Looking a TIF horse in the mouth: Is the MRA getting our money's worth at the Marriott? 

Last month, the Missoula Redevelopment Agency offered almost $3.6 million in tax increment financing to the developers of a new hotel on the site of the old Mercantile building. Because the site is within the Front Street Urban Renewal District, the MRA can use property tax revenues from the area to reimburse HomeBase Montana for certain costs of the project, on the assumption that it will make up the difference in increased tax revenues later.

That's what the MRA can do. The question of whether it should is another matter.

The purpose of tax increment financing is to encourage developers to start new projects in blighted areas. The Marriott Mercantile is not a new project. HomeBase committed to a development agreement in August of 2016, and demolition started three months ago. The only reason to give the developer TIF money now is to prevent the project from falling apart.

That would definitely be bad. The historic Mercantile building has been demolished. To sacrifice it for the promise of new construction and wind up with a vacant lot instead would be a minor disaster. Giving a private business $3.6 million in public funds might be worth it, if it made the difference between having a hotel and having a giant hole in the ground.

Developer Andy Holloran never said TIF money would make or break this deal, but he implied that it might. According to Independent reporter Derek Brouwer, when a resident attending the MRA meeting asked Holloran what would happen if he didn't get the $3.6 million he asked for, Holloran replied that it would "stress" the project.

That makes it sound like he needs the money. But Holloran undermined that theory later in the week when he claimed that the project would generate more tax revenues than originally anticipated. I quote David Erickson in the Missoulian:

"Holloran says he thinks the Department of Revenue's estimates are low, because he and his team have added $5 million more to the total project costs, including 27 more rooms than the original design."

click to enlarge opinion_mra.jpg

Hold up—we gave them $3.6 million, and they expanded the project by $5 million? That makes it sounds like HomeBase did not need our money at all. The public funding that MRA gave this project, ostensibly to keep it from becoming stressed, actually paid to expand it. This news is particularly disappointing in light of what those TIF funds are supposed to pay for.

About $1.5 million will reimburse the developer for the cost of deconstructing the old building and recovering many of its materials instead of demolishing it outright. Deconstruction was expensive, but it was also a condition of the developer's agreement with the city. HomeBase had already done the work without running into any cash-flow problems. Where was the city's compelling interest in offering the developer another $1.5 million dollars to do what had already been done?

The $335,746 in TIF money that will reimburse HomeBase for preserving the pharmacy portion of the old Merc looks like money dubiously spent, too. Like deconstruction, the pharmacy was a condition of the original permit. Developers agreed to forfeit a $3 million bond if it was destroyed, and now the MRA has offered to reimburse them for holding up their end of the deal—even though the pharmacy suffered a partial collapse during deconstruction in May.

Another $151,500 in TIF financing will pay for asbestos removal that has already been completed. As with demolition and pharmacy preservation, the city has offered a lot of money to get what it already has. None of these expenditures will affect the future of the project. With terms agreed to and construction underway, what did taxpayers get in exchange for our $3.6 million?

I understand the sunk-cost argument for giving public funds to a private venture, if it's that or an empty lot downtown. That's not the situation we're facing, though. If the MRA is saying it's a wise investment for the city to give $3.6 million in tax revenue to a real estate developer because it will earn us more in the long run, that's a totally different proposition. It constitutes a different vision of the agency, whose function is to encourage development, not selectively invest in developments that are already underway.

The MRA estimates that most of the additional tax revenues generated by this project will go to paying off the TIF bond over the next 25 years. That's a long wait to break even. Who knows but that the next generation of Missoulians might think of some use for $3.6 million even more valuable to the public than a bigger Marriott? If giving that money to a real estate developer is a wise investment of taxpayer funds, the MRA needs to make that argument to taxpayers. Until then, it will be difficult to say whose interests this deal has served.

Dan Brooks writes about politics, culture, and the gradual merger between city government and commercial real estate development at combatblog.net.

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