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We have a right to know, Part 2

Posted: December 20, 2011 12:26 p.m.
Updated: December 21, 2011 5:00 a.m.

If you were following City Council closely, you may have noticed that on October 25th, 2011, the City voted on the City of Camden Redevelopment Plan. This was done pretty quietly, so you may have missed it.

The Camden Redevelopment Plan document is available on the City website www.CityofCamden.org. You should read it.

As part of the Camden Redevelopment Plan, the City created a Tax Increment Financing District (TIF). You can see on the maps of the TIF District in the Redevelopment Plan document.

This slipped right under my radar. When I did hear about it, I imagined that this plan involved the redevelopment of the Broad Street area and would improve things on the way in to Camden from I-20 including the Historic Camden district.

I also imagined that it involved government grants and some State or Federal aid programs.

I was wrong about all of that.

This TIF district and the Redevelopment Plan will cost Camden taxpayers $22 million and these plans have nothing to do with improving Broad Street or Historic Camden.

The TIF district compasses the land from Campbell Street (the YMCA site) and goes west along DeKalb toward the Wal-Mart and north across DeKalb up into the residential areas toward Laurens Street.

Now this area has been deemed “blighted” by whichever consultant the City has hired, which means that we, the taxpayers, will pay to fix it up.

To pay for the shopping list of improvements that you can see detailed on the Redevelopment Plan, the City will sell $22 million worth of bonds.

For the uninitiated, selling bonds means that means the City will take on $22 million worth of debt that City taxpayers will have to pay off. Bonds are just a fancy name for IOUs, in the simplest terms.

The City will borrow money from a bank, similar institutions, or even private individuals and will give a “bond” in exchange. The bond is our promise to pay a certain amount of interest on the money monthly or annually, and then on a set date in the future, to return the money we borrowed.

We call it “selling” bonds, but what we are selling is our promise to pay the interest and then give the borrowed money back. The bonds are nothing but paper.

In conjunction with the water and sewer treatment plant we are required to build and will need to sell $33 million worth of bonds to finance, plus the $7 million or so in bonds that the City plans to sell for the YMCA (sports complex) and our other existing debt, the addition of TIF bonds will put Camden at around $70 million dollars in debt.

Ordinarily, such a debt level would never be permitted by law for a town of our means.

The City can pull this off, apparently, because TIF bonds are not subject to the usual municipality debt limits that are in place to keep a lid on runaway City governments.

TIF debt is not counted toward the City debt limit, but it is counted when considering our bond rating and credit rating. The higher our bond rating, the less interest we will have to pay on this or any future financing we may need.

Obviously, running up $70 million in debt over the course of a year will negatively affect our bond rating.

Institutions who buy bonds might ask questions, they might think we are reckless with money and taking on more debt than we can service. They might be right.

The City Bond attorney, Lawrence Flynn, opined: “The risk to the City is the risk to the Bond rating.”

But no problem, because if “the bank” that would buy the TIF bonds “didn’t feel that there was sufficient backing”, Flynn was thoughtful enough to suggest a way the City could still borrow more than we really qualify for “You could pledge your water and sewer system. I’m not saying you need to do that, but it is something you could do.”

There has been speculation about just which “bank” Flynn was referring to that might want to buy our bonds and have a lien on our utility revenues.

It is a question worth answering, because the City seems inclined to act on this creative suggestion of attorney Flynn.

On page 13 of the Camden Redevelopment Plan under the heading “Redevelopment Financing” the document states “Should the City so determine, any TIF bonds may be further secured by a pledge and a lien upon the revenues of the City’s Combined Public Utility System as further provided in the TIF statute.”

Not to leave any stone unturned, the plan also stipulates that it will use “local hospitality fee money, and other funds available to the City”.

 The Hospitality Tax is already spoken for, to fund the YMCA.

So one can only wonder what “other funds” those would be, in a City strapped with $70 million in debt.

Actually, attorney Flynn was not quite telling the whole story when he suggested that “the risk to the City” was our bond rating.

The risk to the City in this scheme of over-leveraged spending is bankruptcy.

The Chronicle-Independent reported in October:

“Bronson said the redevelopment plan is a strategy for how to address infrastructure issues and that the proposed sports complex would likely spur development of the remaining portion of the Mather property.”

“He also said the former Continuous Learning Center has been identified as a prime site for commercial redevelopment. Graham expressed hope that the TIF district's creation would spur someone to purchase the former Bi-Lo shopping center and petition for annexation, providing the city with additional tax revenue.”

Clearly, the Mayor has given the matter thought, as we shall see:

"There are things in the city that I'm proud of and things that I'm not," Graham said. "This corridor has to be part of our work -- we can't afford to pass it over. It's another area we have to spend time in. There are businesses that need our help."

“Mayor Graham said he has tried to think about how Camden's west side looks to someone coming in to the city from Lugoff.”

“Bronson said there would be a "gateway feature" to greet travelers coming in to Camden from Lugoff.” (Would these be tourists?)

In most cases where TIFs are used, the increase in property value created an increase in the property Taxes in the TIF, and that eventual property tax increase is used to help pay off the TIF bonds.

This is the sort of discussion that can quickly put an audience to sleep, but not to worry, because it does not apply to Camden very much, anyway.

According to the Camden Redevelopment Plan, we will spend $21,992,530 (Redevelopment Project Costs) in the hope that we will attract $20,625,000 in privately funded property development into the TIF area.

For purposes of comparison, in Chicago where residents are complaining about TIF abuse, the City normally invests 10 percent to 20 percent of the amount already obligated by a private developer.

Using that rule of thumb, following our $22 million investment, the Camden Redevelopment TIF District would be expecting $100 to $200 million in investment instead of the $21 million we are apparently hoping for.

