Researchers evaluate redevelopment financing tool
at the Andrew Young School of Policy Studies

November 2004

Contact: Debby McCarty, Executive Director, Research Atlanta
404-651-3748

ATLANTA – Tax allocation districts are an increasingly popular financing tool for promoting redevelopment of blighted areas, but municipalities must carefully consider the potential cost of their implementation, according to a new Research Atlanta report by researchers at Georgia State University’s Andrew Young School of Policy Studies.

Tax allocation districts, or TADs, use the anticipated tax growth from rising property values in designated geographical areas to finance new infrastructure or other public improvements that will lead to private-sector investments in the community. Eleven TADs have been established in metropolitan Atlanta in the past five years (nine within the last two), and Atlanta officials are now considering their use for the proposed Belt Line project.

Although TADs have surged in popularity, their effectiveness has not been carefully studied, warn Georgia State’s Carolyn Bourdeaux and John Matthews in the report “Georgia’s Redevelopment Powers Law: A Policy Guide to the Evaluation and Use of Tax Allocation Districts.” The report, which includes examples of how other states manage similar economic development tools, is designed to deepen local policymakers understanding of how TADs work, says Debby McCarty, executive director of Research Atlanta.

“TADs have been beneficial, yet any decision-maker considering one for his or her area should be aware that this policy tool is not without cost or risk,” says Bourdeaux, an assistant professor of public administration and urban studies. “They do represent a gamble on the part of local governments, so they need to be thoughtfully applied.”

Matthews, a research associate, says municipalities that use TADs “should be able to assess their effectiveness – whether proposed benefits materialized and any lessons learned. Just as important, they should be able to show how well their expectations were met in any public-private partnerships formed.”

Some of the benefits of TADs include the ability to finance economic development activities based on anticipated increases in revenues rather than the current tax base as well as allow overlapping jurisdictions to pool resources to support economic development activities, the report says.

But their potential risks include financing projects whose benefits do not materialize sufficiently to cover the costs of the debt issued or other public-sector investments, say the researchers. TADs also may also stimulate growth that increases demand for public services but not generate sufficient new revenues to meet this need. By relying on increases in the value of property, TADs could conflict with other public policy objectives such as property tax relief or tax abatements for targeted businesses, the report notes.

Because of these and other potential risks, many states and municipalities have adopted strategies to ensure the careful use of tax allocation districts. Georgia’s Redevelopment Powers Law stipulates no formal requirements for the creation of TADs, but municipalities in the state can only commit 10 percent of their property tax base to TADs at any point in time.

In their report, Bourdeaux and Matthews recommend that municipalities conduct careful feasibility, fiscal-impact and cost-benefit analysis of all proposed TAD projects and be conservative in estimating revenues from TADs. “In general, jurisdictions should develop policies to target TADs for projects where private sector investment is unlikely without public sector investment,” they write. “Some of the most successful uses of TADs have been in brownfield redevelopment, redevelopment of areas with significant urban blight, and reuse of old industrial and military facilities.”

Research Atlanta Inc. is an independent, nonpartisan, nonprofit organization that studies problems affecting metropolitan Atlanta. The goals of the organization are to develop and present reliable information about community issues to Atlanta area leaders in a manner that encourages informed policy planning and implementation and to present information on community issues to the general public so that it can better understand and participate in decisions affecting the community. Research has been conducted in such areas as public education, taxation, government structure, private philanthropy, housing, delivery of government services and transportation.

Research Atlanta’s complete TAD report is available online at http://aysps.gsu.edu/2021.html.