December 16, 2014
There has been a lot of discussion back and forth about approving this project and its impact on our economy and education funding. I have been doing some research on this matter and it is quite confusing. I would like to point out the most important points.
- The use of a TDZ is proposed because it is supposed to be risk free. The proponents claim that the tax payers are not at risk and the risk is all on the bond purchasers. That is not true because if the incremental sales tax increases are not sufficient to cover the principle and interest, then the taxpayers are the backup less the ad valorem (property tax) tax base. My point here is that if these bonds issued for the Fairgrounds TDZ are the same as those for the downtown TDZ zone and if the incremental tax revenue is not sufficient to cover the required bond payments, then all city revenue other than the Ad Valorem Tax (basically property taxes) will be called on to make up the difference. It is not risk free. If you look at the City of Memphis 2013 general fund budget you will see that ad valorem taxes are about 40% of the revenue. The rest presumably would be subject to the bond insurance.
- There is a question about the effect on education funding of a TDZ zone. According to the Tennessee Department of Education, half of the 2.25% portion local option sales tax must be appropriated to education.
- Another important point is that each year a new base will be set for the TDZ zone at the level it grew or declined to the year before. The increase in sales taxes will be measured from this new last year level. Only this increase less the education portion will be available to pay the bonds.
- There is a lot of push back in the proposed size of the proposed fairgrounds TDZ zone. The proponents of the fairgrounds project want to include Cooper Young and Overton Square because these areas are successful areas and the proponents of Fairgrounds want to take advantage of their success to finance the Fairgrounds. They are afraid that it cannot stand on its own merits. See the attached map of the proposed zone area.
- Finally there is a possible increase in the 7% portion of the sales tax in the TDZ. This portion will go first to pay off the bonds. If there is any left over after paying off the debt, it will go to the local government for education and other purposes. The problem with including Cooper/Young and Overton Square is that their success will be used to finance the Fairgrounds risky venture.
This is another real estate venture done by the government rather than development professionals with taxpayers taking the risk rather than private investors.