A recent letter to the editor in a local paper decried the use of brownfield grant incentives given to Tricar, the developer who is building on the former Marsh Tire site on the corner of Wellington and Macdonell. See letter here.
This is the not the first time I have heard the sentiment “we shouldn’t be giving away taxpayer money to developers.” But is that really what we are doing? In reality, grant recipients give much MORE back in taxes than they receive from the city.
The Downtown Activation Grants and brownfield grants are tax-increment financed (TIF) grants. This means that:
a) the grant amount is calculated based on future taxes generated from the site post-development,
b) grant money is not paid until the site begins generating revenue through new tax assessment,
c) grants are time-limited,
d) grants are earmarked for projects that have barriers to construction (such as contamination, bedrock, risk), and
e) if the site does not generate the anticipated assessment, the grant is adjusted.
TIF grants are risk-free, pay for themselves, and pay back into the city revenue stream over the long-term. Let’s take a closer look at a project (simplified for clarity):
- Site P is a brownfield, a former gas station, that must be cleaned up prior to development, and has been sitting vacant for over 10 years.
- Infrastructure adjacent to the site (water, wastewater, hyrdro, roads, transit, etc.) is underutilized, but already fully paid for.
- Current tax revenue generated by the vacant, contaminated site is $1,000 per year.
- The owner plans to develop a 25-unit, 4-storey stacked townhouse on the property, which will generate $15,000 per year in taxes to the city once constructed and occupied.
- A portion of the increased tax revenue, $10,000 per year, generated from the developed site is granted back for 5 years ($50,000) is granted back to the developer in the form of a TIF grant.
- The city still receives additional revenue ($4,000 per year) and yields the full benefit of increased taxation after five years and in perpetuity.
- The developer receives the money after construction is complete and the site is generating the anticipated assessment.
CONCLUSION: TIF grants are a win-win-win. The city wins because a vacant and contaminated site is cleaned up, the developer wins because the project moves ahead and the grant offsets clean-up costs, and the taxpayer wins because increased revenue is generated and contributes to the cost of infrastructure and future operating budgets.