Tax Increment Case Study

Q1. What are the four techniques of financing redevelopment in local areas? Briefly explain the tax increment financing technique? Has this technique been abused by business communities? Explain. \

After World War II the cost of redevelopment was mostly paid by taxpayers through property taxes. Then as the housing market increased, tax payers became increasingly weary of the growing costs. These costs were attributed to the increasing budgets from municipalities and school districts. Thus, Proposition 13 was enacted by limiting “the basic property tax to 1 percent of the property’s assessed value” (180, Cullingworth). Now, cities can no longer rely solely on tax payers to cover costs. In turn, municipalities have increased charger, and state and federal funding has begun to diminish (180, Cullingworth). The purpose of this paper will be to give four alternative sources of funding for redevelopment at the local level, and to discuss the tax increment financing technique and whether the technique has been abused by the

business community.
Municipal or state bonds
There are a couple different types of municipal or state bonds. The definition of a bond is, “a debt security where an investor loans money to an entity (city or state) that borrows it for a certain period of time and at a certain interest rate” (185, Cullingworth). Whereas, the borrower agrees to pay the bond back, with interest, on a specified date of maturity. Two examples are the general bond (GO) and a revenue bond. Both bonds are often used in funding city and the state projects. The difference between the two is GO bonds are backed in full faith by the city of the state in which they are issued and a revenue bonds are used for ‘revenue-producing property’ by which the money is then returned.
The first type of bond is the general bond (GO), which are, “backed by the taxing and borrowing power of the city or state issuing the bond” (185, Cullingworth). These are bonds the community votes into effect on a local or state ballot, where they then require a vote of two-thirds for final approval. A city may use these bonds to improve infrastructure, construct new city buildings, parks, schools, or develop affordable care housing projects. The state could use these bonds to build schools and colleges, construct homeless shelters, or any number of environmental projects that entail the use of development. The key issuance is, the bond must be used for a voter intended purpose.
Another type is a revenue bond, used for mortgages or industrial and housing development. A mortgage bond is used to lower market rates for the first-time home buyers. The industrial bond is used to build infrastructure for business; henceforth, creating jobs which help to stimulate the economy of the city or state. Housing bonds in our area are used by the Sacramento Housing and Redevelopment Agency to assist both for and non-profit developers with new construction development or improvement of already existing infrastructure. Ultimately, the revenue bond will self-liquidate from the generated income.
Capital Improvement Program (CIP)
A CIP is used to plan a city project for improvement or maintain the areas assets.

The criteria are similar in most cities, states, and are long-term with a dollar cost of at least $10,000. Moreover, all projects to be considered must be drawn up and include, but not limited to, “the name of the project, the location and description of the project, the justification of the project, the schedule of funds to be expended, the source of the funding, and the annual operating budget impact of the project’ (188, Cullingworth). Not all projects that are submitted by the city get accepted, so each project is valued by all pertinent information depicted in the CIP. Each CIP is then reviewed by a community, which can include both citizens of the community and department representatives. Once the CIP’s have been selected, they are the herd by some form of planning commission who will submit a recommendation to the ‘mayor and city council’ for a final

