Anyhow, the new year of 2018 has the ingredients to be a good year. However, everything must be blended with the right amount of proper ingredients, selecting the correct oven temperature, determine the correct time in the oven, and have a toothpick to check for "doneness." Then, there is a chance for an excellent creation. However, if there is too much or not enough of an ingredient, oven too hot, baking time too short, or vise versa, the end product is not so good.
Building a good tax base is much the same as building a good cake. It takes some skill, knowledge, effort, and if you don't have any of that, go find a recipe. The trick is finding the recipe if one is needed. First, one has to look in the right place. Looking in the telephone book probably won't work. Since tax base is composed primarily of real estate, it is reasonable to assume that finding knowledge of real estate is more likely if talking to a real estate development person. Please note I said real estate development person. A mortgage banker that takes applications for a home mortgage is not a development person. Neither is a real estate broker........unless that broker specializes in development of real estate. There are a lot of skills and disciplines that are covered under the broad umbrella of "real estate." Development is just one of them, but it's the one you need for good tax base development.
Of course, if you're on City Council, you should either know what you're talking about, or know how to find it. That means if you are not literate about real estate development, you need a friend who is.
I am reminiscent of the City Council meeting of December 19, 2017. I cringe a bit. Let me be absolutely clear here. I don't think anyone on City Council is dumb or stupid. I think they're all pretty smart. However, there seems to be a fair amount of ignorance about real estate development, or maybe have short attention spans. My complaint is that if one doesn't know some of the terms or business structure of a proposed deal, then find out before the council meeting. A couple of the Council members did not bother. No need for names here, but one of the council members did not know what a "decel" lane was. "Decel" is a contraction of the term "deceleration." It is a lane that autos can enter and slow down before turning into a business, apartment complex, or across a median. You know all that. One of our council members didn't know what it was. Folks, that is in Real Estate Development 101. It is entry level "stuff."
Another council member spent a fair amount of time expounding about the proposed apartment project, and then finally concluded that the project would not "fill up" (the market wasn't in Rowlett), and there was no tax revenue. I almost have a hard time trying to figure out where to start on this one. I can only presume that this council member had been daydreaming for the previous hour, or so.
Item 8A on the December 19, 2017 City Council agenda was a request to approve a PILOT payment in lieu of ad valorem taxes. I do not think the presentation was good. It is much simpler than the rhetoric during the presentation. The presentation made my head hurt and I knew what they were talking about.
There are only a few things you need to know to make a judgement:
1. "PILOT" means payment in lieu of taxes. The project is tax free to other taxing enities, but Rowlett is paid for expense of police and fire protection, and some modest administrative costs.
2. The PILOT payment is based on an appraisal.
3. There are three ways to appraise: Cost Approach, Comparable Approach, and Income Approach.
4. Texas state law requires that cities and developers use the Income Approach for determining PILOT payments. Why?
a. Tax credit and tax exempt bonds create lower rent rates.
b. Market rent rates and their appraisals would create tax bills that a tax credit project could never afford. The project wouldn't be built. Thus, the PILOT payment based on Income Approach appraisals could afford the tax load.
c. The PILOT payment would be revenue to the city instead of ad valorem taxes.
d. IMPORTANT--The City is still receiving revenue from the project.
A considerable amount of time was spent talking about the PILOT program, yet I'm not sure everyone understood it.
A vote was taken. The PILOT program was approved by 6 of 7 votes. The dissenting vote was made without comment. The discussion took about 12 minutes.
The project being presented for approval was 8B on the agenda. This was a much longer presentation. At the end, another vote was taken. The vote was once again 6 of the 7 FOR the project. It was the same council person dissenting on approval that voted against the PILOT plan. The reasons given:
1. No tax revenue. This person must have been asleep during the discussion of 8A whereby the PILOT program was discussed.
2. It was felt the market was not strong enough to absorb the 272 units. We have a local comparable project. It is named "Evergreen." Evergreen was totally leased up and the waiting list was full when the project was 75% complete. No additional applicants were being accepted on the waiting list while the project was 75% complete. Furthermore, the winning applicants were mainly residents of other cities. Rowlett citizens ended up on the waiting list because of a marketing snafu. So.......the Rowlett market is relatively untapped. Folks, this Senior market in Rowlett is one of the most identifiable markets in Rowlett. But, you have to have some real estate development knowledge to ascertain that.
A dissenting vote was cast against the project because it was felt there was no tax revenue and the market wasn't there. Be assured, that position was a head scratcher to me. Bizarre. Something else must be at work, here.
I think we have an intelligent Council. However, I do not think they are "all-knowing." There is no embarrassment there. However, some might think they have to know everything because they are on Council. I much prefer that someone go get answers rather than muddle thru pretending to know when they don't.
I think Council needs to find some friends in the development finance, or developer fields. They need some help to get a good cake that benefits all of Rowlett. That benefit would be in the form of a strong tax base supporting your tax bills.