Public/Private Partnerships

by Angela Hunt
April 28, 2016

During my eight years on the Dallas City Council, I saw many economic development projects make their way through City Hall’s complex approval process. There is a myriad of economic development tools used by the City of Dallas to incentivize redevelopment and encourage improvements to the public realm. Based on my experience, the most successful mechanism is the public-private partnership.

Generally speaking, public-private partnership is a legal contract between a public sector entity and a private company, with the partners sharing both the risks and rewards of a given project. Public-private partnerships can be used to encourage real estate development and revitalization in underserved areas, to significantly improve public infrastructure through cost sharing with developer or community organization, or to create affordable housing opportunities in targeted areas. Importantly, public-private partnerships require an entity other than the city to take on financial risk, which tends to weed out boondoggles and projects that are less likely to succeed.

There are two public-private partnership types that have proven to be particularly effective in revitalizing Dallas: Public improvement districts and tax increment financing districts.

PUBLIC IMPROVEMENT DISTRICTS

Public improvement districts, or “PIDs,” allow property owners in a particular geographic area to place an additional property tax on all of the real estate in their area for exclusive use within their boundaries. PID funding can be used for additional security, street lighting, beautification efforts, marketing, and other public improvements. Property owners seeking to create a PID must get approval from property owners representing 60% of the land value AND from either 60% of all record owners OR 60% of the land area. PIDs are governed by property owner-elected boards and managed by a specifically formed non-profit organization or homeowners’ association. We currently have a dozen PIDs in Dallas, including the Downtown PID, Uptown PID, and Deep Ellum PID.

TAX INCREMENT FINANCING DISTRICTS

Tax increments financing districts, or “TIFs,” are very different animals. Like PIDs, they affect particular geographic areas and they involve redirecting property taxes back to the area. But they’re a bit more complicated. Initiated by the city, but typically in partnership with one or more real estate developers, TIFs are premised on the idea that the target area is going to experience significant redevelopment that will increase property values and therefore increase the amount of property taxes received by the city. A fund reflecting this incremental increase in property taxes is used to provide financial incentives to developers to redevelop in the area.

TIFs have a life cycle, and in Dallas, it’s generally twenty years. In year one, property values are frozen in the area. The city continues to receive property taxes based on that base value for the life of the TIF. But as the area redevelops, property values increase. Property taxes from this “incremental” increase don’t go to the city, but instead go to a special fund that the city doles out to real estate developers seeking TIF funding for their project.

TIF funding is not just a general grant to the developer to help fund the project. TIF funding must be used for particular kinds of improvements that have some public benefit:

  • “Public” improvements such as new streets, alleys, sidewalks, street lighting, pedestrian lighting, water main lines, waste water main lines, and storm water improvements
  • Utility relocation/burial
  • Demolition of existing buildings, structures, and fixtures
  • Restoration of historic building facades
  • Acquisition, clearing, and grading of land for public improvements
  • Fees paid for architectural, planning, and engineering work related to eligible TIF funded pubic improvements
  • Environmental impact studies/environmental remediation
  • Additional costs incurred for high density projects

TIF funding is a competitive and complex process. Developers must file an application with the City of Dallas and work with the Economic Development Department in determining the amount of funds that a project may qualify for (based on its estimated value at completion). Developers are encouraged to meet the community and obtain their support.

Once the application is complete and the developer has engaged the community, the application is presented to the board that oversees that particular TIF (a volunteer board appointed by the City Council). The project is next briefed to the Council’s Economic Development Committee, which will make a recommendation for approval or denial to the full Council. Finally, the Dallas City Council votes on whether to grant the project the requested funding.

Importantly, TIF funding recipients do not receive a big check all at once. First, they have to complete their project as presented to the city, then they will begin receiving the increment TIF funds for their project on an annual basis over several years. Funds are dispersed annually after all the property owners in the TIF pay their property taxes. In the early years, projects generally just get to “keep what they kill,” receiving back the incremental property taxes that they paid on their own property above the base amount. But as the area improves, the TIF funding pot increases and TIF projects receive more and more increment.

Creating PIDs and obtaining TIF funding from the City of Dallas are complicated Processes. My experience on the Dallas City Council representing more TIFs and PIDs than any other part of town helped me understand these economic incentive tools work from the inside. I welcome the opportunity to help my clients navigate City Hall bureaucracy and secure public-private partnerships in support of their projects.

Copyright 2018 Farrow-Gillespie Heath Witter LLP