decision.
Tax credit programs
There are several tax credit programs that give incentives to investors, both private and non-profit, who participate in redevelopment projects. For example. “[t]he Low Income Housing Tax Credit (LIHTC) program was created by the Tax Reform Act of 1986 to help acquire, rehabilitate, or construct new affordable housing” (192, Cullingworth). The tax credit is to help the developer reduce the costs of the overall project. In Sacramento, the housing market has accelerated causing a shortage of affordable housing. This is a time when many developers can take advantage of the tax credit programs by investing in new builds.
Tax Increment Financing
The Tax Increment Financing (TIF) is specifically used for redevelopment of blighted areas. The way it works is the current property tax is determined by the property before redevelopment occurs, then the property tax is held on a base rate. Following the city improvements, the property values will rise in the surrounding areas; hereafter, the properties are then reassessed at their increased value. As a result, the city is able to collect an increased value of property taxes to be used as reimbursement. TIF’s are planned and a public hearing is then held. All property owners a within the specified geographical area are properly notified through certified mail, giving each one the opportunity to voice their position (190, Cullingworth). The final outcome could increase property values and stimulate the economy, but many property owners oppose paying higher taxes, even when it benefits them. In other cases, an area may be deemed blighted in order to attract commercial development in hopes of creating more jobs and stimulating the city’s overall economy.
The use of the TIF has generated a discussion about whether or not the business community is abusing the ‘economic development tool. Meaning, is the commercial industry using the tax credit in an actual blighted area or are they taking advantage of a tax tool to avoid the high cost of developing in an up incoming area. The major issue is determining what really constitutes as a ‘blighted area’. The book gives the example of an area that has previously been used for agriculture, fitting considering California has much of its land in the central valley dedicated for such use. What happens when the area transitions out of agriculture? Should commercial developers be eligible for the TIF? In this case, I feel that redevelopment must be assessed on a case by case circumstance and implementing guidelines for what is and is not okay only takes the decision away from the citizens. Thus, the TIF is to benefit a blighted area, deemed worthy by its citizens and this should include commercial TIF’s as well. The decisions to expand commercial property or develop commercial property needs to be strictly assessed and voted on by the members of the community. Thus, any fraudulent behavior would ultimately be limited.
Q2. California’s coastline resources are public property owned by the State of California, but some homeowners whose properties are located near the beach claim the beaches as their private property. In this context discuss the central problem associated with the private-public ownership of land property along beaches in California. Analyze the Nolan vs. CCC court case and its land use implication. Also, discuss any three problems as an outcome of land development near the beaches in California.
The Nollan v. California Coastal Commission is described as a classic ‘rational nexus’ determination case. Therefore, one must understand first the concept behind a rational nexus. Simply explained, “the ‘connection’ – between the charged levied upon a developer and the burden placed on the municipality by the development’ (181, Cullingworth). Thus, when a property owner wants to improve their land, if their improvement creates an issue, the city may impose a stipulation in return for a permit. In the Nollan’s case, they requested a permit to tear down their ramshackle bungalow and rebuild a larger ‘three-bedroom home’. The permit would be granted, but the county required an increase in, “access to and along the beach” (182, Cullingworth). This meant, the city would require the Nollan’s extract the increase of their existing land. The Nollan’s believed this to be a violation of their fifth amendment right, and the US Supreme Court agreed. Henceforth, the standing term ‘reasonable relationship’ and ‘rough proportionality’ would come to be known as test to the, “logical framework for deciding what conditions can reasonably be imposed on developers” (182, Cullingworth). Creating the measurement of fairness for whether the demanding of land in exchange for the impact to the community.
Three issues that arise from land development near the beaches can be seen in the Florida’s Beach and Shore Preservation Act, the City of Monterey v. Del Monte Dunes at Monterey, Ltd., and the issue of public use and access as seen in the Nollan case. In Florida, hurricanes have become an all too common occurrence, and these natural disasters have left the beaches eroded and homes and business both destroyed. Therefore, in order to restore and preserve the beaches, Florida enacted the Beach and Shore Preservation Act. The property owners of the beachfront formed a non-profit they named Stop the Beachfront Renourishment, Inc. and filed claim with the US Supreme Court. They claimed the state of Florida’s Beach and Shore Preservation Act implemented an established high tide line that allowed the State sovereignty to be used as public property. The US Supreme disagreed with the property owners. The City of Monterey v. Del Monte Dunes at Monterey, Ltd., shows how a city can abuse their power in order to stop the development of beachfront property all together. In this case the city continued to promise the developer a permit only if they scaled down their project. The developer had purchased the beachfront property from Ponderosa Homes in 1986, who had purchased the property in 1981 from a petroleum company, in which the land was contaminated by their terminal and tank farms (183, Cullingworth). Therefore, the Del Monte company had already sunk costs to clean the contaminated land and were requesting compensation from the city for failing to show good faith.
Q3. Define the term public use doctrine. Explain the interpretation of the concept since the hearings of the Berman vs. Parker and Poletown Neighborhood Council vs. Detroit court cases.
The term public use doctrine is defined as, “property that can be ‘taken’ only for a public use,” without just compensation (117, Cullingworth). In other words, it could only be taken for public uses; for example, the extension of a major highway or road, that would be used for public transportation. Additionally, the second part of the public use doctrine is the landowner must be justly compensated. Although, since the 1954 case, Berman v. Parker that simple definition has become extremely complex. The Berman v. Parker case in which a quick decision was made to uphold, “the public purchase of a slum area and its leasing for redevelopment by private enterprise constituted a public use:
