MBJ Special Report: Commercial development incentives are available — if you can find them

by

Published: August 21,2014

Tags: Business, commercial development, Mississippi

commercial developmentMississippi let die on July 1 any new sales tax rebates for development of large retail complexes designated as “heritage centers,” a name given for their supposed ability to draw visitors from near and far.

The rebates, worth a few hundred million dollars to individual projects, went to a handful of retail developments around the state, including the nearly one-year-old Outlets of Mississippi, a more than 300,000-square-foot outdoor center on Bass Pro Drive in Pearl.

The 2012 legislation, allowing the rebates, died after two years, killed by legislators unconvinced of their economic development value.

However, plenty more incentives remain for developers who want to team up with Mississippi’s city and county governments to bring in commercial growth. Jackson commercial development lawyer Ron Farris has made a mission ferreting out the incentives he says are scattered throughout Mississippi’s law code.

» READ MORE: Cities learn value of partnering for retail

» READ MORE: MDA numbers help with cities’ retail pitches

“I read it from cover to cover,” Farris said. “My sole purpose was to find what exactly is in the tool box that I can use as an attorney to arm city officials and developers with the tools they might not know about.”

Many communities are using the provisions for things such as Tax Increment Districts, Planned Investment Districts and property-tax abatement to spur ground-up commercial development as well as redevelopment of aging commercial corridors. But from representing commercial development clients on projects throughout Mississippi, Farris has concluded many local leaders and their staffs have yet acquaint themselves with options open to them for creating commercial growth while providing needed public infrastructure such as streets, drainage and utilities expansions.

“The real problem I have seen is the absolute lack of understanding by city and county governments to know what tools they have.”

Many of the provisions designed to spur development have their origins in Gov. Hugh White’s 1936 Balance Agriculture with Industry initiative.

White made sales tax exemptions one of the key sweeteners to draw economic development, a tradition that Gov. Phil Bryant continues today with his Health Care Incentive Zone initiative.

Mississippi law allows local governments to designate certain industries and sectors as economic development entities “as long as they can make a finding” that the economic development projects are in the public interest, Farris said.

Localities use these to help with everything from hospitals and clinics to office parks, he added, but noted that too often they limit the incentives to getting industrial parks built. “They don’t realize they could mark other parts of their city for economic development. The authority is absolutely there.”

Here are some other local government incentive options Farris found in scouring the Mississippi Code:

» Cities and counties can float bonds for improvements that assist private development. For instance, a covered downtown garage, Farris said. Or a utilities extension, he added.

“When we built the new Walmart in Hattiesburg we had to have eight-inch water mains installed. We were able to use a TIF (Tax Increment Financing) on the Walmart and the Lowes that was built at the same time,” he said, explaining that the increase in taxable valuation the water line brought covered the cost.

» Cities and counties can establish economic development districts. Localities originally used these for industrial parks but districts can be extended beyond designated industrial parks, Farris said.

» Cities and counties can join to form Rural Economic Districts, entitling them to issue bonds for infrastructure improvements backed by funds a TIF generates. The Mississippi Development Authority must approve establishment of the district. Creation of the district is authorized in the Regional Redevelopment Act.

» Cities and counties in limited instances can issue bonds for public improvements without referendum approval.

» Localities can use provisions of Mississippi’s Urban Renewal law for blight clearance and making improvements in central business districts, including redevelopment as well creation of off-street parking.

» Several code provisions empower cities to deal with specific types of projects.

» Cities and counties in some instances can cede certain surplus property, including raw land. An economic development benefit must be shown.

» Cities and counties must specify “redevelopment” zones in the comprehensive land-use plans.

» Cities and counties can designate areas for TIFs before having a potential developer. “Just the presence of a TIF is in and of itself an incentive,” Farris said. “The developer doesn’t have to go through the time and expense of getting a TIF created and operated.”

Of the tools to use, none beats the tax increment financing, at least in Farris’ view.  “I don’t know of anything that works better,” he said of the mechanism used for funding public improvements needed for a commercial development.

Typically, as improvements make a designated property more valuable on the tax rolls, a set percentage of the increased tax dollars the property brings in is set aside to pay for the improvements. The developer borrows to pay for the improvements but can pledge revenue from the TIF.

Some TIFs are funded through incremental sales tax rebates. Madison funds its TIFs exclusively through the rebates, Farris said. “This is an entirely new dynamic to the developer. No money is coming out of the developer’s pocket with the sales tax rebates.”

In whatever form they take, TIFs are preferred by most developers over property tax exemptions, according to Farris. “They want TIFs because they feel it puts more money into their pockets” he said, though he noted TIFs do not always do that.

Redevelopment projects are where TIFs fall short, Farris said. Unlike ground-up projects on which property valuations can increase significantly, redevelopment projects start with a higher established valuation. Thus the increments are a lot smaller, Farris noted.

In a redevelopment, the increment is only the increase in the value as a result of the project, he explained. “With a ground-up, you get the whole increase from the vacant land.”

For about the last 15 years, developers used TIFs primary for retail centers built from scratch. “It worked just fine,” Farris said, but added developer interest is moving to redevelopment. “They need to look at ways to use TIF financing to do redevelopments,” he said.

Farris said he began concentrating heavily on redevelopment around 2008, having witnessed a slowdown in construction of big box retail while noticing too much vacancy of retail space along commercial corridors.

“I recognized that communities have progressed by moving their business district from downtown,” he said. He cited a migration that today has left huge commercial corridors with vacancies and decay, including in upscale life-style centers.

“This is the new face of retail. Nobody is coming to fill it in,”

Hence, the growing desire for making new starts along commercial corridors, Farris said.

Farris has worked with clients who have done seven or eight TIF projects in Hattiesburg. “Last year was my first one that was truly a redevelopment project,” he said, referring to the New Town Market redevelopment that took in re-use of the former University Mall and a large piece of previously owned by William Carey College.

“We ‘TIFfed’ the whole thing,” he said.

The former William Carey property on which a new residential project would go became the key to making the TIF work, according to Farris. “That was the ground-up development” that gave the larger – and much desired – tax increment, he said.

To benefit from the redevelopment era that is setting in, local governments must acquaint themselves with all the tools at their disposal, Farris advised.

Some communities, such as Ridgeland, are well ahead of the others, he said. “Ridgeland is going way past the cutting edge to use an overlay district and unique approaches to repair and upgrade” both commercial and residential areas, Farris added.

Others, such as Jackson, are letting the grandfathered status of deteriorating properties hinder commercial corridor redevelopment. “The city of Jackson is the poster child for letting properties just deteriorate. You have to use the tools you need. You can force the owners of derelict properties to remove their properties.”

Whether new development or redevelopment, city officials and county administrators must dive into learning about all the options available to make the projects happen, Farris said. Mississippi’s universities could take an active role in educating the officials on public-private opportunities state law provides, he added.

In the meantime, Farris said he’ll keep doing what he’s been doing: Telling out-of-state developers: “You are looking at starting at square one” with local officials. “I am going to have to go down there and educate every one of them.”

[RSS Feed] [del.icio.us]



To sign up for Mississippi Business Daily Updates, click here.

One Response to “MBJ Special Report: Commercial development incentives are available — if you can find them”

  1. MBJ Special Report: Cities learn value of partnering for retail - Mississippi Business JournalMississippi Business Journal Says:

    […] » READ MORE: Commercial development incentives are available — if you can find them […]

POST A COMMENT

 

FOLLOW THE MBJ ON TWITTER

Top Posts & Pages