Financial assumptions behind Donelson TOD
This is the first of two posts about the proposed Donelson Transit-Oriented Redevelopment District. I have been working for many months to see whether the legislation could be improved so that I can support it. I don't think I am going to get there and I want to explain why.
This post will talk about some of the nerdy financial assumptions behind the plan. First, the proposed plan asserts that $300 million of new appraised real estate value will be added as a result of the plan. The proposed plan further asserts that only 30 percent of the anticipated new property tax revenue from the district will be needed to pay for a proposed $30 million in new tax increment financing loans.
The MDHA financial assumptions behind the claim that only 30 percent of the expected new tax revenue will be needed to support the proposed $30 million in TIF loans is here. The claim that only 30 percent of anticipated new revenue will be needed to support the TIF loans is critical. The argument is that the proposed Donelson TOD will create enough value to not only pay the TIF loans, but also provide a lot of money for Metro to provide other important government services.
I question the assumptions. First of all, the entire spreadsheet is built around the idea that tax revenue will increase in direct proportion to increases in property value. However, Nashville just learned the hard way during the budget season that this is demonstrably false. Property tax revenue does not track directly with appraised property values.
In fact, I picked four parcels in the proposed Donelson TOD district at random and checked on the taxes they paid in 2014 compared to this year. Two parcels had their taxes go down, and two had their taxes go up. One parcel had its appraised value go up by 40% since 2014 while the tax bill went down by 1.6%. Another property had its appraised value go up by 24% since 2014 while the tax bill went down by 13%. For these properties, the appraised value skyrocketed in just a few years, but there was no corresponding increase in tax revenue.If Nashville sticks to its current practice (i.e., property value reassessments every 4 years which drive the tax rate down, but only one offsetting rate increase since 2006), the spreadsheet supporting the Donelson TOD is completely busted and, frankly, entirely speculative.
There are other assumptions that seem odd to me. For example, columns (c) through (g) are all about tax revenue from existing buildings. The chart suggests that 2019 revenue will be higher than 2018 for existing buildings, and that the revenue will go up again each year after that. Again, during the budget process, we just got done seeing that, for existing buildings, revenue for 2019 (and probably 2020) will be the same as in 2018. So, column (g) should not be going up for 2019 or 2020. And for the years after that, it is guesswork.
The bottom line for me is that, during the early years of the proposed Donelson TOD, I don't think the district will generate enough new tax revenue to pay the new TIF loans. And for the first 3-5 years at least, there will not be any extra revenue going to Metro for additional police, fire, school, or infrastructure costs. If Nashville were to decide to create the Donelson TOD, we would be signing up to take on more operational costs for the city without getting any corresponding income to pay for it.
As always, I am happy to entertain counter-arguments. And I would acknowledge that, on a 20 or 30 year time horizon, Metro might be able to recoup these costs assuming the city figures out again how to periodically set its property tax rate correctly. But, there's no question that, in the early years of a Donelson TOD, there definitely would not be any new revenue for Metro to cover the new operating expenses that would go along with a few hundred million dollars in new buildings.