Just what is the economic boom the City hopes to ignite with this highly leveraged investment?

In the Camden Redevelopment Plan document you will notice that it is never explained to us what, if any, specific benefit this possible real estate development would bring to the community.

Although there is some gloss wording about promoting jobs, in fact none of the development figures ever suggest that any of the development will result in jobs or economic stimulation to anyone other than the lenders, the developers and the real estate agents.

According to the Redevelopment Plan document, the City can confidently expect an additional $70,000 per year in property tax revenues, if all goes well.

If that sounds to you like much ado about nothing, read on.

This is how the plan adds up:

Right now, the land in the TIF district (mostly privately owned) is assessed at $788,145. (Equalized Assessed Value)

After Redevelopment (i.e., after we spend $22 million) by the year 2035 it should have an Equalized Assessed Value by 2035 of $1,585, 241. (Right, just over $1.5 million).

That means the value of the land in the TIF district would roughly double in value of the next 25 years, ostensibly due to our $22 million in investment.

Presently, the Taxes paid on property that is now inside the TIF district amounts to $243,000 per year.

Just $70,000 of that property tax revenue actually goes to the City of Camden, while the rest goes to the school district and the county.

Since both the School System and County opted out of the TIF we cannot use their portion of the property taxes to pay off this debt; we can only look to the $70,000 of tax revenue the City actually gets on the property to pay of this $22 million debt.

To be clear, according to the City of Camden Redevelopment Plans, our potential economic boom is the extra $70,000 in property tax revenues the City could take in every year as our reward for spending $22 million to improve the TIF area.

 There is a problem with simple math here.

The $22 million worth of TIF bonds (debt) will have to be re-paid in full in15 years from the day they are sold, or else we have to sell enough new bonds to pay off the old ones, sort of like taking a mortgage to pay off your credit card bills.

So even if we accomplish what they City projects in their Redevelopment Plan and double the value of the TIF district land, then the City gets an extra $70,000 in tax revenues.

$70,000 a year is not going to pay off the $22 million in debt in 15 years.

 In fact, it will not even come close to paying the interest. The interest alone on the $22 million worth of bond debt will be in the region $650,000 to $750,000 each year depending on the interest rate we have to pay. Notice, that is just paying the interest on the debt and never actually paying off the debt itself. Just where are we supposed to get the $22 million with which to repay the principal?

This is where attorney Flynn, the bond attorney who advises the City and whom we pay through our tax dollars, came in with the idea of giving our bondholders, or at least the largest bondholders, a lien on the revenues we take in through resident’s utility bills for City water and sewer.

If the $70,000 tax increase in the TIF district was not enough, then the bondholders (“the bank”) would take as much of the City’s income from residents utility bill payments as necessary to pay the $700,000 a year in interest AND the entire $22 million in debt, leaving the City with nothing with which to maintain or improve the City infrastructure, and a utility system effectively owned by a “bank”.

So as a practical matter, almost all of the money needed to service this $22 million debt will have to come from increased property taxes and utility rate hikes.

So who owns the property in the TIF district?

There are 68 parcels in the TIF, several with the same owners.

The list was supposed to be on the City website, but it is hidden. You can find it, however, by Google- ing “City of Camden Redevelopment Plan Exhibit B”

Some of the property owners are private individuals; some of them are holding companies for local families and some of them are foreign nationals.

In some cases, the property is held by corporations who have buried the identity of their owners deep within corporate filings.

If the land in the TIF does indeed become more valuable and the owners sell their land to developers, do they need to share any of their eventual windfalls with the City to pay us back for the investment we made? No Not a dime. Those who profit have no obligation to contribute to the re-payment of the $22 million debt.

Please note, I am not saying that the landowners in the TIF engineered this lucky break for themselves. Some of them are not even aware that their land is now in the TIF. Their consent was not required.

Furthermore, many of them will find that they have not been lucky at all, since one of the powers the City acquires through the TIF and the Redevelopment Plan is the right of Eminent Domain.

As a practical matter, that means if there is a development planned by any private developer who makes a deal with the City, and it turns out there is a building or a house in the way of that development, the City can forcibly take the property by exercising the right of Eminent Domain and then sell or give the property to the developer.

Once they pay the owner what can be shown to be a “fair market” price, the City can demolish the buildings and proceed to use, sell or give the land as they, in their sole discretion, see fit.

In fact in the City of Camden Redevelopment Plan section V page 10 point 3, the City states that the City itself will go into the speculative land business “acquiring” and assembling parcels of developed and undeveloped land in order to sell it to private investors.

Just think of the real estate commissions that could generate.

Furthermore, the TIF district boundaries can be expanded to include any other land adjoining it, at any time.

Apparently the property owners are powerless to resist, and once in the TIF, their land and buildings can also be “grabbed” at will.

Of interest to the current residents of the TIF district, many of whom are in rented property, the Redevelopment Plan makes liberal mention of re-locating residents, as necessary, and at taxpayer’s expense.

If your property merely adjoins the TIF, take note.

This will affect your property value even if your land is not taken, since any prospective buyer would have to consider the risk of their property being taken by the City at any time and any buildings or improvements destroyed.

 The City of Camden Redevelopment Plan would be bad enough at $22 million, but according to the Plan, the TIF District is to be “anchored” by the YMCA / Sports Complex, the other $6 to $8 million “investment” we are about to make.

The TIF and the YMCA total up to $30 million of additional debt that this Mayor and his “yes-votes” on the City Council seem determined to saddle us with in 2012.

We want real answers to the burning question: exactly who is going to benefit from all of this?

More on this later.

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