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Wake County

Who will pay for Downtown South? Raleigh debates incentives as rezoning vote nears.

 
 

Downtown South returns to a city advisory board Thursday as the developers press for a rezoning they say the massive project needs before the end of the year.

The roughly 140-acre mixed-use development is proposed for the southern edge of downtown at South Saunders Street, South Wilmington Street and Interstate 40.

North Hills developer John Kane, of Kane Realty Corp., and Steve Malik, owner of the North Carolina Courage and North Carolina FC, are behind Downtown South. It would become a southern gateway into downtown Raleigh, featuring housing, stores, restaurants and hotels, all anchored by a stadium that could host soccer tournaments, concerts and e-gaming.

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But it requires a financing method the city has not used before that would let the developers pay for community benefits like affordable housing, green stormwater infrastructure and the stadium out of the project’s anticipated tax revenue.

The Raleigh Planning Commission will hold a virtual meeting at 4 p.m. Thursday. People can watch the meeting or sign up to speak at www.raleighnc.gov/planning-commission.

Once the commission makes its recommendation, the City Council will hold a public hearing and vote on the rezoning request.

Some of the land for the project has been purchased but the rest hinges on getting the rezoning, said Bonner Gaylord, managing director of operations for Kane Realty.

Gaylord, a former Raleigh City Council member, did not respond to an email from The News & Observer asking why the rezoning must be approved by the end of the year and what would happen if it is not.

A not-so-new idea

The developers’ proposed financing method would be a new process for Raleigh, but not the first time Kane Realty has pitched a similar idea.

In 2006, the company asked for $75 million to build a parking garage for North Hills East using tax increment financing (TIF).

Tax increment financing lets a city or county issue bonds for public improvements to attract private development. Once the project has been built and the property value has increased, the increased property taxes pay off the municipal bonds.

Kane Realty wanted TIF money to build a denser, less suburban project, The News & Observer previously reported. The idea gained initial support from Wake County but not the city, and Kane Realty moved forward without it, opening North Hills East in 2010.

Then-Raleigh Mayor Charles Meeker opposed using tax increment financing then and stands by that decision now.

“North Hills went ahead without the tax increment financing and has done absolutely fabulously for the last 10 years,” Meeker said. “It was an excellent decision that served the public interest.”

Meeker holds a similar view now about Downtown South and the developers’ request for a similar-sounding tax increment grant.

“To me, it is just not a good idea to give future land revenues to one developer,” he said. “If the city wants to support the stadium or affordable housing at the site it should pay that directly to the developer.”

A big development on the southern entrance to downtown makes sense, Meeker said, and could be as successful as North Hills. But the public’s role “needs to be the traditional role and not one favoring one developer over the other.”

 
 

TIF vs TIG

Tax increment financing has been used since the 1950s but was only allowed in North Carolina through a 2004 constitutional amendment.

A TIF agreement normally has to apply to a district or areas that are “traditionally blighted” and requires public input, approval from the county and Local Government Commission, according to a memo to the Raleigh City Council.

With a tax increment grant like Kane Realty wants, the upfront costs are paid by the developers, not a municipal bond. The developers pay the increased taxes on the developed property but get some or all of that reimbursed.

The city of Charlotte has approved 15 tax increment grants since 2004. The process typically takes three months to a year.

“There are always some people who don’t like incentives, but I think as far as incentives go, we are getting a public good by getting the private side to deliver,” said Todd Delong, assistant director of Charlotte’s economic development department.

The rezoning is approved first, but some tax increment grant terms can be incorporated into zoning conditions, he said. That was the case with one of Charlotte’s largest developments called Ballantyne Reimagined.

If the developer provides the public benefits — say widening a road — but doesn’t build the rest of the development, there isn’t a sufficient increase in property tax revenue and they don’t get reimbursed.

“In that case, we aren’t left necessarily holding the bag,” Delong said. “We actually get a public benefit because the infrastructure is there and it’s paid for. The downside is the development that we worked together with the private developer to do hasn’t come to fruition.”

There have been a few instances of that happening in Charlotte when the “market went south,” he said.

Charlotte’s tax increment grant guidelines allow projects to receive 90% of the incremental taxes up to 25 years at its maximum.

Here’s an example if Raleigh follows Charlotte’s maximums for a project that increased in value by $1 billion. (Downtown South is expected to include $2 billion in private investment.)

Without a TIG, the city would receive roughly $3.55 million more a year in property taxes under the current property tax rate. Wake County would receive roughly $6 million. That’s a total increase of about $9.55 million a year.

Over 20 years, Raleigh would gain roughly $71 million more in property taxes and Wake County, $120 million.

With a TIG where developers get 90% of that back over the 20 years, they’d receive nearly $172 million back in property taxes. The city and county would receive a total of about $19 million over the same time period.

Raleigh City Manager Ruffin Hall outlined a six-month timeline, beginning in January, and but warned it could take longer. Some community members want to see more protections in place before the council approves the project’s rezoning request.

South Raleigh divided, says council member

The Raleigh City Council voted 6-to-2 to create a tax increment grant policy earlier this month. Council member Stormie Forte, who represents southwest Raleigh, voted against it.

The district is split, she said, among people who favor the development, those who are “cautiously optimistic” and those who oppose it. She said she needed more information before she could vote yes.

Forte isn’t necessarily “concerned” if a rezoning is approved before a grant locks community benefits in place, she said.

“I recognize that for some people they feel like the leverage is with the rezoning process and some folks feel the leverage is with the tax increment grant process,” she said. “It’s a matter of perspective.”

Both at-large council members, Jonathan Melton and Nicole Stewart, voted for the TIG policy.

“It’s a creative new tool that we have never used before,” Stewart said. “And it’s at least worth a look at by city staff to figure out what its benefits could be and how it could be used.”

The city has heard from southeast Raleigh leaders who want economic development there, she said.

“This comes with such an interesting opportunity to both provide and bring economic development to southeast Raleigh, and really south Raleigh, and do it equitably, and making sure we are bringing this development in a way that benefits the people who are already there,” Stewart said.

She doesn’t believe it will be “technically feasible” to have a community benefits agreement or tax increment grant agreement in place before the rezoning due to the timing, she said.

“If we don’t have the policy to do any sort of community benefits agreements through a TIG, and the rezoning is in front of us now, we have to deal with these in the order they are in front of us. So the rezoning and then the TIG.”

Melton plans to weigh the community’s concerns when the rezoning comes before the council.

“We have to keep the process moving forward if we are going to come from a place of ‘yes’ on projects,” he said. “I think having staff come back to us with a city-wide TIG policy is important for us to have whether we use it or not.”

“We have to engage in the process and be mindful of those concerns,” he said. “But I think the project has the opportunity to be transformative for our city, and I think that we also need to be mindful of the way we can do it in an equitable.”

Developers of Downtown South plan to also ask Wake County for a similar grant, said outgoing Wake County Commissioners Chair Greg Ford.

“Elected representatives of a community — not its developers — should choose how, when and where tax dollars are best reinvested back into the community,” Ford said. “That’s a job voters ensure us to do, and we are directly accountable to them. Developers are not.”

Downtown South is an exciting concept, but local authorities shouldn’t “cede authority,” he said.

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