Tax Allocation Districts Q&A

March 4, 2008

Originally appeared in the March 2008 edition of "Georgia Cities."
Georgia law provides specific powers to enable local governments to embark on projects that will foster public/private partnerships and spur economic growth. Tax Allocation Districts (TADs) are one of the legislative tools available to support cities’ community and economic development ventures. In February, the Georgia Supreme Court issued a ruling that could jeopardize local governments’ ability to use TADs to help finance economic development projects. Cities should understand what TADs are and the implications of the Supreme Court’s recent ruling for proposed TADs.

What are TADs and how do they work?
Georgia’s Redevelopment Powers Law, adopted by the General Assembly in 1985, gave local governments the authority to sell bonds to finance infrastructure and other redevelopment costs within a specifically defined area (a TAD). The bonds are secured by a “tax allocation increment,” which is the increase in property tax revenues resulting from the redevelopment activities taking place within the tax allocation district. Tax increment financing allows cities to charge the costs of constructing public facilities and infrastructure to be charged directly to the businesses that use them rather than the public at large. In return, the businesses benefit from the construction of facilities that might not otherwise be available to them.

When using a TAD, a city designates a specific geographic area that has the potential for redevelopment, but which suffers from blight or other “economically or socially distressed” conditions. As public improvements and private development take place in the area, the taxable value of property in the TAD increases. The city collects the total revenues, putting the increase in revenues as a result of new development into a special fund to pay off the bonds that financed the public improvements, while the remainder goes back into the city’s general fund. The TAD is dissolved when the bonds have been retired and any other public financing has been repaid.

What is required to create a TAD?
Local legislation is required to authorize the city to create a TAD. The voters within the municipality must approve use of the TAD by a majority vote in a referendum. The city is required to form a Redevelopment Agency with the responsibility of carrying out the redevelopment powers (usually an existing local Authority is designated to serve as the Redevelopment Agency). The city must also complete and formally approve a Redevelopment Plan that clearly defines the TAD boundaries; outlines the scope of the economic development project and project costs; estimates the frozen tax base and tax increment amounts; and estimates proceeds that would be realized from a bond referendum. Furthermore, since the city is authorized to collect incremental revenues from property taxes, SPLOST, LOST, ESPLOST and special district taxes, each tax jurisdiction impacted by the TAD must approve of the plan and agree to commit their incremental revenues to the TAD. (The city can proceed with a TAD without cooperation from other tax jurisdictions, but it may not use the tax increments from those jurisdictions without their formal cooperation and approval.)

What are some of the advantages and disadvantages of TADs?
TADs offer a flexible alternative to financing economic development without the need to use general funds, LOST or SPLOST revenues or to raise taxes. While there can be significant benefits to using TADs, cities should also be aware of the risks associated with this tool, including the possibility that the TAD area may not generate the level of revenues that the city originally estimated. However, if used carefully, TADs can be an excellent way to finance economic development in cities.

What was the recent Supreme Court’s decision relative to TADs, and how does that decision impact TADs?
On February 11, the Georgia Supreme Court ruled that school taxes cannot be used for economic development purposes. The ruling was issued in response to Atlanta’s proposal to use revenues from a TAD to finance public improvements for the city’s Beltline Redevelopment Plan. The Beltline project is a 22-mile redevelopment corridor which includes a series of trails, parks, transit facilities, and new development surrounding the city’s urban core. Specifically, the Supreme Court said that the Beltline proposal violates the Educational Purpose Clause of the State constitution, which essentially prevents the inclusion of the school tax increment for these types of projects.

This decision does not impact projects where bonds have already been issued; however, it does affect future bond offerings in other TADs. In the latter case, each city will have to evaluate each project to determine how much revenue will be lost and whether other revenue sources can be identified to make up some or all of the lost revenue. The impact of the court’s ruling is that the revenues generated from TADs will be cut significantly, in many cases by up to 50 percent. Without revenue from school property taxes, it will be difficult to complete many TAD projects as planned.

Do TADs actually take money away from schools?
No. The schools continue to get the same base amount of revenue from the property. The tax increment (i.e. the additional property tax resulting from the redevelopment of the property) is used to pay for improvements within the TAD. If not for the redevelopment of the property, the additional revenue would not be available.

What are examples of cities that have successfully used TADs?
TADs are permitted in 49 of the 50 United States. Although the Georgia legislature passed the Redevelopment Powers Law in 1985, tax increment financing was not used for the first time until Atlanta began to use it in 1992. Presently, nearly 30 cities in Georgia are currently using or have approved TADs. Numerous other cities across the state are considering using tax increment financing for various projects. Atlantic Station in Atlanta is the preeminent example of a successful TAD in Georgia. Previously a brownfield site, the project includes 12 million square-feet of retail, office, residential and hotel space as well as 11 acres of public parks. In addition to Atlantic Station, Atlanta has approved the use of TADs as redevelopment tools for nine other projects. Examples of other cities using TADs include Marietta, East Point, Gainesville, Smyrna, Acworth and Albany. Voters also recently approved the use of a TAD in the cities of Savannah, Braselton, Macon and Augusta.

Where can I find more information about TADs?
The Georgia Redevelopment Powers Act (OCGA 36-44-1) contains the detailed requirements for implementing TADs. Georgia State University, the Andrew Young School of Policy Studies, has also developed a publication that outlines the use of TADs entitled, “Georgia’s Redevelopment Powers Law: A Policy Guide to the Evaluation and Use of TADs.” In October, 2007, the Livable Communities Coalition released the findings of its Survey and Analysis of TADs in Georgia. A summary of the Georgia Supreme Court’s recent ruling is also available. 
City officials can also find more information about TADs and other economic development tools by contacting the Georgia Department of Community Affairs’ Office of Planning and Quality Growth at 404-679-5279. Cities interested in using TADs should consult with their city attorney and may gain valuable information by contacting other cities in Georgia that have had success with this financing tool.