Portland’s urban renewal piggy bank gone bust?

by Steve, March 13th, 2009

politicsThis week’s celebrity slap-down between city commissioner Randy Leonard and county chair Ted Wheeler may signal the beginning of the end of an era in Portland development. (Warning: wonkishness ahead.)

First, let’s talk about how urban renewal, a.k.a. Tax Increment Financing (TIF), is supposed to work (and has, in fact, worked in some cases in Portland).

  • City leaders identify a part of the city that is “blighted” and draw a line around it. This is an Urban Renewal District (URD). Ideally (though state law is vague on this), “blighted” would mean that the property values within this area are stagnant of falling.
  • The city identifies infrastructure projects that would spur private investment to improve the property values in the URD, and borrows money (through the issuance of municipal bonds) to pay for these projects. For the life of the URD, property tax on incremental increases in the value of properties is diverted from the usual recipients (city, county and school district general funds) to pay off the bonds. So, for example, if a property within the URD increases in value from $100,000 to $125,000 in the first year, all of the property tax on the additional $25K in value goes to pay off the bonds.
  • When the bonds are retired, the URD can also retired, and the city, county and school district all receive higher revenue because of the increased value of the properties.

Now, that’s how things are supposed to work, but even in this best case there are plenty of critics. Minority communities have frequently been displaced, so urban renewal is broadly viewed as a tool of gentrification by those being “renewed” further to the fringes of society. But it gets even worse when the process is inverted as it was with the Major League Soccer deal.

Instead of identifying a blighted area, then determining infrastructure needs, city leaders identified a suposed need (renovation of a municipal stadium — whose recent renovation is still being paid off — to accommodate a private sports team investor), and then tried to create an urban renewal area to help fund it. Among other problems, the area around the stadium is distinctly not in danger of stagnant or falling property values. It is prime urban real estate, with a great deal of recent high-end commercial development.

This new urban renewal district (taken out of the deal by amendment before the deal was approved) would have directly deprived struggling county, school district and city general funds of millions of dollars over its life time.

It’s entirely disingenuous to claim the properties around PGE Park will not increase in value without another renovation to the stadium, and that we thusly wouldn’t be taking money from the county or schools.

Even Randy Leondard, while protesting that the debate has been uninformed, ultimately seemed to concede the point. Yes, we take the money, he seemed to say, but we’ve always been there for the county in times of need (“Good as we’ve been to you!”). And look at all we’ve build with it! It’s a very paternalistic attitude, and that was not lost on Ted Wheeler.

The reality, beneath the veneer of a bunch of euro-trash wannabe soccer fans rallying for a “major” league team, and urban renewal boosters’ insistence that building new stadiums for millionaires is the best kind of economic stimulus we can do, is that Merritt Paulson is in over his head with his baseball lease at PGE Park. His triple A Portland Beavers draw just over 25% of capacity. Paulson is paying not just current rent, but also back rent for the previous millionaire failure of a minor league sports team owner. That’s a gift to Portland’s civic leaders, who have egg on their face for that previous failure (not to mention the bonds they have yet to retire from the previous renovation).

Paulson’s lease is up in 2010, and if he takes his team to Tuscon, we’re stuck holding the bag on PGE Park’s last renovation with no tenant to pay for it.

Most of Portland’s glitzy development, including its tightly stretched bubble of a condo market, has been subsidized with urban renewal dollars. City leaders have taken advantage of vagaries in state law to use urban renewal as a piggy bank to subsidize Portland’s wealthiest land owners and create “iconic” projects for their own portfolios.

In the end, it’s about civic priorities. If we draw URDs around areas where property values are not stagnant, we directly impact city, county and school district general funds that pay for basic social services, schools, and infrastructure for the rest of the city. Maybe that’s what we truly want as a city. But let’s be clear about it when we do so.

A lot of this TIF mania can be traced to members of the old Neil Goldschmidt gang and the local commercial real estate mafia that has been their patrons. With our first publicly financed city commissioner (Amanda Fritz) leading the loyal opposition to this latest boondoggle, and with emboldened county chair Wheeler and school board co-chair Trudy Sargent at her back, maybe we’re seeing the beginning of the end of this kind of irresponsible finance scheme.

Well, a guy can dream, can’t he?

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