Is Bigger Better? Norman questions how to manage growth with TIF District
by Casey Holcomb
Norman is a growing city. In the past 20 years the population has increased more than 30 percent, to about 106 thousand people today.
This growth potentially brings many benefits to Norman. When handled wisely, an expanding labor market and higher demands for goods and services can contribute to the prosperity of all of us. By definition, a growing city is a place where people want to come live and work.
But growth also brings new challenges — a need for more housing and healthcare and greater demand for all the services supplied by municipal government, including roads, public transportation, water, waste, security, and recreation. As a small town transitions into a medium-sized city, the culture inevitably changes as well, which can threaten what attracted many of the residents in the first place.
There are many ways that a city can grow, and the Norman City Council has pursued a few different strategies in different areas. This article looks at one of the ongoing plans to stimulate and manage development in Norman. The plan involves a partnership between the City of Norman and it’s largest employer, the University of Oklahoma, and a controversial usage of Tax Increment Financing (TIF) to fund new economic growth and public works projects that will attract new investors, consumers, and employers into the area.
By examining the history and progress of the University North Park Tax Increment Financing (TIF) District, we can gain insight into the politics and economics of urban planning issues in Norman.
A Spectacular Gateway to Norman?
When the TIF was first presented to the public, it was described as a “spectacular” development and ideal partnership between the University of Oklahoma and the City of Norman. Representatives of the OU Foundation presented a self-financing $54 million development that would attract investment and high-paying jobs, as well as upscale shops and restaurants. The result would be a recreational hot spot and shopping destination for visitors from throughout the region.
Features such as a conference center, high-quality landscaping, entertainment venues, and public spaces like Legacy Park and a Lifestyle and Cultural Center would set the area apart from the other sprawling developments and strip malls that dot the I-35 corridor. These upscale enhancements, along with the routine roads and utilities, would be funded out of tax revenues from a special TIF created by the City.
A TIF dedicates any increased tax revenues resulting from public projects in a certain area to paying back the debt incurred by those projects. They are typically used to fund redevelopment of “blighted” or economically distressed urban areas. In Norman’s case, a percentage of the taxes collected from the UNP shopping district — the location of Super Target and other corporate “big box” retailers and restaurant chains — would be used to repay loans taken out by the city to develop the area.
When the UNP TIF master plan was initially presented at a public meeting in 2006, it was met with both enthusiastic support and widespread criticism from members of the community. It later became a hot topic of debate in ward races and mayoral campaigns.
At the May 2006 City Council meeting, developers and representatives of the OU Foundation argued that the new TIF would limit sprawl by providing for planned growth and controlled, orderly development. The area, they said, would serve as an attractive gateway into Norman. It would help Norman remain competitive with other cities in central Oklahoma.
Because the UNP TIF development would be largely self-financing, the City would gain unique and attractive public improvements at a limited liability, without jeopardizing the general fund. In effect, for the City of Norman, the UNP TIF project would be a risk-free investment that would spur economic development for years to come.
Critics of the project called it corporate welfare — a publicly subsidized private development. Comments from the public covered many angles. Some argued the plan was economically unsound, because the high-income levels needed to sustain a high-end retail sector did not exist in the community. The expensive boutique shops and fine dining establishments that would represent a good portion of the development would be inaccessible Norman’s lower and middle-income citizens. Some worried that a slew of new big box retailers and corporate businesses would cannibalize existing local businesses and take money out of the local economy.
Former Norman City Councilmember Charles Schindler drew a comparison between TIFs and Adjustable Rate Mortgages. He cautioned that, in the event of an economic downturn, there would not be enough spending to support the many retail shops in the district.
Other commentators voiced concerns that the UNP TIF plan violated the legislative intent of the Tax Increment Financing mechanism, which, according to state law, is only to be used for urban renewal projects, to remedy urban decay and revitalize “blighted” or economically distressed areas that would otherwise go undeveloped.
As councilmember Carol Dillingham put it, speaking prior to her term in office, “TIFs are for depressed areas, not prime, growth-prone real estate.”
Some public comments at the May 2006 meeting echoed concerns that TIFs can divert money away from the general fund and, due to a 25-year exemption from property taxes, deprive public schools of their revenue streams. Still others argued that a plan of such magnitude, requiring a $54 million public investment, ought to be subject to a vote of Norman citizens and executed with a greater degree of transparency, public input, and citizen oversight.
Despite these concerns, the UNP TIF plan passed by a 5 to 4 vote.
