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Tax Allocation District Frequently Ask Questions

Is the City of Duluth interested in creating a Tax Allocation District?

The Mayor and Council for the City of Duluth have directed staff to undertake actions that will lead to the creation of a Tax Allocation District on the Buford Highway Corridor.

When was the Tax Allocation District Referendum held in the City of Duluth?

The City of Duluth held a referendum on Tax Allocation Districts on November 7, 2007.

What was the result of the vote?

There were 926 yes votes to create Tax Allocation Districts within Duluth and 216 no votes. There was an 81% approval margin.

When was enabling legislation introduced in order to hold the Tax Allocation District Referendum?

The enabling legislation was submitted on April 30, 2007. It passed the House of Representatives 149 to 0 and the Senate 44 to 0. Governor Purdue signed the enabling legislation on May 18, 2007.

Where is the first Tax Allocation District being proposed?

The Mayor and Council have determined that the Buford Highway corridor is a good candidate for the creation of a Tax Allocation District.

What are the proposed boundaries in the Buford Highway Corridor?

The proposed Tax Allocation District would stretch from Old Peachtree Road to include Duluth Station and then on to the corner of Buford Highway and North Berkley Lake Road. It would include parcels on both sides of the Buford Highway corridor.

What is a Redevelopment Plan and what does it have to do with a Tax Allocation District?

A redevelopment plan outlines policies and goals for potential projects with a Tax Allocation District. It is the guiding development document for the funding direction of Tax Allocation District projects.

What is a TAD?

A Tax Allocation District (TAD) is established for the purpose of catalyzing investment by financing certain redevelopment activities in underdeveloped or blighted areas using public dollars. Redevelopment costs are financed through the pledge of future incremental increases in property taxes generated by the resulting new development. Typically, upon creation, TADs have vacant commercial and residential properties, blighted conditions and numerous vacant buildings or are in need of significant environmental remediation.

How is a TAD created?

The Georgia Redevelopment Powers Law was enacted in 1985 to give additional powers to local municipalities in order to facilitate the redevelopment of blighted or economically depressed areas. One of the powers granted to local governments in this law was to issue tax allocation bonds to finance infrastructure and other redevelopment costs within a tax allocation district. In November 2007, the City of Duluth held a referendum on TADs that resulted in the City’s ability to establish districts.

In order for an area to be designated a TAD, the government must verify that the area is in need of redevelopment. However, the area is not required to be blighted, which is a requirement in many states. These findings are reported in a Redevelopment Plan, which demonstrates why the area needs to be redeveloped and how the municipality plans to revitalize the area. The Plan provides the redevelopment agency with the powers to improve dilapidated facilities and to use tax increment financing to achieve the goals of the Redevelopment Plan. The City of Duluth adopts enabling legislation which approves the Redevelopment Plan and establishes the base value for the district. The other local taxing entities, Gwinnett County Board of Education and Gwinnett County, are consenting jurisdictions that have the option to participate in the TAD.

What is the difference between a Tax Allocation District and Tax Increment Financing?

The TAD is the geographic area in which tax increment financing (TIF) can be used. These terms are used interchangeably in Georgia, but most other states refer to their TADs as TIF districts. TIF is or economic development tool used in a TAD.

What is tax increment?

Tax increment is the difference between the amount of property tax revenue generated when the TAD is established (the base year) and the amount of property tax revenue generated after the TAD designation. When a TAD is created, the State Department of Revenue sets the base value for the district. Any growth in property tax revenues resulting from increases in property values above the base value are collected in a special fund and used for redevelopment costs in the TAD. Only property taxes generated by the incremental increase in the values of these properties are available for use by the TAD.

What is a bond? What is a TAD bond?

A bond is long-term debt similar to home mortgage, but for a larger project and greater amount of money. A TAD bond is the mechanism through which funding is created to incentivize new development in designated underserved areas. TAD bonds are issued to “monetize” the projected future increases in property tax revenues, so that funding is available to subsidize a portion of development costs up front. The TAD bonds are repaid over the life of the TAD with new property tax revenues generated as a result of new development.

