February 24, 2004
(Updated) Urban Renewal Areas And Those Pesky Colors Of Money
Some Explanatory Background That May Irritate Some People
Note: This post has been updated. Any and all updates appear at the end of the original post.
Elsewhere, Jack Bogdanski has a rant against the Convention Center, in which he hits upon some more general points we feel are important to discuss. Those of you who already have read the item will recognize some of what we're about to say, because we posted it to the comments there.
Together these are among the worst public financing decisions in the city's history. Sure, the commissioners will tell you that the wasted money is all coming out of the hotel-motel tax, which is paid by tourists. But that's the same malarkey they'll try to sell about how the hotel is going to be built from "urban renewal" funds. There are "different pots of money," "different colors of money," and we should focus on the pots and the colors, rather than on the fact that it's all coming from us taxpayers.
Call them out on it. Those are all tax dollars that should have been spent on public safety and schools. We didn't need a larger white elephant Convention Center, and we don't need a white elephant hotel on top of it.
Unfortunately, the financial and budgetary dynamics don't work this way. There are, in fact, different pots or colors of money. Projects in urban renewal areas are paid for through proprty tax increases that would not have occurred without the URA-spurred investment which prompts growth and development.
Here's the basic version of how urban renewal areas in general function. When a URA is created, the property tax value of that area if capped at whatever it is when the URA is put into place. Taxes on that capped value continue to be collected by the various tax-collecting entities involved, including the City of Portland.
As development gets underway in the URA, property values increase, and the equivalent of what could be considered the concurrent increase in property taxes on that newly-created value goes to pay off the bonds for the URA.
In other words, value that would not have been created without the URA is used to pay off the projects which spurred development in the URA, which arguably would not have occurred without the existence of the URA. But in the meantime, as stated above, the pre-URA property valuation continues to feed into property taxes which go to the various tax-collecting entities involved, including the City of Portland.
Then, after a pre-defined term, the URA expires, and all of the increased property values go back into the normal property tax pot which feeds, for example, into the City's general fund. Unless, of course, the URA's life is extended. Which in fact is the very debate the City finally is beginning to have as various URAs approach their expiration dates over the next several years.
What this means in terms of Jack's above comment simply is this: The money paying for these urban renewal area projects does not exist for general fund purposes -- and, in fact, would not exist at all without the urban renewal area -- and therefore simply can't go to pay for other things, such as safety and schools.
However, because the pre-URA capped property value continues to feed, for example, the City's general fund through normal property taxes, we're technically not losing any money.
This doesn't mean that all urban renewal areas or their projects are the proper choices to make, or that the creation of any particular URA inherently is necessary. But it does mean that the money wouldn't be there at all for other purposes, so it's simply inaccurate to speak as if it could be used for, say, safety or schools instead of some URA-based development project.
Some of Mayor Katz's (or the Portland Development Commission's) priorities may be off the mark. But she is nonetheless correct when she speaks of different colors of money, no matter how much it may irritate her critics to hear that she speaks the truth on this count.
Update
We forgot to mention that when you hear the term "tax increment financing," that's what they call this use of increased value created by URA-spurred investment (above the capped value which still feeds local property taxes) to pay for URA projects.
Update
It should also be noted that the four-year extension of the Downtown Waterfront Urban Renewal Area once again comes before City Council tomorrow morning. It is expected that representatives of the Portland Development Commission will have some answers on hand to various questions members of the Coucnil asked last week.
Update
For more information on urban renewal areas, see the Urban Renewal Primer (pdf) from the Portland Development Commission.
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A lesson about Urban Renewal Areas on 24 Feb 2004
The One True b!X has a post about how Urban Renewal Areas (URA) are financed. It's quite an interesting post. I, personally, believe many URA's are political pork and only benefit a few, mostly those with a little more wealth...
Comments (9)
Amanda on 24 Feb 2004
This is one of the most accurate, insightful, and clear explanations of urban renewal funding I've read anywhere. Why would it "irritate some people"?
The One True b!X on 24 Feb 2004
Well, for the same reason it occassionally irritates me. It's difficult to accept big development plans when there's no money for staples like the much-mentioned safety and schools. But it's difficult in the way that it's often difficult to accept things that have a perfectly legitimate explanation but nonetheless can rub you the wrong way (as a sort of knee-jerk instinctual thing).
Jack Bog on 24 Feb 2004
Sorry, Bix, but the "pots" and "colors" that the mayor usually cites are largely, if not entirely, accounting baloney.
First of all, the hotel-motel tax (which pays for the Convention Center white elephant, which is what I was ranting about) could have been used for anything the city wanted to use it for, including schools and public safety. It just isn't, because the City Council decided it shouldn't be.
As for "urban renewal" money, as I look at my property tax bill, 7.54% of the money I pay -- all green, all coming out the pot known as my checking account -- goes to something called "Urban renewal - Portland." I do not live in an urban renewal zone. There hasn't been a new building built anywhere near my house in probably 50 years. That money should also go for schools and public safety. Instead it is going to the Vera Katz Theme Park. Moreover, many beneficiaries of the Theme Park amusement rides (e.g., the streetcar) don't pay this tax, because the property taxes on their ugly highrise boxes are forgiven for a decade or more.
The One True b!X on 24 Feb 2004
Sorry, Bix, but the "pots" and "colors" that the mayor usually cites are largely, if not entirely, accounting baloney.
Some of them probably are. But did you know that a whopping 84% of the City's budget is non-discretionary resources? Only 16% of the budget comes from sources that can be used for whatever the City wants.
See the finance and budget primer presented to the City's community budget forums.
First of all, the hotel-motel tax (which pays for the Convention Center white elephant, which is what I was ranting about)...
Well, yes, I know this. That's why I said the following: "Jack Bogdanski has a rant against the Convention Center, in which he hits upon some more general points we feel are important to discuss."
As for the property tax item, I'm getting information about that, or rather waiting for information about that.
The One True b!X on 24 Feb 2004
Ah, I see it now:
Although I'm still not sure of the reason this is there. I would have the beginnings of a response from the Office of Management & Finance, but some people are still having trouble with email to this domain bouncing during our current transition period, so the OMF person in question is going to try again tomorrow morning.
Jack Bog on 24 Feb 2004
Pots, colors, blah blah blah. "...and an urban renewal tax assessed by the City of Portland against all taxable property within the City of Portland." Yeah, paid by me, spent on Homer Williams & Co.
The One True b!X on 24 Feb 2004
My only point is that while that particular line item may indeed be something to stew about, I'm not going to jump on that bandwagon until I actually have the facts in front of me as to just what it's for and why it's there.
Jack Bog on 25 Feb 2004
Keep stewing. Tax increment financing is one thing -- a slush fund property tax on the whole city is quite another. The latter is the money I'm complaining about. It's all green, and it all ought to be going to public safety and schools -- not toys.
Jack Bog on 25 Feb 2004
One last thought for tonight: Why are the non-discretionary funds non-discretionary? What are the sources of the restrictions?
There's state law and the city charter, which the council can't do much about. But the council can change the city code, and its financial policies. And it can also refrain from entering into new contracts that place more restrictions on it.
Most of the "pots" are creatures of the council itself, and I'd wager that the council could easily get rid of them, at least over time. But they like them there, because it makes it easier to spend money on the junk that they crave.
Accounting hooey, I tell ya.