No to Downtown Subsidies: The View from District 9 and Councilwoman Chan

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The Rivard Report has invited officeholders, including Councilwoman Elisa Chan, and other interested parties  to contribute articles for or against the proposal to use public incentives to accelerate development of downtown residential housing. Mayor Julián Castro has declared this the Decade of Downtown. Councilwoman Chan is among suburban council members who  oppose recommendations made by a city-paid consulting firm, HR&A Advisors of New York, a firm with more than three decades experience working to revitalize urban downtown cores.

The topic was first addressed here on April 8 in : Subsidized Sprawl: Why Council Should Support Downtown San Antonio. An interesting and relevant article recently appeared in the Cleveland Plain-Dealer that examines the growing demand for downtown living among that city’s young, educated professionals.

Below is the text of Chan’s recent newsletter to district residents summarizing her views. We hope it is the first in a series in which public officials and others speak directly to the issue.–Robert Rivard

I have met with Jaime Torres Springer, the consultant for HR&A twice now since the downtown Housing implementation plan was first briefed in the B Session on March 14th. The meetings were very helpful and I was able to get additional important information. Let me share with you some of my findings and observations.

First, I think it would be helpful for everyone to understand some of the definitions used in the study so we can discuss the subject at hand with more clarity.

Center City – This study area is about 3.5 square miles within the geographic boundary of the Central Business District, River North/Midtown area north of Interstate 35 near Broadway and US 281, Southtown Area (King William, Lavaca, and neighborhoods north of Highway 90), Near East Side extending to North Mesquite Street, and the Near West Side extending to South San Marcos Street.

Tax Increment Reinvestment Zones (TIRZ) – The five TIRZ in the study area include Inner City TIRZ, River North TIRZ, Midtown TIRZ, West Side TIRZ, and Houston Street TIRZ. A TIRZ is a special zone created by City Council to attract new investment to an area. Taxes attributable to new improvements (tax increments) are set-aside in a fund to provide cash grants or to finance public improvements such as roads, utilities relocation, sidewalks, and drainage within the zone boundaries.

Tax Abatement- This incentive takes the form of an exemption or reduction of up to 100% of ad valorem property taxes on the value of new property improvements. Abatements can last up to 10 years for projects that generate a minimum amount of capital investment, wages, and jobs.

380 Grant – Through Chapter 380 of the Texas Local Government Code, the City of San Antonio can grant tax rebates to developments over 10, 15 or 20 years. Only projects in a TIRZ qualify for a 100% 380 Grant.   Areas outside a TIRZ must dedicate at least 30% of property tax revenue to city debt service.

Fee Waiver – The City waives fees levied by SAWS, Development Services, and CIMS on qualifying projects to promote commercial and residential development in the Inner City Reinvestment / Infill Policy (ICRIP) area. SAWS can waive up to $500,000 of Impact Fees, or $100,000 per $10 million of value.

Density Bonus – Allowing for greater densities in zoned areas that limit or restrict the number of multi-family units can help developers offset high land costs.

Housing First Approach

My main concern for “Housing First” approach is the priority it sets that will have great impact to our actions in the future. If City Council adopts an implementation plan that puts downtown housing as the top priority, then subsequent policies, funding, and resources will follow this priority.

I asked a hypothetical question to the consultant: “If the City Council only has $5M cash incentives budget for FY2012-2013, with the “Housing First” approach, does the implementation plan recommend the City to allocate $3.5M (according to the plan, $3.5M to $5.5M cash per year is needed as part of the incentives) for downtown housing and $1.5M for job creation? And the answer was “Yes”. I simply cannot agree with this policy priority.

Many of you may not be aware that the current job creation/retention incentives policy does not apply to jobs located outside of the Inner City Reinvestment/Infill Policy (ICRIP) target area. I’m fighting to change this policy so that, while we may emphasize downtown by providing additional incentives, we need incentive tools to also attract and retain jobs in other parts of the city. If we give the first priority to downtown housing, then we will have even fewer resources available to incentivize job creation/retention for the entire city.

