Friday, December 12, 2008

SunCal on the loose

I got a second mailer from SunCal Corporation promoting TIDDs this week, and it seems that just about everyone I know in Albuquerque and Bernalillo County did as well. This direct-mail promotional effort must have cost SunCal a bundle.

The mailers are promoting the use of tax increment development districts as a source of jobs. “Tidds create jobs,” the mailers say.

Actually, TIDDs don’t create jobs. They simply allow developers to draw down future tax revenue generated from the places they develop to pay off bond proceeds that were used to build their infrastructure. Technically speaking.

Tax increment financing is actually a simple concept. Imagine a circle drawn around a given geographic area. A TIDD is created and at that time the current tax base is measured. What’s promised to the developer is a percentage, or increment, of the increase in taxes over that tax base in the future. The premise is that the development — and the upfront infrastructure the TIDD funds — is going to spur desirable growth in that area.

SunCal’s 55,000 acres adjacent to Albuquerque’s West Side are largely undeveloped, so the company would get a huge chunk of the taxes generated there for about 25 years. It’s got a handful of TIDDs covering about 4,000 acres of that 55,000-acre spread right now — and are just waiting for legislative approval to sell bonds supported by that promise of future tax revenue. For just those 4,000 acres, that sum would be about $629 million.

Hence the promotional pieces. SunCal will be at the Roundhouse in force when the Legislature convenes in January, and it is attempting to neutralize the public.

SunCal is a massive real estate company that builds planned communities and housing developments throughout the West. The company bought 55,000 acres of undeveloped land on Albuquerque’s western fringe in 2006. On its Web site, you can see the huge expanse of green grassland the firm is hoping to build on.

There is a potential problem for SunCal, though. Between last year’s session — when the Legislature failed to approve the TIDD bonds — and now, at least 20 SunCal projects in other Western states have declared bankruptcy. To my knowledge, they’re all companies that were financed by Lehman Brothers, the financial company that went belly-up last summer.

SunCal representatives have claimed that the New Mexico project is solid — that it didn’t get financing from Lehman. As we previously pointed out, however, Lehman Brother’s had a 20-percent stake in D.E. Shaw, which is the principal investor in the New Mexico SunCal subsidiary — also known as Westland.

Given the current state of the financial sector — not to mention that the country seems to be teetering on the brink of cascading bankruptcies across the board — this is not very reassuring.

The TIDD statute, as far as I can tell, doesn’t address what happens if the company that gets the TIDD goes belly-up. TIDD proponents say there is no liability on the part of government to the bond holders if the company doesn’t complete the project and therefore does not have the tax revenue funds to pay off the bond holders.

But would government really let that happen? Or would another developer buy the property dirt cheap, put in crappy, sprawling housing developments and then use the tax revenue from the area to pay off those bonds that were meant for “good” infrastructure — not to mention “jobs”?

Interested taxpayers want to know.

Cross-posted on NMI.