What can TAD funds be used for?

The Redevelopment Powers Law outlines the possible uses for TAD funds. In Georgia, TAD funds can be used for grants for capital costs, which include: construction of new buildings; public works or improvements; renovation, rehabilitation, demolition, or expansion of existing buildings; acquisition of equipment; and clearing and grading of land. The Redevelopment Plan for each district specifies the permissible uses of the funds that support the goals outlined in the Plan. TAD funds must be spent on uses consistent with the Redevelopment Plan for the TAD as approved by City Council. Funds must be allocated to projects and spent within the boundaries of the district, as set forth in the Redevelopment Plan.

Are you allowed to use funds derived from one TAD to assist with another area?

The Redevelopment Powers Law stipulates that the increment generated in a TAD derived from increases in property taxes must be spent within the TAD from which it came.

Who controls or manages TAD funds?

The Mayor and Council for the City of Duluth will create a Burford Highway Corridor Development Authority as the City’s redevelopment agent. The Development Authority will control the TAD accounts in cooperation with the City.

Who monitors the TAD process and provides ongoing compliance?

The Economic Development Manager in the Planning and Development Department manages and administers the TAD’s within the City of Duluth.

When does a TAD terminate?

Typical TADs exist for 25-30 years, depending on the term of the bond and the life of the district as stipulated in the Redevelopment Plan. However, any TAD may be terminated earlier if all bonds are paid off and the municipal board votes to terminate the district.

How does a TAD differ from an Enterprise Zone?

Property taxes are abated in Enterprise Zones for a period of five years, then are gradually increased over the following five years. In a TAD, property owners pay normal property taxes, but the incremental increase in property taxes is deposited into a special fund for payment of redevelopment costs.

Is there a limit to the number or size of TADs Atlanta may create?

According to the Georgia Redevelopment Powers Law, the City cannot create a new TAD if the total taxable value of the existing TADs plus the proposed TAD is greater than 10 percent of the tax digest (total value of taxable property) for the City. The Buford Highway TAD represents 5.7% of the tax digest so there is room to create more TAD’s if the City of Duluth deems them necessary.

Do other cities and counties provide this type of financing?

Tax increment financing has been utilized in the United States since 1958; it is a national best practice. Currently, 49 states and the District of Columbia have enabling legislation for tax increment financing. There are more than 30 TADs in Georgia. Five have been proposed in Gwinnett County. Tax Allocation District #1 Buford Highway Corridor would become the sixth. Note: state and local laws differ considerably across the country.

Why is there a need for TADs?

Tax increment financing is a widely used economic development tool that offers local governments a way to revitalize their communities by expanding the tax base, offsetting, in part, federal and state funds that are no longer available. TADs can act as a catalyst to attract further private investment into economically depressed areas. TADs help local governments attract private development and new businesses which create jobs, attract customers, and in turn generate additional private investment. Essentially, the creation of a TAD generally leads to an increase in tax revenues above what already exists.

Why would local jurisdictions choose to forgo receiving increased property tax revenues in TADs?

Local jurisdictions choose to invest their future tax revenues in new development. TADs are established in slow- or no-growth areas where a disproportionately low amount of property tax revenues is generated. Typically, areas designated as TADs don’t pay their fair share of property taxes, forcing higher-wealth areas to carry the cost of services for these areas. TADs are essential for catalyzing development that would otherwise not occur.

After a TAD is created, participating public school districts, cities and counties continue to receive the pre-TAD base amount of property tax revenues. Increases in property tax revenues resulting from new development attracted to the area are used to pay certain redevelopment costs; this is the subsidy used to draw new projects to the area.