Like many others, I want to develop a strong urban core and help create an more vibrant downtown, but this should not be achieved at the expense of other parts of the city.

7,500 Units by 2020

The consultant clarified that the goal being recommended is 7,500 units but believes that, while it would be a stretch, the 10,000-unit goal is achievable.

The reasoning behind 7,500 housing units is to increase the density that is more in line with comparable cities’ downtowns in the study. The consultant believes that with an additional 7,500 housing units, the population will increase from the current 18,000 to 31,000 (about 1.7 persons per unit).

With estimated $15,000 to $30,000 of incentives per unit, we will be incentivizing about $112M to $225M – including at least $33M to $55M dollars cash – for downtown apartment housing. It seems to me that there are better ways to utilize this money to help improve downtown and create the permanent population density desired to attract non-tourist-driven retail stores such as grocery stores, dry cleaners, hair salons, florists, etc.

With regards to potentially “moving people from one part of town to another”, the consultant believes that the majority tenants of the downtown housing units would be new people currently not living in other parts of the city. The city staff believes that they have the data from the newly developed apartment units to support this theory. I look forward to see the data that is yet to be provided by the staff.

Incentives

Based on the study of 10 cities including Atlanta, Cincinnati, Columbus, Dallas, Houston, New York City, Philadelphia, Portland, St. Paul, and Seattle, only Dallas and St. Paul provide cash incentives. Dallas provides cash incentives from TIRZ but it’s unclear from what source the cash funding provided by the city of St. Paul is from.

Most cities mentioned earlier only provide tax abatements. Austin only incentivizes downtown residential projects by providing fee waivers and expedited project approvals; market rate housing units in San Diego are not eligible for subsidies.

In comparison, the City of San Antonio is very generous in its incentive package for downtown market-rate housing units. Typically the City provides tax abatement and or 380 grants, fee waivers, and cash dollars appropriated from the general fund.

Other cities usually provide the form of incentive from the least costly source to the city – density bonus, land owned by the city, then fee waivers, then 380 grant (tax reimbursement), then tax abatement, and lastly cash dollars.

To maximize the limited resources, the consultant suggests that cities should first incentivize projects located in places that would otherwise not be developed and avoid sites that are in prime locations.

Government can help break the “chicken and egg” situation and jump start the program. And, the City of San Antonio has. Since 2010, the city has provided $17.11 million in incentives including tax abatements, chapter 380 grants, fee waivers, and $2.83M in cash for 7 projects that will provide a total of 1,027 apartment housing units in the center city study area. The 1221 Broadway project with 268 units is complete with 759 units under construction.

Market Demand

According to the consultant, there is a gap of about $0.40/sqft/month between the rentable rate ($1.40 to $1.60) and the rate required to recoup the project investment ($1.80 to $2.00), therefore incentives are needed to close the “financial gap”.

It is unclear how the rentable rate of $1.40/sqft/month – $1.60/sqft/month is determined. No market study has been done recently to show that rental rate higher than $1.60 would be rejected by the market.

According to a memo sent to the City Manager dated on 3/14/2012, the average occupancy rate of current downtown residential rental properties is 94%. With the supply and demand rule, it seems logical that the rental rate can be increased since the demand is so high!

In a recent San Antonio Housing Trust Finance Corporation (SAHTFC) meeting, the current Low and Moderate Income Limits was asked to be raised from $94,547/year to $127,400/year (200% of median income) so that downtown housing properties such as Cevallos Lofts would continue to qualify for the SAHTFC loan. By statue, 90% of the units of a SAHTFC project must be rented to people with household income within the moderate income limits.

Currently at Cevallos Lofts there are 195 units preleased with 37 of them over the $94,547/year income number, and by increasing the limit to $127,400/year, there would be only 16 units over the moderate income number which would make it less than 10% or 19 units that is required. The point here is that people who are seeking the downtown lifestyle most likely can afford it without subsidy!

