The citizens of Virginia Beach have become the New Bankers for many of the planned development and redevelopment projects. Because developers are having difficulty qualifying for loans for various projects, our Virginia Beach city Council has continued to use several financial techniques that rely on the taxpayers for that additional financing.
These techniques include establishing special accounts for several income streams: The Tourism Growth Investment Fund (TGIF); Tourism Investment Program (TIP); Tourism Advertising Program (TAP); and Tax Increment Financing. And a new law has been passed, actually called Tourism Zone Gap Financing.
These financing techniques do not require that council submit a referendum to the citizens for their approval/disapprove on any project. (That’s’ right, citizens have no say on these expenditures.)
Council has replaced the use of the old Tourism Growth Investment Fund (TGIF) after 17 years (1993 to 2010) and many millions of your dollars. At an average of $14 million per year, Council spent about $230 million during those years on oceanfront projects and activities. To replace the TGIF council has started two new accounts called Tourism Investment Program (TIP) and another called Tourism Advertising Program (TAP).
Examples of annual revenues dedicated to these accounts are: Citywide meal tax – of the $51.7 million, $9.9 million was dedicated to TIP; citywide hotel tax – of the $25.1 million, $14 million goes to TIP; citywide amusement tax – 100% of the $5.3 million goes of to TIP; and $1 million of the cigarette tax goes to TIP. That totals about $30 million of our tax dollars to the TIP. Similarly, the account TAP receives $4.7 million from meal tax, $4.9 million form the hotel tax. For a total of $10 million to TAP.
About $40 million of our tax revenue is dedicated to tourism projects and to advertise tourism.
The funding scheme called Tax Increment Financing (TIF) uses city real estate tax revenue to help fund various projects. Council identifies an area, for example Town Center, and specifies the number of acres to be included in the TIF District. After assessing that area, the base year real estate assessment is determined. From then on, all additional real estate tax revenue is placed in the new TIF District account to be used to pay for the new development. The original revenue continues to go to the general fund, but all additional tax revenue goes to the project not to the general fund.
The amount actually paid into the TIF District fund also depends on the real estate tax rate at the time of the payment and when real estate properties decline in value the tax rate must be increased to provide the needed payment. For example, in this year 2012, the rate was $.89. Was there enough revenue, based on the declining assessments and the tax rate, to generate the funds or did council decide to increase the rate to $.95 to be sure that enough money would be available?
In any case, millions of dollars go to the Town Center TIF District rather than into our general fund.
Yet another new program has been brought to life by our council. The Tourism Zone Gap Financing Program is another entitlement program designed especially for local developers. The peculiar use to the word “gap” indicates the primary purpose of the law. Developers are having trouble securing adequate financing for their own tourism projects. Our council, together with our state government, has obligated citizens to providing a full 20% (the Gap between bank financing and the amount needed for the project.) of the cost of the project.
The New Bankers (that’s you taxpayers of Virginia Beach) advance up to 20% of the cost of the project. Eventually, the developer repays the loan by determining his net profit for each year and pay a small percentage of that profit to the city. These are private, not public, projects. And yes, the taxpayer will fund projects because the knowledgeable bankers won’t touch it.
Got that? You, the citizens of Virginia Beach, will advance 20% of the cost of the project. Yes, you – not the banks. You are the NEW BANKERS.
Let’s ask the citizens of Virginia Beach: Are you OK with being the New Banker in Virginia Beach to support Tourism Investment Program (TIP), Tourism Advertising Program (TAP) and now Gap Financing? All, by the way, supporting tourism at the oceanfront. The use of Tax Increment Financing (TIF) will soon be expanded to include projects at the oceanfront.
The Control Group
The Control Group, including city council, are responsible the existence of these financing schemes. Our city council is responsible for the use of citizens’ money. Developers profit from the TIF scheme and will benefit from the Gap financing travesty. The oceanfront businesses benefit from the TIP and TAP. So the Control Group would say, “Yes, give me more.” Only Council members John Moss and Bill DeSteph consistently put citizens first.
The Uniformed might say: Uh, what are you talking about? Where does all that TIP and TAP money go? Do we make all that back? That gap thing sounds like a real giveaway. Is all this stuff good for Virginia Beach. Gee, I don’t know. But, I guess they know what they’re doing.
The Engaged would agree that the Control Group knows what they are doing. They are taking us for a ride. Thanks to our Virginia Beach City Council, we – the citizens – have become the New Bankers for new projects.
The Gap financing is so bad even this council should be ashamed to use it.