednesday, Oct. 5 at 8 p.m.

This story has been updated.

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