” and “declared that the public use requirement of the Constitution was ‘coterminous with the scope of a sovereign’s police powers;’ moreover, “’it is within the power of the legislature to determine that the community should be beautiful as well as healthy, spacious as well as clean, well-balanced as well as carefully patrolled’” (117, Cullingworth).
This case would expand the definition to include how the public use would be carried out and the public purpose for which legislatures could exercise their powers, to which other cases would ultimately be determined.
Extension of ‘the public purpose’ would come from other cases, like the 1981 Poletown Neighborhood Council v. Detroit case. The Polish American immigrant community was occupied by a large population retiree (117). When the General Motors Company wanted to build their plant on the 465 acres of land, the retirees resided in. Subsequently, the Poletown neighbors filed suit in the Supreme Court of Michigan. As a result, the court allowed the use of eminent domain on the grounds of extending the public purpose to support the stimulation of the economy by generating jobs. Moreover, the building of “the new factory led to the destruction of 1,021 homes and apartment buildings, 155 businesses, churches and a hospital, displaced 3,500 people” (117, Cullingworth). The court’s decision caused the Polish American community to be completely dismantled. The legislature’s determination to allow GM to have their new plant, was given a higher level of beauty to the industrialized nation over the Polish culture.
Q4. Discuss the statement zoning is a local matter. What is the difference between land use, planning and zoning? Can there be instances where zoning is not local and becomes a regional matter?
The statement, ‘zoning is a local matter’ is precisely left to the local people whom occupies a community. Meaning, the zoning of property is not decided by the state or federal government. The residents within the community assess and decided how the land will be used. Hence, the term land use, defines how each parcel of land may be used for different purposes, like residential, commercial, agricultural, or landfills. The plan sets long-term goals for the community’s land use and determines the type of zoning.
The difference between planning, zoning and land use can seem blurred at times. Although, zoning is used to legally define the way the land will be used. Equally important, is the plan ability to define the overall goals for insuring the balanced use of a community’s parcel. Simultaneously, accounting for the preservation of the land and at the same time meeting everyone’s needs residing within said area. This can become a difficult task, for some areas may have higher levels of low income residents, or desired industrial features.
The plan accounts for any imbalances that may stem from new arrivals to the community. If there is an influx of lower waged inhabitants an increase in apartments and lower income housing might be needed. However, homeowners may show concern considering an abundant need for these types of zoning could potentially lower property values, and cause the reaction, “NIMBY (‘not in my back yard’) or “NIMTOO (’not in my term in office’)” by local government officials (112, Cullingworth). Furthermore, the over enactment of regulations is cited in the 1991 issue of the Advisory Commission on Regulatory Barriers to Affordable Housing as ‘excessive regulations’ and the cause for many housing crises United States. Because the regulation deprives areas of affordable housing, limiting the overall amount of housing, and in turn raises the cost of rents, the locals seem to create a regional issue. Moreover, as the issue grows, it forces higher levels of government to express concerns.
Q5. “The purpose of zoning has been to protect the single-family home”. Trace the evolution of the ways in which local governments have implemented this policy.
When it comes to the discussion of the single-family home and how the zoning is defined within the parameter of what is constitutionally lawful, has evolved through case law. In fact, the greatest factor in determining these cases has been to define the term family and to include a minimum size for the single-family home in zoning laws, to protect the health and safety of the family unit. For this reason, one sees an evolution in both definitions. Moreover, these parameters are left up to the interpretation to the municipalities that chose to exercise them.
In many community’s the necessity for defining what constitutes ‘living as a family’ is the basis for zoning. In the event, zoning for the single-family home is misappropriated, some argue the negative effects on neighborhoods to be; too many people, cars, noise and other unhealthy factors. Therefore, defining ‘family’ comes down to eliminating the factors that can cause the deterioration of an area. Furthermore, the definition has opposed problems by its broad interpretations. Like in the 1974 Bella Terra case, “the US Supreme Court upheld a definition that required a family to consist of persons related by blood, adoption or marriage, of two unrelated people” (143, Cullingworth). Thus, excluding any fraternities or boarding style living. Concurrently, leading to the Moore v. City of East Cleveland, involving a woman, her son and his two children who were also first cousins. The city was charging her with violating the traditional family zoning ordinance, because of the unique relationship between her grandsons. Although, the family was a blood related family, the cities strict definition excluded one of the grandsons. Equally important, is the ability of the zoning ordinance to dictate the inclusion or exclusion of who is a legitimate family, and how is their decision protective of the health and safety of the people residing in a community? In this case the law was wrong, and the court concluded, “the ordinance was an ‘intrusive regulation of the family’” (144, Cullingworth). With the drastic changes in the family dynamics of today more and more of these intrusive ordinances may continue to challenge earlier ideologies.
In the second, is the dictating the minimum size for a unit to be considered in the single-family zoning ordinance. Again, size and restrictions have varied by definition of standard, and the standard is argued to be set for the health and safety to which families should live. Therefore, the standard that was set in the early 1700’s has changed at the present date and is defined from region to region in many variations. To illustrate, the 1953 Lionshead Lake case describes, “an ordinance provided that residential area should have a minimum square footage of 768 for a one-story dwelling, 1,000 for a two-story dwelling having an attached garage, and 1,200 for a two-story dwelling not having an attached garage” (145, Cullingworth). The court ruled on the side of the municipality, upholding the need to protect the community by setting a standard. Later arguments were directed towards ‘economic segregation,’ and the exclusion of families based on a economic factor.