By: Dave Deiters
Chair of the Avondale Estates Downtown Development Authority
Given the major new initiatives just announced in Avondale, now seems like a logical time to talk about two very important tools we use to power these investments: funds from the tax allocation district, or TAD, and tax abatements.
Let’s start with funds from the TAD
In 2007, the Board of Mayor and Commissioners (BOMC) created a tax allocation district in our downtown, with boundaries that roughly coincide with the downtown area, excluding The Willis and The Jade apartments at our western gateway. When the TAD was established, a baseline of property tax was set. As the property within the TAD improves and the assessed value/taxes collected increase, the City and DeKalb County taxes above this baseline go into a special TAD fund that can be used only for infrastructure improvements within the TAD. Taxes collected up to this baseline flow normally, with city taxes funneling into the general fund.
Until 2019, the taxes collected were actually below this baseline. As things began to turn around, the balance crept up, and the current balance is now about $1.2 million. The DDA is empowered to allocate these funds, and we expect them to grow more rapidly as new developments such as The Dale begin to contribute.
How can we use TAD funds?
You might be thinking, “Why is it such a big deal, and aren’t we limiting how we can use these funds?” Great question! Think of it like a 401(k) plan, where your employer matches your contributions. Because the TAD benefits from county as well as city taxes, the fund grows much faster than with just city contributions. When the BOMC decides to sunset the TAD, all city taxes will again flow into the general fund.
The DDA’s intent, as stated in its most recent strategic planning session, is to use the available resources selectively. Our stated priority is infrastructure and real estate that result in placemaking, as opposed to transactional uses that yield only a one-time benefit. The TAD funds are no different. We will prioritize the highest and best use of these funds on projects that will generate new tax revenues, providing sustainable, ongoing benefits to the city.
What type of projects qualify?
A logical question might be, ”Does transforming the ‘concrete jungle’ that abuts the Town Green, the abandoned ‘erector set’ on College Avenue, and the impound lots fit that description?” So glad you asked! The exciting project proposed in last week’s BOMC meeting just might be the one.
This project is a partnership between Hedgewood Homes and Avila Real Estate, two very reputable developers with a track record of delivering well-designed, high-end communities, and is valued at more than $350 million. It includes new roads that fit our street-grid, sidewalks, pedestrian and bike paths and stormwater infrastructure, including a stormwater park. This development will dramatically add to our tax base while completely revitalizing three major eyesores in our downtown. It takes a significant step towards realizing the dreams and objectives in our Downtown Master Plan.
The DDA will discuss and vote to allocate the TAD funds at an upcoming meeting. A more detailed explanation of TAD is posted in the DDA section of the city’s website
What Is a Tax Abatement
A tax abatement is an incentive that the DDA, with BOMC approval, can offer a developer in which the City, DeKalb County and DeKalb County School District taxes gradually increase over a period of time, after the property is improved and its assessed value dramatically increases. As a tax-free entity, the DDA effectively assumes title for a portion of the property. Consequently, that portion is not taxable. An agreed-upon schedule determines the timing and the rate at which the portion of the title assigned to the DDA shrinks, and the portion assigned to the developer grows. No funds are given away or paid to the developer. Instead, it is simply a more gradual increase in property tax.
Real-life Abatement Examples: The Willis and The Jade
Two great examples of tax abatements issued by the DDA are The Willis and The Jade apartments. Before The Willis and The Jade were built, the COMBINED annual Avondale city tax collected from both parcels was less than $12,000. We incentivized the two developers with tax abatements because the Downtown Master Plan calls for exactly that type of development (high-density, transit-oriented) in our western gateway. Both projects had 10-year abatement schedules that began with the DDA taking title for 65% and the developers 35% in the first year. The ratio changes by 6.5% each year for 10 years, when the developers have full tax responsibility.
I chuckle when I hear it said that the city is taking a loss with these abatements. The simple fact is that the city collected dramatically more tax from each of these properties before the improvements in the FIRST YEAR of the schedule—and the tax goes up 6.5% every year.
So, these tax abatements were not reductions in taxes at all, since both properties immediately yielded dramatically higher city taxes than the baseline before the property was improved. But they do provide the developer with a scheduled ramp-up, which in both of our examples is well underway.
Still Confused?
These are relatively technical topics. I would be delighted to chat with anyone who has questions or concerns or who seeks a deeper understanding. Email me so we can connect.