Newton Citizen
September 14, 2006
COVINGTON — Covington residents will decide Tuesday whether the city council can use tax allocation districts as a redevelopment tool.
A tax allocation district, also known as a TAD, is used as an incentive to draw developers to an area in need of redevelopment, said Steven Labovitz, an attorney with McKenna, Long and Aldridge in Atlanta who has worked on all 14 TADs implemented in Georgia.
A TAD works this way: The government agrees to freeze property taxes at their current level prior to development. Once development begins, the new taxes created are put in a special fund and are used to reimburse the developer for costs associated with the project, such as to pay off debt or to fund the cost of infrastructure needed to make the project viable, Labovitz said. For example, if taxes levied on a property total $300,000 prior to development and development generates an additional $700,000 in taxes, that $700,000 goes into a special fund and is used to reimburse the developer for the project cost.
TADs are a good choice for governments that don’t have money in their general funds to complete needed redevelopment projects and provide incentive for developers who normally wouldn’t come to that area, Labovitz said.
"Nobody’s losing anything. The city and county and school board are still getting the same taxes they would have gotten (before) this development," he said.
The taxes remain frozen until bonds are paid off or the TAD is terminated, Labovitz said, adding that the TAD cannot be terminated so long as there are outstanding bonds.
"The great thing about this is that from a city or county’s perspective, when bonds are issued, only the project stands behind the bonds," Labovitz said.
If the project fails, the bondholders maintain responsibility, he said.
When the city creates a TAD, the county and school board must also give their consent to freeze their portion of taxes on the property, Labovitz said.
School boards are sometimes concerned about how to accommodate the growth that will be generated, if the project includes housing, without the additional taxes as a revenue source, he said.
But one way to alleviate those concerns is to set aside a portion of the tax increment to build a new school, he said.
"Increments can be used for anything within that district except business operations," including infrastructure and road improvements or even public art displays, Labovitz said.
Counties and cities may have the same concern about how to pay for the additional services that will be created without the benefit of additional taxes, Labovitz said.
But the government will have the benefit of a tax increase on surrounding property as the result of the redevelopment project, he said.
Plus, if the project involves retail, there’s additional sales taxes and business license fees generated and possibly hotel and motel taxes, he said.
"Yes, taxes will have gone up for people in the area, and if they’re on a fixed income and don’t have the money to pay additional taxes, that might cause a problem," Labovitz said. "On the other hand, now they have property that is much more valuable than it was. They could sell that property and move to another area with the increased amount (of money)."
To implement TADs, local and state approval is required, along with a referendum. City and county leaders have already expressed their support, and local legislation has been passed at the state level.
Tuesday’s referendum will be the final step in securing implementation of TADs in Covington. The county will hold a referendum during the Nov. 7 general election.
Voters are being asked to decide whether TADs should be used in the future; no specific project has been proposed.
Phil Johnson is one of the local developers who petitioned the county and city to look at TADs as a redevelopment option.
"As this county grows, there are a myriad of needs that the county will have, and as we see areas developed years ago that need to be redeveloped, having this tool available is really important," Johnson said.
The proposed redevelopment of U.S. Highway 278 would be a fitting project for a TAD, Johnson said.
However, "One of the things we need to remember when the vote occurs in the city and county is it’s ultimately not a vote for one specific project but a vote on creating the generic vehicle by which the county and city are empowered to look at TAD projects when the need arises," Johnson said.
TADs may be formed under the Redevelopment Powers Law in areas that meet certain requirements. Areas that are a blight to the community, were not developed as intended or were underdeveloped would qualify for a TAD, Labovitz said.
Though the Legislature passed the law in the mid-1980s, TADs were not used in Georgia until the late ’90s, when Atlanta implemented TADs for the development of Atlantic Station and the revitalization of the downtown area.
Since then, 14 TADs have been implemented in six districts, including the cities of Acworth and Smyrna.
TADs have been used extensively in Chicago, San Diego and Florida, Labovitz said.
"When the city and the county are trying to attract somebody to come to them, it’s just another tool in the arsenal," he said.
Tuesday’s referendum will be held at City Hall, located at 2194 Elm St., from 7 a.m. to 7 p.m.