“Turning Around Downtown” by The Brookings Institution

The Brookings Institution’s March 2005 report “Turning Around Downtown: Twelve Steps to Revitalization” was sent to me as a reference to support the “Housing First” approach.

According to the report, it takes at least 10 to 20 years before the approach creates meaningful downtown “office employment” after cities establish housing and entertainment venues.

Some individuals have cited this report while questioning my concerns, but they failed to address the following:

* The 7-year-old report is based on older practices that have not been subject to an impartial re-evaluation for cost or effectiveness.
* It was written at a time of greater prosperity. Under the current economic reality, how can cities rationalize using this dated paradigm when job creation is a primary concern?
* Why would we wait 20 years to increase downtown office employment when we have finite economic development resources that can be used to create and sustain jobs today?
* San Antonio’s downtown is not “clinically dead” as defined in the report. More can be done to attract locals to downtown, but it undoubtedly has a unique combination of infrastructure, cultural attractions, and corporate and retail businesses that other cities in The Brookings report did not have.

Conclusion

While the study done by HR&A shows that increasing downtown housing may help increase the population density needed to support amenities and retail stores such as grocery stores, dry cleaners, hair salons, and florists, which are frequented mostly by non-tourist local residents, the study does not demonstrate direct job increases in the downtown area (other than those to support the amenities) due to the increase of downtown housing.

Companies that the City tried to recruit to downtown in the past often complained that the area lacked parking and choices in office spaces (number of Class A buildings available, buildings that provide open floor plans, buildings that have easy access to parking, etc.). Perhaps the City should balance its housing incentives with the needs of parking and office space, too.

An exciting urban living experience helps enhance our overall city profile when we try to attract new companies to San Antonio and to expand/retain existing jobs, but it is no more important than the City providing good a workforce and education system, affordable energy, efficient transportation, and good quality of life.

We currently have 1,027 new market rate apartment units in the pipeline that will be available soon in the center city. We don’t have to rush to add new units right away, instead we should take this opportunity to understand the market, analyze the differences between San Antonio and other cities, and devise a comprehensive downtown housing incentive policy before incentivizing any new downtown market-rate apartment housing projects.

In my opinion, the policy should at least consider the following factors:

* Type of housing project allowed for incentives. Adding market-rate apartments is not the only way to increase population density in the center city. Other housing programs should be part of the equation.
* Type of incentives allowed. The Density bonus and expedited approval process do not have financial impact on the City, so they are preferred. Fee waivers and tax abatement could be an option since the City would not have the tax revenue if the development does not happen. I would however recommend against cash incentives, especially from general fund.
* Disclosure on financing details. Any federal or state assistant loans should be disclosed so that projects that qualify for loan assistance are treated differently from those that don’t.
* The policy should have provisions on what happens if the project is being sold for profit during the tax incentive period.
* The location of the project should be a factor for incentive consideration.
* Market analysis should be performed yearly.
* The policy should encourage “true” private-public partnership.

I hope my findings and observations can help you better understand the discussion that the City Council is currently undertaking with regards to the implementation of downtown housing.

11 thoughts on “No to Downtown Subsidies: The View from District 9 and Councilwoman Chan

  1. Chan is absolutely correct in her analysis. The City has plenty of bullets already to incent downtown residential. Why further subsidize a market blossoming on its own?

    • Today’s Express-News 6/5/12: “Upgrade for 1604 may get costlier”

      $52 MILLION for more lanes on 1604 and 281 outside of 1604, with $20 MILLION coming directly from the city. Yeah, “why further subsidize a market blossoming on its own” indeed, dumpkopf. And that’s just ONE PROJECT necessary for your stupid futureless suburban wonderland to even function. Yet here you people are whining about subsidies for downtown that pale in comparison to the total take by you dee-dee-dees.

  2. Basically, this is the goal of the mayor. Develop downtown and westside only.  He is biased and doing things for his own interests and not the interests of ALL citizens.
     
    OF COURSE we can develop downtown without bias.

    • This comment is another example of a highly misleading statement. Intentional or ignorant? Does it matter?