Bumps in the Road
Today, amidst an economic recession, the OU Foundation’s original financial partners have withdrawn from the deal. To the surprise of the city council, it was revealed that one partner, Bank First, never officially signed on to the agreement with the City. As a result, the Foundation asked to alter the agreement, and they are currently renegotiating some aspects of the plan. The revised financing package, which was presented at the June 2009 City Council meeting, makes major cuts to funding for infrastructure and public works projects, such as Legacy Park, that council members had successfully negotiated into the original Master Development Agreement.
The financing package approved in September 2008 called for a supply line of $29 million in credit. Today the available credit for the necessary public improvements stands at $14.5 million, which should be enough to cover the Rock Creek Road Overpass and some other necessary road improvements, as well as Legacy Park.
After three years of development, the plan is still a long way from its expected 2015 completion date. Circuit City, originally one of the TIF district’s main “anchor businesses,” has folded. The closing of Circuit City has caused some to speculation that drawing new tenants to the area may be difficult. But retail development is continuing, if more slowly than before. The area is currently home to the Embassy Suites Hotel and Convention Center, a Super Target, and Academy Sports & Outdoors, and plans for a new 12-acre office park adjacent to Embassy Suites are underway.
Finalized design plans for Legacy Park have been presented to council. Through competitive bidding, there is a possibility that the final construction costs of Legacy Park may come in under budget. According to Mayor Rosenthal, “the project plan [for Legacy Park] hasn’t changed. [The City] is awaiting the bidding process to see how far those dollars go.”
But with a December 31 deadline to finalize negotiations, just how Legacy Park and other slated projects will be funded isn’t fully set in stone.
There exists some disagreement among members of the City Council over exactly what compromises the City should be prepared to make.
Ward 2 Councilmember Tom Kovach explained, “The change in the financing arrangement put off certain projects such as funding for Legacy Park. The negotiations for Agreement #5 are ongoing and will determine if and when the funding for the park and other improvements to roads are implemented.”
With regard to the negotiations, Mayor Cindy Rosenthal said, “the developers will not get the road improvements if the city doesn’t get the park. That’s the kind of pact we made… Both the City and the developer have an interest in the park and the roads.”
Likely to be absent from the revised development plan is the Lifestyle and Cultural Center — a conglomeration of public art features, public spaces, and entertainment venues which served as a main selling point for the City’s subsidization of the TIF project.
Mayor Rosenthal, who was against the creation of the new TIF district when it was passed in 2006, explained that the heavy-handed public relations sales pitch executed by the OU Foundation and the developers clearly oversold people’s expectations.
“Nowhere in the country is anybody building a Lifestyle Center,” Rosenthal said. She said some of the original aspects of that plan, however, will remain intact, and “will still have many of the qualities that were promised” even if it isn’t called a Lifestyle Center.
Referring to the City’s continuing negotiations with the OU foundation, Councilmember Kovach said, “Part of the argument is that the Foundation is trying to get out of the hook which requires them to pay [the City] back if they do not build the Lifestyle Center.”
In a June 2009 meeting, Ward 2 Councilmember Bob Thompson expressed concerns that negotiations could result in TIF revenues being diverted. Thompson cautioned against conceding any of the TIF revenues, which could cause the City to shoulder debts, thereby jeopardizing the general fund. In that same meeting, Ward 3 Councilmember Hal Ezell also spoke against conceding TIF revenues. He noted that the OU Foundation knowingly took risks and “the City should not be responsible for subsidizing those risks.”
Mayor Rosenthal remains confident that the negotiations with the OU Foundation will have a positive outcome for the City, developers, and the public.
“The partnership with the developer preserves the City’s protection of the general fund,” Rosenthal said. “The General fund is not being put at risk.”
Concerning the negotiations, she said there will be “give and take,” but citizens can still expect to see features such as pedestrian-oriented areas, bike accessibility, and the development of new retail businesses and high-quality shops that do not fall into the “big box” category.
Some councilmembers have been careful to emphasize that the UNP TIF development is a long-term plan, with the estimated completion date in 2015. In the June 23 meeting, Ward 7 Councilmember Doug Cubberly stated, “Anyone who lived through the 80s downturn knows it’s cyclical.”
And despite the circumstances, spending in Norman’s retail sector has remained fairly strong. “While economic circumstances have slowed development,” Mayor Rosenthal said, the UNP TIF “is still generating funds and covering costs.”
Despite the closing of Circuit City, the UNP TIF has been mostly spared the blight of empty storefronts. Similar retail developments around Norman and along the Interstate 35 corridor haven’t been so lucky. One needn’t look further than Ed Noble Parkway or Brookhaven Village to find examples.
More information about the UNP TIF development, including quarterly updates and presentations, is available at the City of Norman website.Tags: economy, urban development