TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLES
LIST OF BOXES
This chapter describes the policy and institutional risk category. Policy and institutional risks arise from a local government’s management or administrative actions in the implementation of a project using value capture that may unintentionally result in undesirable project outcomes and/or negative public perception. The risk types identified in this category include: (1) social equity (including environmental and sustainability) concerns; and (2) administration and transparency risks.
Social equity risks in value capture refers to the probability that a value capture technique or that a project funded using value capture may result in an inequitable distribution of project impacts (i.e., burdens and benefits). Environmental and sustainability concerns are considered in this primer as subsets of social equity risks, but they are all interlinked. Environmental concerns deal with the probability that the project or the use of value capture funding may disproportionally impact disadvantaged communities. On the other hand, sustainability risks deal with the probability that the project or value capture technique used to fund it may compromise the ability to meet future transportation or other public service needs. Common risks included in this category include gentrification, lack of housing affordability, displacement of people or businesses due to right of way acquisition, noise and air quality impacts, or deterioration of historical sites, among others.
A TIF district is a delimited geographic area administered by a special authority in which incremental property tax value increases from an infrastructure investment are captured to fund or finance the infrastructure investment (1). TIF districts target underdeveloped or blighted neighborhoods, and it is critical that TIF projects spur development, boost overall property values, and consequently, property tax revenues. The economic development generated by TIF projects often involves a process where low-cost housing units within the district are cleared and then replaced with middle- and upper-income housing or commercial development. Unless mitigation measures such as affordable housing requirements are set in place, this process may disproportionally affect low-income residents, effectively removing them through gentrification and displacement. Without affordable housing provisions within a TIF district, lower-income residents who were relocated during the implementation of the project may be unable to move back once the project is complete due to a disproportioned increase in housing prices.
In Georgia, TIFs are known as tax allocation districts (TADs). The Atlanta City Council established the Atlanta BeltLine TAD in 2005. The objectives of the Atlanta BeltLine are to increase mobility, increase accessibility and connectivity among communities, increase greenspace, spur development of underdeveloped areas, and develop new housing putting special attention on affordable housing (44). This is because the risk of gentrification in the vicinity of the project started to manifest itself as early as 2003, when the Beltline was still in the early stages of planning. A 2008 analysis of home sales that took place between 2000 and 2006 assessed changes in price premiums for locations within geographical buffers around the BeltLine and compared the timing of the growth in premiums with local press coverage (45). The analysis identified that there were significant increases in premiums for homes in lower income neighborhoods in the south side sections of the BeltLIne TAD between 2003 and 2005, when the media started covering the project planning efforts. The analysis suggests that even at its planning stages, the BeltLine project had positive effects in real estate prices within one quarter of a mile from the TAD’s south side (where lower income housing prevailed). The increases in residential price premiums in these areas ranged approximately 15-30 percent over the 2002 to 2005 period. While the Atlanta BeltLine is still far from achieving its affordable housing objectives, it has continued its efforts to fight gentrification. To mitigate these risks, the City of Atlanta is implementing various affordable housing projects in the Atlanta BeltLine (46).
This example showed that it is critical to assess the risk of gentrification and incorporate adequate mitigation measures as early in the project planning process as possible, before its effects are too difficult to address. Some cities and States have developed specific guidance and policies to address and mitigate the risk of gentrification. For example, the City of Portland commissioned the development of guidance and tools to assess the susceptibility of risk of gentrification for neighborhoods and identified best practices for addressing gentrification and displacement tailored to the City’s needs (47).15 The State of Utah incorporated specific affordable housing requirements in the status governing the creation of Housing and Transit Reinvestment Zones. Similar requirements are found in the legal framework for TIF districts in California and Oregon (48). Aside from the policies and tools referenced above, there is a significant body of knowledge available online dealing with strategies to address gentrification and other social equity risks.16
In addition to housing affordability, the implementation of the Atlanta BeltLine TAD faced other legal feasibility and social equity risks dealing with the commitment of future school district revenues for non-educational purposes. Right after the TAD was established in 2005, Atlanta Public Schools (APS) and the Fulton County Board of Commissioners voted to enter into an agreement with the City of Atlanta to use future school revenues to fund projects within the TAD (2). On February 11, 2008, the Georgia Supreme Court ruled that this agreement violated the “Educational Purpose Clause” in the Georgia State Constitution because it allows the use of public-school revenues for non-educational projects. Consequently, the Atlanta BeltLine TAD had to exclude tax increment revenues from APS from the funds used to pay non-educational projects, in the district. The City of Atlanta estimated that property revenues from public schools accounted for approximately 45 percent of total Atlanta BeltLine TAD revenues (49).
