Sunday, August 29, 2010
Metro columnist Dan Casey: Tax deal erodes Roanoke County's income
The Roanoke Times
File 2008 South Peak, which sits along U.S. 220, is half residential. Roanoke County has never before granted tax rebates for residential development.
Dan Casey is The Roanoke Times' metro columnist.
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The letter was written by the developer of a highly visible project that caused great consternation in Roanoke County.
Addressed to the Roanoke County Board of Supervisors, it arrived on Oct. 25, 2004.
The project was a denuded lump of bare dirt along U.S. 220 known as Slate Hill, and the message was signed by Hunter Smith. He's the son of Jim Smith, the owner of Slate Hill, recently renamed South Peak.
It asked for $2.5 million in development incentives from Roanoke County, which at that time was proposing giving developers of another Electric Road commercial project $970,000 in tax incentives.
In the letter, Smith suggested it would be unfair to give incentives to one developer, but not others.
"How can local businesses compete," Hunter Smith wrote, "if government awards incentives to one business and not the other? ... I do not believe that Roanoke County should collect taxes from one competitor and give them to another competitor."
His question is a great one for the board of supervisors in light of the $16 million in tax rebates the board essentially offered to the South Peak developer last week.
How will supervisors now fend off other developers who predicate their projects on tax breaks, too? Will there be any justification for saying no?
No one can dispute there is upward cost pressure year after year in government. At the same time, counties in Virginia are very limited in the way they can boost revenue.
One is tax-rate increases -- an anathema both to the voting populace and most of the officials they elect.
Another is rising property values. But the real estate bubble deflated a few years ago. Supervisors can't count on much revenue growth from that.
For decades, the least painful way for local governments to get more money has been to encourage development, particularly commercial projects. Expanding the tax base results in increased revenue without tax-rate increases.
South Peak will expand the tax base by an estimated $140 million. But the deal supervisors made with the developer rebates 70 percent of the tax revenue the project would produce in its first 20 years.
If South Peak happens, the county will net about $1 million a year from land which, if it remained undeveloped, would have produced little more than $35,000 annually.
Meanwhile, the developers will use the rebate to pay off loans that finance storm water drainage and other infrastructure at South Peak.
Supervisor Ed Elswick points out that 30 percent of something is better than 100 percent of nothing. In terms of the South Peak project alone, he's right.
But something is not necessarily better than nothing if it sets a course for much less of something down the road.
And that's what Supervisor Richard Flora, one of two who voted against the South Peak deal, fears when he looks into the future.
"I would say every major developer in the valley is salivating right now," Flora told me Thursday. "What a wonderful way to finance a project when it can't be financed privately. We've opened the door."
The county in the past has offered limited tax breaks to commercial development.
Fink's Jewelers got a two-year real estate tax rebate in return for paying for a water-line extension to the West Village area along Electric Road near Colonial Avenue. The developers of some hotels along Plantation Road got some one-year tax breaks, too.
But South Peak is half residential, and the county has never before granted tax rebates for residential development. Nor has it ever agreed to rebates that last for 20 years.
And whether or not South Peak succeeds is still a big question. Roanoke granted $9 million in tax breaks over 15 years to the Ivy Market development on Franklin Road. It's been a spectacular failure.
It used to be that governments granted big tax breaks to industries that promised they would bring in many well-paying jobs. Those workers would buy homes, spend earnings in the community and be an overall benefit.
Then, governments began granting tax breaks to commercial development, which created decently paying but temporary construction jobs and longer-lasting but lower-paying retail positions. Those retail businesses do little more than cannibalize older retailers in a slow-growing place like the Roanoke Valley.
Now we're granting 20-year tax breaks to projects that are half housing. Where does the tax-break-granting spree end?
That's worth asking, because cost pressures on government will continue to grow.
If an expanding tax base doesn't help bring in more money, what will?
Real estate tax-rate increases on homeowners and businesses that never got development-related tax breaks?
Cuts in essential government services, such as schools? Roanoke County schools eliminated 57 positions through attrition this year.
In that sense, the supervisors could be setting themselves up for far tougher choices down the road than their 3-2 vote in favor of the South Peak deal last week.
Elswick told me Thursday he might vote for a similar deal in the future, provided the developer had the Smiths' exemplary reputation and track record of success.
The supervisors' desire to see South Peak developed is understandable. So is the Smiths' contention that it could not happen without huge tax breaks.
But so is the question Hunter Smith raised in his 2004 letter.
And that's why the deal is so troubling.
Dan Casey's column runs Tuesday, Thursday and Sunday.
