PDC math: Property values
The recent Portland city auditor's report on the Portland Development Commission revealed some pretty impressive-looking numbers concerning the effects of urban renewal districts on property tax values within them. Examining five such districts in Portland over the period 1996 to 2004, the auditor, using county tax data, charted a property value increase of more than 138%. Citywide, the eight-year increase was much lower (though still nice), at 56%, and in three selected "control areas" chosen for comparison -- areas similar to the urban renewal districts, but without PDC handouts -- the increase was 64%.
Not all urban renewal areas are equal, of course, and the gains were more pronounced in some of the subsidized areas than in others. Here's the tale of the tape -- real property values in 1996, in 2004, and the percentage increase, in the five areas studied. "MM" means millions:
Airport Way: $409MM in 1996; $1,057MM in 2004; a 158% increase
Central Eastside: $496MM, $791MM, 59%
Downtown/Waterfront: $644MM, $1,918MM, 198%
Convention Center: $934MM, $1,734MM, 86%
River District: $408MM, $1,395MM, 242%
Total of five districts: $2,891MM, $6,895MM, 138.5%
All told, there was about a $4 billion increase in property values in the five districts over the eight-year period. The PDC's "investment" in the areas over that time was estimated to be around $400 million. That's 10 bucks of property value increase for every dollar PDC says it spent.
Where did the value increase come from, besides the PDC? Private investors put in lots of dough (much of it borrowed, no doubt), and there was plenty of raw appreciation when the real estate markets in the districts got hot (some of them did, at least). Did the private property owners in these areas put up another $3.6 billion beyond the PDC's $400 million? I suspect they put in less than that, and the difference between the $4 billion value increase and the private investment, whatever it was, was pure profit for some private party or another. You know me -- I figure it all went to Arlington Club dues.
What about the rest of us schmoes out here? Was the property value increase good for the taxpayers? It's a pretty hazy picture, but some very rough calculations on the back of an envelope indicate that it's been a good, but perhaps not great, deal for taxpayers in the city and county.
Here's what's on that envelope. It's math, people, and very crude math at that. If a guy on the no. 9 bus asked me what I thought, here's what I'd be able to tell him by the time we turned left on 24th:
Although real property values may have gone up by $4 billion, that's not $4 billion of additional tax base. Under state Ballot Measures 5, 50, and the like, even when there's big construction on a given parcel of land, property values are multiplied by a "changed property ratio" (CPR) to make sure that they aren't taxed more heavily than nearby properties that haven't been updated recently. It's pure conjecture on my part how much the $4 billion gets cut back because of this rule -- maybe readers can help me out here -- but let's say that shaves the $4 billion of value increase down to $3 billion of tax base. I suspect the ratio knocks it down to less than that, but let's give urban renewal the benefit of the doubt, for argument's sake.
If property taxes are 2% on that $3 billion of new tax base, all taxing jurisdictions combined will net $60MM of new revenue every year. The present value of all that future tax (discounted at 5%) is $1.2 billion, which makes the PDC's $400MM outlay look pretty smart.
But to this, a number of caveats must be added. First, although I have assumed that all taxing authorities combined will get $60MM a year, the City of Portland gets only a portion of that -- maybe 45% or so? Which would cut the city's take down to a present value of $540MM. Still, a profit of 35% on a risky investment of $400MM is a nice return.
Don't forget, though, that with the city's tax increment financing of public infrastructure in these districts, the extra taxes collected from the shiny new and improved properties must be used to pay off bonds for many years -- they don't go to essential services in the meantime. If the city has to wait 10 years to start collecting taxes that can be used to pay for city services, that cuts their present value considerably. Instead of $540MM, the present value is $332MM, which is a losing proposition for the taxpayers, who, remember, have already shelled out $400MM.
Notice, too, that the foregoing ciphering gives the PDC credit for the entire increase in property values in the five districts. If just the increase over the citywide appreciation rate is taken into account, the PDC's efforts didn't cause a $4 billion increase in values -- it's more like $2.4 billion. (In other words, the $2,891MM in value would have grown to $4,510MM all on its own, if it had merely appreciated at the same rate as other Portland real estate.) Even ignoring the bond obligations, that would throw off about $48MM a year in property taxes to all jurisdictions -- a present value of $960MM, of which the city's 45% would be $432MM. Delayed 10 years, it's worth only $265MM; delayed 20 years, only $163MM.
So is the city getting its money's worth from urban renewal, from a property tax standpoint? I'd say it's a close call; maybe it's a good deal, but you could argue with that.
And I wish somebody would argue with me. I've been following PDC doings for nearly four years, and as far as I can tell, few, if any, commentators are tackling the obvious question of whether the urban renewal adventure is panning out. Come on, local media, do a little arithmetic for us! As for the PDC, they either don't have reliable measures of their own success or failure, or they're keeping them under wraps. Certainly the auditor couldn't wrestle a fair assessment out of them.
For the private developers, on the other hand, it looks like a big win. Some of them are no doubt making out like bandits. Just look at all those cranes. Condo after condo, the good and (mostly) the bad. They're swarming, people, and they're taking our tax nectar back to their busy little construction hives.