This court ruling set a precedent that created significant unforeseen revenue risks that endangered the financial standing of TADs across the State of Georgia. In order to mitigate the risk, the State of Georgia held a referendum to amend the constitution to explicitly allow TADs to use school funds for non-educational projects. House Bill 63, also known as “Redevelopment Powers Law,” was passed to establish this constitutional change. However, the Atlanta BeltLine TAD revenues significantly decreased due to the impossibility of using property tax revenues from APS for several years until the Redevelopment Powers Law passed. Moreover, the Great Recession (2007-2009) caused by the subprime mortgage crisis significantly reduced property tax revenues within the TAD raising other economic growth risks. Consequently, the Atlanta BeltLine TAD lost the ability to fund investments in the district, and at the same time, make the payments in lieu of taxes (PILOTs) to APS.
In December 2013, the City of Atlanta communicated to APS that the Atlanta BeltLine TAD would be unable to make the next payment. This situation generated, again, social equity risks due to the prioritization of the payment of TAD projects over educational projects. Finally, in 2016, the City of Atlanta and the APS signed an agreement to lower the PILOT payments by 42 percent in exchange for transferring a property owned by the Atlanta Housing Authority to the school system. This agreement helped mitigate these social equity risks.
Administration and transparency risks arise from administrative and/or management practices and policies that result in poor communication and a perceived or real lack of transparency. In value capture, these risks tend to be more prevalent when dealing with the costs of risk, the risk-return decision-making process, and the rationale for risk allocation choices. Other risks in this category include the non-disclosure of unknown project risks including the non-disclosure of unknown project risks. Some common risks in this category include:
The City of Chicago started using TIF value capture techniques in 1983 to fund infrastructure projects. Since then, the City has established 184 TIF districts. As of January 1, 2020, the City of Chicago had 136 active TIF districts that cover about a third of the City and generate more than $840 million in revenue every year (50). Most of these TIF districts were created between 1989 and 2011 (51). This rapid growth and the impact it had on local finances made the TIF program an increasingly controversial issue due to the limited transparency in how TIF funds were used. This was primarily because limited information was available in the public domain about the process to establish a TIF district, the criteria used to select TIF projects, and how TIF revenues were used. Furthermore, in some cases that had information available, it was not accurate. Additionally, TIF revenues were administered outside the City of Chicago budget process and no spending plan was published or debated. As a result, the administration of TIF districts was shielded from public scrutiny, generating a situation of real or perceived misuse of TIF funds, and the selection of projects not necessarily aligned with the City of Chicago economic development and transportation plans (52).
In 2011, the City of Chicago established a TIF Reform Panel that reviewed the administration of TIF districts and made recommendations to improve transparency and efficiency while achieving City of Chicago economic development goals. The main recommendations to mitigate transparency risks included (53):
More recently, in February of 2020, the City of Chicago announced new reforms to increase transparency, accountability, and equity in how spending decisions are made in the TIF program. This second set of reforms included (54):
15 Portland’s guidance and tools can be accessed in the link: https://pdxscholar.library.pdx.edu/usp_fac/83/
16 More case studies dealing with local efforts to mitigate displacement can be found in this link: https://www.urban.org/sites/default/files/publication/50791/411294-In-the-Face-of-Gentrification.PDF
