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Old 09-21-2017, 10:46 AM   #9
Bunk
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Mod edit- we moved this post from the ongoing discussion thread as it does help explain a lot more about CRL.

A little CRL 101:

The purpose of a CRL, based on the American model of Tax Increment Financing is to pull an area out of "blight" (yes that is the term that is used) borrowing public capital to invest in an area that would not otherwise see private investment. Development would not happen, but for that public investment. In Calgary, we used CRL to bring a truly destitute area with virtually no potential for private investment - the East Village. It was spent on parks, pathways, streetscapes, flood protection, historic preservation, cultural facilities, programming of public space and so on. It has brought in private investment as promised.

The property tax amount generated from the area at the outset (around 2007) would continue to flow to general revenue. The incremental amount of tax above that starting amount goes back to pay the initial loan from the City. The other thing most people don't know is that education property taxes (40% of the total property tax take) is also earmarked to pay back the loan. The province is a participant.

However, the City cheated a bit - it pulled in the Bow building, which was being built in any event, to mitigate risk. So in the event nothing happened, they could still pay back the initial investment over time. Remember, how risky the East Village was from a market standpoint - there were very few Calgarians that could have even imagined wanting to walk through East Village in broad daylight, let alone live there or start a business. The Bow was cheating, but it was thought of as a necessary risk mitigator.

The other context of the East Village is that it was initiated in the midst of the biggest economic expansion in the city's history - and the sense that the level of future growth was boundless.

Now, let's look at the proposed $225 million CRL here.

We have an anchor use and expenditure (completely aside from the other improvements to the neighbourhood the City's making) that would not produce any taxes. The $225 million would be paid back through other uses it would spur on.

I think there's a decent chance it could spur some hotel, some retail, and some multi-family. But as with the CRL proposed for West Village, it was clear from CMLC that a large commercial anchor was needed. Commercial uses pay 3.85x the mill rate as residential uses. A million square feet of office or commercial would pay about $10 million in taxes a year toward debt.

You may also have to convince the province to forego their share of the property tax, as with the East Village for this extension of the CRL debt. The good news would be that it is already in an existing CRL zone, so that would be one less barrier.

The problem here is that we are sitting at 30% office vacancy, have soft downtown condominium and rental market, and no clear path to see how that sheer scale of development that would be needed to pay back that much debt could occur. In such a soft economy, you also have a rob Peter to pay Paul problem. Say if a downtown commercial tenant moved to this district, you're just making an already difficult situation with vacancy in the downtown core worse. If it inspired a new company to move to Calgary and set up because they like what this could bring, that would be a net benefit that could begin to justify it.

This would be little bit like a developer trying to finance a mall with zero signed tenants, a retail environment which is cratering and a neighbouring mall which has 30% of its storefronts empty. Would you as a banker want to finance that? Should the City in this case?

The Edmonton situation has been brought up. I don't think anyone would disagree that this section of Downtown Edmonton was blighted. It needed investment. They had a guarantee of the City becoming a tenant (they happened to vacate one of the buildings the company I work for owned... but that's another story) and they had the global headquarters of a 22k employee company (Stantec) consolidate and come into the district. It was also a boom time. Don't know if you know, but we're not booming.

Could a CRL (or an expansion of the existing one) work in Victoria Park? Maybe - but I think it would have to be smaller and would have to invest in the things that will have a good chance of spurring investment.

It all comes down to risk - in this case the City is taking 100% of the risk, and zero percent of the facility's reward. It could get reward from other development, but balanced against the scale of the initial investment, it appears they think it's too risky to the public.
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Last edited by ken0042; 09-21-2017 at 06:31 PM. Reason: .
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