All taxing jurisdictions choose whether or not they want to participate and the terms of their participation in TADs. In Duluth, payments in lieu of taxes (PILOT) have been provided as allowed under state law to reduce the demand on the City, County and School Board by earmarking additional dollars to offset real or perceived service demands for projects. The Gwinnett County Board of Education and the Gwinnett County Board of Commissioners have acknowledged the effectiveness of this economic development tool by consenting to the inclusion of their property tax increment in the five approved TAD’s to date.

Property tax values increase in TADs as redevelopment occurs. This gradual growth over the life of the TAD results in a windfall for participating jurisdictions when the districts is dissolved and all property tax revenues revert to the taxing entities.

How are increases in service costs, such as public safety and waste management, funded if property tax revenues to taxing jurisdictions remain level over the life of a TAD?

Areas designated for TADs generally don’t pay their fair share of taxes: high-wealth areas carry the cost of services for low-income areas. In fact, the tax digest within areas designated as TADs in Georgia is 44 percent of the average value of the host jurisdiction*.

TADs are typically established in areas with a declining tax base resulting from disinvestment and blight, where the demand for some city services such as solid waste collection and police patrol is greater. The creation of a TAD generally leads to a decreased need for many city services as well as increased revenues for the jurisdiction, including personal property taxes, and sales taxes. Once the district is dissolved, the incremental growth in real property taxes reverts back to the taxing jurisdictions, creating a windfall of new revenue and expanding their tax bases.

* Livable Communities Coalition, Survey and Analysis of Tax Allocation Districts in Georgia (October 2007) 2.

Will property taxes be raised?

According to the Redevelopment Powers Law, the City cannot create a new TAD if the total taxable value of the existing TADs plus the proposed TAD is greater than 10 percent of the tax digest (total value of taxable property) for the City.

What are the opportunities for public input?

Prior to TAD creation, the Redevelopment Plan is available for public review and comment. Some TAD legislation requires the implementation of community advisory boards to review projects and make recommendations to the Development Authority Board. Furthermore, all community advisory board and Board of Directors meetings will be open to the public.

How much TAD funding is available for private developments?

The amount of TAD funding available to developers varies depending on the terms of their participation. Funding could range from 4 percent to 10 percent of a developer’s total project costs. The amount of funding allocated is determined based on the projected increased property value that will result from the new development.

How are projects chosen?

Projects will be approved for TAD funding based on several factors, including but not limited to financial feasibility, compliance with TAD Policies, and alignment with the goals of the Buford Highway Corridor Redevelopment Plan.

Can TAD funding be used in conjunction with other economic development incentives?

TAD funds are generated by growth in property taxes, so any program that freezes or abates property taxes, such as the Urban Enterprise Zone or the State Property Tax Freeze, is not compatible with the TAD programs. Incentive programs involving income tax credits or deductions or tax-exempt bonds can be layered with TAD funds.

How do you apply for TAD funding?

The procedures for applying for TAD funding in the City of Duluth have not been formulated at the time but most likely would follow this format:

  1. Applicant meets with yet to be created Development Authority for discussion(s) of conceptual project overview
  2. DA determines the project’s eligibility and compliance with TAD Policies
  3. Applicant completes and submits the TAD application and an application fee during specified application period
  4. Projects are presented to the possibly created corridor advisory boards, which make recommendations to the DA Board in support of or against projects
  5. DA Board must approve conditions of the Development Agreement and bond amount
  6. Developers of approved projects will enter into a “Development Agreement” with the City and DA
  7. City Council approves bond ordinance which includes bond documents and bond amount
  8. Tax Allocation Bonds are sold and the proceeds from the capital are distributed by DA to the developers as outlined in the bond documents.

When will the Buford Highway Corridor Redevelopment Plan be completed?

The Buford Highway Corridor Redevelopment Plan should be complete within the next 3 months. A design Charrette will occur on January 7th, 2010 at 5:00 at City Hall in Duluth.

How can I learn more?

Visit any of the following websites for additional information on TADs:

City Calendar