Why The Downtown Columbia Plan Needs a Massive Audit
Hiruy Hadgu
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On Monday, October 2nd, the County Council voted to allow Howard Hughes Corporation (HHC) to keep the free money it was given with the passage of pieces of legislation related to the Downtown Columbia plan.
Table 1: Downtown Columbia Legislative Package
The legislation package shown in Table 1 comprises of a complicated set of changes and additions to existing county plans. Notably, it exempts HHC from the county's already weak adequate public facilities ordinance (APFO) and provides more allocations to the developer.
The last bill in the table - CB56-2016 - provides the first $90 million of a total of over $170 million in tax increment financing (TIF) that the developer plans to use to build certain "public facilities".
After County Executive Kittleman announced that the plans for the TIF have changed, Councilpersons Terrasa and Ball introduced CB74-2017. A bill to repeal CB56-2016 with a simple justification. If the TIF will not be used for its originally intended purpose then lets save taxpayers money.
After the repeal bill was announced, two things happened.
Issuance of the PLOM and Filing of CR124-2017
First, the County Executive (CE) immediately reshuffled the developer's wishlist and re-categorized facilities that were once deemed unqualified for TIF money as "Qualified" and issued the preliminary limited offering memorandum (PLOM) for the Series A bond issuance. Going to the market to look for bond investors. Watch in Video 1 as the Director of Policy & Programs, Mr. Carl DeLorenzo explain the timing.
Second, Councilwoman Mary Kay Sigaty filed CR124-2017. A proposal to expand the TIF district in such a way that it would benefit the arts community.
This interesting maneuver enables the proponents of the TIF to create a wedge issue for those who deem it politically not advantageous to speak out against the waste of taxpayer money for programs members of the community favor.
This is disappointing because normally, when a community suffers financial problems due to irresponsible management of taxpayer money, the arts are the first to be cut.
Dubious Criteria for Qualifying Projects
Table 2: Planned Use of TIF Money
As stated, the CE reshuffled projects that were once deemed unqualified for public money. A summary of these projects is presented in Table 2. As shown in the table, 77% of the original TIF request was intended construction of a public garage. But since the garage will not be built using county money, they needed to add random projects in to the list, change their cost to make them work, and send the PLOM to make the repeal more difficult to achieve.
Here's Mr. Delorenzo again in Video 2 as he responds to questions about the justification for changing a proposed street "Divided Sky Lane", which was once deemed unqualified. Now, the county deems it qualified for the TIF because "anecdotal" evidence shows that many people use the street. There were no concrete bases presented for the addition of any of the projects to this list.
HHC Started the Projects Even Before CB56 was Approved
During the deliberations of the TIF approval process, HHC decided to start working on some of the projects claiming that they are invested in the community and some projects would resume regardless of the TIF approval.
According to the county's own policy, the following needs to be true in order to justify a TIF: "The proposed private development would not be economically feasible “but for” the establishment of a TIF district and participation by the County". In Video 3, they discuss the concept of risk. The developer is taking a risk when starting the project before the TIF is approved. That is essentially a "but for" test! This means, HHC priced in the risk of not getting the free money and still deemed the project viable.
So the county violated its own policy of giving free money for a project that fails the "but for" test in the first place.
Another Example of Violating County Policy
According to the exchange in Video 4, it is against county policy to issue TIF bonds without the guarantee of a special taxing district.
The filing of CR124-2017 creates a specter of the county possibly violating this policy.
If the TIF is not backed by the guarantee of special tax revenues that can be levied to pay back the bonds it is called a "naked TIF".
So not only are the proponents of CR124 attempting to confound the discussion around the repeal of the TIF, they also want to risk the county's credit while doing so.
Needless to say, CR124-2017 was added to the project to make the numbers work. Another item added to the list of "qualified" projects is the Arts Center Garage. This was not a project that was initially conceived in the original TIF. After removing 77% of the original TIF expense - the garage, the county needed to add projects in order to ensure the total TIF dollars remained the same. Here is an exchange in Video 5 that even one of the council members admits is the case, "putting it [arts center garage (see Table 2)] here in this chart, leaves it as something that can be discussed".
The PLOM was Issued After CB74-2017 was Filed
Developers in Howard County have a modus operandi (MO). Whenever there is a dispute over land, deeds, or any deal that impacts them, they will take action in the direction that favors them such that decisions become irrevocable.
Let's say there is a dispute between the developer and an inheritor over who owns a piece of land.There are documented cases of developers beginning work on the land while the dispute is ongoing to create an impetus toward a certain, specific, and favorable outcome. The issuance of the PLOM after the filing of CR74-2017 reeks of this MO.
As stated earlier, the projects that are now "qualified" were done so haphazardly just to make the numbers work. The county administration issues the PLOM, the bonds are sold, and now there is impetus toward a certain, specific, and favorable outcome. Lo and behold, the vote to repeal failed 3-2. See Video 6 for the exchange on the timing of issuance of the PLOM.
Will the Parking Garages Credit Developer's Commercial Requirements?
As the exchange in Video 7 alludes to, there is concern that the two garages - library and arts center garage will ultimately serve commercial purposes even though TIF money is used.
So HHC changed its mind about building the garages, the county reshuffled projects to make the final TIF numbers work, a member of the county council added a project to the TIF in order to facilitate the reshuffling of the numbers, and the icing on the cake, the county is also helping the developer meet its parking requirements. One can say "we do not know that will happen", but again, remember the developer's MO.
We need to audit this massive deal, including the process, deliberations and other aspects. The TIF is just a fraction of the whole project. There were major changes to the county's zoning laws specifically to favor one developer.
Not only will the county pay for the financing and the servicing of the TIF, the developer gets to build a projection of profitability with free money. On top of that we pay the developer fee for taking the TIF as well.
The county passed the TIF under the guise of building parking garages. Now the county is bending over backwards by making facilities that we deemed unqualified to be qualified in order to keep the TIF. This is daylight robbery of taxpayer money and some on the county council as well as the administration are aiding this theft.