Corrected Metropolis Of Oakland, Century City TIF Income Report Reveals $1.58 Billion For Group Use

Oakland A’s Howard Terminal Ballpark Project Plagued By Bad Economic Development Consultant Work

For reasons best known by the City of Oakland and its Howard Terminal Consultant Century Urban, they are attempting to short the Oakland A’s and the Oakland Community in tax increment financing revenue produced by the proposed development by an estimated $3.4 billion. Moreover, the corrected tax increment revenue estimate work reveals a $1.58 billion in revenue for community wide use beyond infrastructure payments to the A’s for the Howard Terminal Ballpark.

That assertion comes from several sources. First, the City of Oakland Howard Terminal Project Manager said to the now passed on Alameda County Supervisor Wilma Chan that the tax increment revenue from Howard Terminal that would be available for a bond issue is $400 million. She then explained that’s the present value of the expected revenue stream. Well, (and that brings us to “second”) that’s wrong.

The reason is one does not use the the present value formula to express TIF revenue, and for one simple reason. The present value formula is designed to express money available when the interest rate is stripped out of it. But in TIF calculations, the rate of growth in assessed value is always used – something not at all discussed in any of the consultant documents.

Let’s say the calculation is based on a rate of annual growth in assessed value or “AV” of 6 percent. And let’s say your bond interest rate is the same. Guess what the present value formula does? It fails to take out the land increase estimate. So the number winds up being wrong – the real estimate is a wash because the six percent taken out by the present value formula was countered by the land increase assumption. See?

UPDATE: for the curious, the tax increment financing revenue calculation is (in this case “Howard Terminal Ballpark District”) current year assessed value minus the base year (or initial year) assessed value, and the difference is multiplied by the property tax rate for that year. This is done annually, and the TIF revenues added so they accumulate. The process stops in (for Enhanced Infrastructure Financing Districts) 45 years. But the idea is to float a bond that will result in what are called “proceeds” or an up-front-check. In this case, done correctly, the Howard Terminal Bond Issue proceeds are just north of $1.9 billion.

As A Reminder, Oakland Mayor Libby Schaaf Specifically Asked Alameda County To Participate In The 45-Year Tax Increment Financing Plan For Howard Terminal

The Mayor asked for that at the County meeting and here at the 3 hour, 10 minutes, and 49 seconds mark of the hearing. Below is the entire livetream of the meeting from Zennie62 YouTube.

That is important to note because, as you will learn, the Mayor quotes from the Century Urban Report, which does not have true and accurate tax increment financing revenue estimates representing a 45-year period.

City of Oakland Howard Terminal Project Manager Was Wrong In Testimony To Alameda Co Supervisor Wilma Chan

So the City of Oakland Howard Terminal Project Manager was wrong. TIF is always expressed from the perspective of “Here’s my expected revenue stream, and here’s my expected annaul bond debt service cost. Do I have enough to pay bond debt service, and if not, how much am I short”? That question is not even touched by the Century Urban report, even though the City of Oakland Howard Terminal Project Manager pretended that it did.

What should the number be? I took the estimates for Oakland A’s Howard Terminal Ballpark and proposed urban development and installed them into my Howard Terminal Spreadsheet under the phased years that were in the Century Urban report (and I present in a new spreadsheet upload at the end of this post), and learned the following:

Table Of Howard Terminal Square Foot PhasingFirst Table Of Av For Project Eifd Howard TerminalFirst Table Of Av For Project Eifd Howard Terminal

First: I assumed an annual rate of growth in assessed value for the 55 acre Howard Terminal site of 4 percent per year from 2026 to 2071. Then I assumed the ballpark assessed value at $1 billion, with $40 million of construction value that would be counted as “unsecured property” for the as yet not formed City of Oakland TIF Revenue Collection Agency to collect. By the year 2037 (and assuming the base year is the first year the ballpark is open at 2026), that total assessed value would be $5.434 billion in development. Again, that’s using Century Urban’s Oakland A’s development estimates.

For example, the Century Urban document reads:

Apartments – Market Rate 1,416 Units
Apartments – Below Market Rate 450 Units
Condominium – Market Rate 1,134 Units

Office 1,497,000 GSF

Retail 252,600 GSF

Hotel 400 Rooms

Performance Center 39,000 GSF

Ballpark 1,200,000 GSF

But it does not break down apartments and condos in a way where its crystal clear how much in terms of assessed value will be added by the construction of each type for the years presented:

Howard Terminal Timeline By Century UrbanHoward Terminal Timeline By Century Urban

So what I did was break down the apartments, condos, and retail into four estimated 750,000 square-foot buildings that go on line in 2026, 2028, 2030, and 2032, and used the basic per-square-foot cost of $700 as a basis for the assessed value numbers in the spreadsheet. I had to do this because the Century Urban report did not present a way to, well, check their numbers. It looked like they intended to write a report that used numbers to intimidate rather than inform the the reader. How else can anyone explain such a mathematically incomplete report?

Increase In Howard Terminal District Land Assessed Value Also Not Clearly Presented By Century Urban

The Century Urban report also lacks a time-series chart for rate of growth in assessed value for the District. As you can see, we now know what the total development assessed value is given the Century Urban land use information as provided by the Oakland A’s: $5.434 billion. But that does not mean our work is done.

Remember, the land does not stop increasing in assessed value at 2037 – it keeps going. So our 4 percent annual assumption goes to the year 2071. Why? We start at the base year of 2026 and go 45 years into the future for TIF revenue collection. See? That was not in the Century Urban report.

The result is a end-of-the-45 year period TIF revenue of $3,876,942,835.80. For a bond issue with a debt coverage ratio of 2, the available revenue for a bond is $1,938,471,417.90.

