A citywide tax break could save developers millions if they prove their projects benefit the community—potentially including John Kane’s controversial Downtown South redevelopment—but Raleigh leaders insist it’s not a handout.

“It’s not a tax giveaway,” Mayor Mary-Ann Baldwin told the INDY. “We are investing in communities that have never been invested in before.”

Tax Increment Grants are in place in Charlotte, and unlike other subsidies, the developer receives no money upfront for the project. In fact, they don’t get any money at all until they finish and prove they’ve made good on promised improvements in the neighborhood. For Downtown South, it could help transform what Baldwin called an “industrial wasteland” into a bustling mixed-use soccer stadium and athletic complex with housing, retail, and businesses.

Some groups, however, including the North Carolina Justice Center, vehemently oppose subsidizing development when the city is already facing a projected $28 million budget shortfall on top of more pressing needs brought on by the pandemic.

“In many cases, this tool has subsidized development that would have otherwise occurred, accelerated gentrification, and failed to deliver sustained community benefits,” the group stated in a recent letter. “It has also committed public dollars to the pockets of developers that otherwise could be driven back into community benefits and public institutions.”

The tax break formula Raleigh is considering is relatively simple and modeled after Charlotte’s program. 

For qualifying projects—ones that demonstrate a public benefit and in which the developer takes on sole financial responsibility—the city will reimburse up to 75 percent of taxes for up to 15 years, depending on whether the project is in an underdeveloped location. Projects in less prioritized areas receive a 50 percent reimbursement for 10 years. There is no minimum investment in order to be considered for the TIG, which city leaders hope will promote equity among qualifying projects. 

Take, for example, a project with an assessed value of $500 million in southeast Raleigh. If it can clear the hoops by proving community benefits—either through affordable housing or workforce development—the developer would get reimbursed for $1.3 million of the $1.8 million they’d pay in taxes each year, over 15 years. 

So in the end, the developer would save about $20 million in taxes over that period. 

The subsidy, however, is capped at 2 percent of the city’s annual property tax levy, according to Allison Bradsher, Raleigh’s chief financial officer. That would limit the total reimbursement across all projects to $5.1 million, based on projected property tax revenues for 2021.

More ambitious projects, such as the $2 billion Downtown South project, would exceed the cap by about $200,000. 

Bonner Gaylord, managing director for Kane Realty and a former Raleigh city councilor, said the tax subsidy alone won’t make or break the project. It has already been granted a rezoning. 

He likened the TIG to sugar on a cake.

“It’s the cake we need to focus on—not one of the ingredients of the cake, and dissecting it, and trying to break it down. We need to look at the bigger picture,” Gaylord told the INDY. “The TIG would not reasonably fund a stadium; there needs to be more in the mix, just like sugar can’t make a cake. There needs to be additional partnerships and collaborations to unlock the full potential.” 

It’s unclear if Kane will ask for additional city funds to make his project a reality. In 2006, Kane requested $75 million from Raleigh to build a parking deck in North Hills. The City turned him down.

Former Mayor Charles Meeker says that was a good decision at the time. He opposes a TIG—not because he doesn’t believe projects like Downtown South should happen, but because he thinks subsidizing development after the fact gets the formula backward.

“The developer needs the money upfront, so the timing is off, and it provides the benefit to the developer way down the road,” Meeker told the INDY. “It doesn’t really help the developer deliver at the right time, and it does hurt the City down the road. If the City thinks the soccer stadium is so important, it should provide a cash subsidy.” 

City council member Jonathan Melton is trying to keep an open mind about the proposal and says it could be good for Raleigh to have some framework in place. And while it does save developers money, it’s not like the city is cutting them a check.

“That’s money that doesn’t exist yet. It’s not like there’s this pot of money that can be allocated elsewhere,” Melton told the INDY. “It’s not like spending money to encourage the project—the project hasn’t happened yet.”

The council plans to discuss ways to engage the community in the tax break system at an upcoming meeting. Baldwin says she’s not in a rush to push through the policy. 

“We still have a lot of work to do,” Baldwin says. “The fact is that we need this done and done right, not done  fast—and it needs to be citywide, so everybody knows what the rules are.” 

Follow Interim Managing Editor Leigh Tauss on Twitter or send an email to ltauss@indyweek.com

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