      As the legendary columnist James Kilpatrick once famously wrote, “You’re entitled to your opinion, but you’re not entitled to your facts.” You conveniently or deliberately omit the fact that many tens of millions of dollars in the bond are allocated to northside and northwest side highway improvement projects. Why do so? If your objective is truly to defeat the bond, why not tell voters that Mayor Castro is scheming to invest money in their part of the city, too.

      • Bob,

        when you point the finger, just remember 4 are point back at you. What millions are for the northside??? Currently 51 million is in highway projects that was received from the ARRA (Stimulus). Go look at the data, Bob, tens of millions go to two regions: westside and downtown. And for what? So we can redo already working streets? that is exactly right. The link below does a nice job of detailing the breakout. All one has to do is go look at the bond website. Why you choose to ingore real facts and fire back that somehow I AM ignorant is terrible journalism. If you want to endorse the Mayor, you do not need a full website to do that. OR you if you want to endorse the people, then I suggest you put aside your full throttle activity for the mayors plans.

        You are playing voice for the mayor. And therefore, you should heed the advice of your quoted legendary columnist. Instead, you are endorsing a plan merely off of selective facts centered on your own ideology for downtown and the mayor’s office.

        Deja vu.

        • This delusional lady fronting for her delusional constituents – they bought in to a sprawl lifestyle of endless commuting to everywhere and the fantasy that property values never decline and that a house is an investment. Oops. FAIL.

          Nevermind that all the infrastructure that supports their absurd lifestyle has been subsidized from the beginning for decades by existing inner city residents (a literal transfer of wealth from the core to the periphery)…How many streets do you think we could have paved, and for how long, without 1604 dumbkopf?. . . Yet now they recoil in horror at the thought of even a miniscule counter-subsidy. The denial of people like hansonj is rich and will become ever more satisfying as the sprawl lifestyle dies a long overdue death. The only real issue is whether we let people like hansonj and the zombie dead-hand control of a bunch of old farts who vote and want to keep driving “cuz it’s der god-given right!” and want to keep fighting pointless middle east wars drag us into the grave with them. I say get the bolt gun and let’s bbq some slave cattle. MMM-Burp hanson! Enjoy your forthcoming Greek tragedy of austerity, when you’ll learn who’s really been getting the subsidies.

  3. I’m a huge supporter of focusing a lion share of our investment towards revitalizing downtown, but Councilwomam Chan really does make some great points…

    – While I firmly support tax abatements and such incentives (including for commercial / office space development), and focusing such incentives downtown, the CASH incentive to make up for a supposed “financial gap” in the downtown market rental rate is very suspicious.

    – The amount of money allocated for downtown streets and sidewalks does seem a bit extreme. Midtown (within 410) and the east side *really need strong investments in their roads and sidewalks, and 7% for the south side seems a bit low – how is the Mission Reach of the river going to thrive without great streets…?. Sure, the River North area needs a lot of help with its streets, as does the near-east side, but the vast majority of downtown’s streets and sidewalks are in great shape.

    – However, giving 30% of the streets budget to the west and northwest sides is absolutely appropriate – makes me wonder how much time Chan / San Antonio Life Uncovered have spent in those areas. They’ve been neglected for FAR too long.

    NOTE : regarding SA Life Uncovered’s view that “HemisFair Park is allocated $15 million.  However, the current plans are lucid, with even potentially an outdoor theater that would simply become another haven for the despondent” is shameful at best. Perhaps their team just needs to stick the the infrastructural argument.

    • *Regarding the cash incentives for downtown living units – we WANT the higher-paid Creative Class to live downtown, thus eventually (and indirectly) resulting in businesses that employ such individuals to relocate / startup downtown as well.

  4. Pingback: Debate: School closings and openings, and downtown versus sprawl | San Antonio Charter Moms

    • To me, this is the most critical factor in developing central SA : good schools. The city and economic development folk can do wonders bringing in young professionals to revitalize downtown, but once these same individuals have families (?), they’ll move north or at least to Alamo Heights ISD.

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