That is $1,938,471,417.90 for not just the A’s but also the entire community of Oakland and Alameda County depending on how the Infrastructure Financing Plan (not done as of this writing) is written, and in accordance with standard Enhanced Infrastructure Financing District law, and more focused on SB 293 Skinner. But the truth is all Enhanced Infrastructure Financing District law allows TIF revenue to be spent outside of the district it came from and for “community wide” benefit. That should be to pay for the Howard Terminal Community Plan, and also what needs Alameda County may have.

So, in closing for now, and in honor of Alameda County Supervisor Wilma Chan, I say we have to straighten this out and Oakland Mayor Libby Schaaf has to stop playing political games with development math her staff and consultants do not know, and I do.

The Takeaways For The Oakland A’s and The Alameda County Board of Supervisors

There are a number of takeaways from this presentation:

  1. Century Urban’s Report For The City Of Oakland On Howard Terminal Is Only Good For Fiscal Impact Estimates, But Not Tax Increment Financing Revenue Forecasts. The reasons are simple. The report’s own July 2, 2021 paragraph spells out why:

Per the A’s development program, the Project will be constructed in multiple phases over an approximately 10-year period. For clarity and ease of comparison, this analysis provides fiscal revenues and expenditures as if the Project were built as of 2020. That is, all estimates are provided in 2020 constant dollars as if the project were fully built and stabilized.

The City and A’s contemplate that an Infrastructure Financing District (“IFD”) will be formed over the Project site and certain project-generated revenues will be contributed to the Project. Any revenues that are contributed to the Project would thus be deducted from the total amounts projected in this analysis and would reduce the amount of net fiscal benefits from the Project for the duration of the IFD term, which is typically 45 years. Furthermore, a majority of the Howard Terminal site is part of a former Redevelopment Agency area (“RDA”) and, as a result, property tax increment is captured by the RDA to fulfill certain obligations before any remaining tax increment is passed through to taxing entities. Based on the projections provided by the A’s property tax consultant and reviewed by Century | Urban, an average of 37% of annual property taxes generated by the new proposed development would be captured by the RDA to fulfill its obligations. The remaining 63% would be passed through to taxing entities including the City’s portion, which could be contributed to the Project. The RDA’s obligations are projected to be fully satisfied in 2039. Thereafter, all tax increment would flow to the taxing entities, and if an IFD has been formed would be captured for the benefit of the Project for the remaining duration of the IFD term.

The Century Urban Report Paragraph Presents Several Problems

First, the report presents number estimates that do not follow the years that the developments are to be built. It clearly states that 2020 is used as the initial development year, whereas the construction schedule starts at 2026. The reason given is that “current dollars” are used, but the fact is the development will start in 2026, and the costs projected by the Athletics or any developer will be for that built project. I have not seen a professional sports stadium project where “current dollars” were used in place of a construction cost for that development in the future, when it was expected to be complete. The Century Urban Report should have one time series spreadsheet with all developments on it, and at the times they are expected to be complete, along with their tax revenue estimates, including tax increment financing. That’s not in the Century Urban Report, or the updates.

Second, the use of the current redevelopment agency project area for this is an error on the City of Oakland’s Part, and must be corrected. What needs to be done is to go back to the California Legislature and seek approval to add language to SB 293 Skinner (the enabling resolution for the Howard Terminal IFD) recognizing that 55-acre Howard Terminal Ballpark District must be fiscally carved out of the larger Downtown Project Area, and that a separate new tax increment financing zone can be established for and using Howard Terminal. It’s difficult to see the California Legislature rejecting a simple amendment, but that must be done.

With that done, there would be no need to stop collection of property tax revenue for tax increment financing at the year 2039 – it can go from 2025 to 2070 or a full 45 years as per California EIFD Legislation. That leads to the other problem: The Century Urban report lacks a true tax increment revenue calculation that includes the full 45 year tax increment financing period that matches the life of the district. The reason to do the EIFD is baked into the law; to use tax increment financing, not to run away from using it. The words in the report “hereafter, all tax increment would flow to the taxing entities, and if an IFD has been formed would be captured for the benefit of the Project for the remaining duration of the IFD term” do not point to tax increment financing, and there’s no estimate of a full 45 year TIF revenue scenario – and no explanation why.

The Oakland A’s and the community are harmed in this way.

This is the potential size of the bond issue, assuming the development schedule presented, a 4 percent rate of growth in assessed value, and per-square-foot costs used in the spreadsheet embedded in this post, below: $1,938,471,417.90. That’s 50 percent of the total forecast for revenue which is $3,876,942,835.80.

Thus, this table shows where the revenue would be used:

Bond proceeds: $1,938,471,417.90

Oakland A’s Howard Terminal Ballpark Infrastructure Cost Fund: $450,000,000

Remainder for Communitywide Interests as Per EIFD Legislation where SB 628 Belle reads “The district shall finance only public capital facilities or other specified projects of communitywide significance that provide significant benefits to the district or the surrounding community”, and then provides a giant list of protect types, from child care centers to transit facilities. Moreover, SB 464 can be used in combination with SB 628 Belle or SB 293 Skinner and direct part of that Howard Terminal TIF revenue to finance the needs of Oakland businesses that were impacted by the Pandemic. That would equal Bond Proceeds minus Oakland A’s Howard Terminal Ballpark Infrastructure Cost Fund, and come to $1,588,471,417.90.

So there would be $1.58 billion available for a slate of community-wide applications in Oakland, and all from Howard Terminal. How that money is spent is where the Infrastructure Financing Plan comes in. The trouble is, the City of Oakland has not written it, and the ground work required to finish and approve it would take at least another six months. But, given the $1.58 billion pot at the end of the process rainbow, it’s worth doing for all parties involved.

Stay tuned for updates to this post.

Spreadsheet:

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