A crash course in geography and economics for Ogden taxpayers
By Dan Schroeder
As every reader of Weber County Forum knows, there are few projects in Ogden that are as important or as controversial as The Junction. But this reader, at least, has gotten through the last four years without ever actually understanding the complexities of this project. Motivated by the administration’s recent request for a 12-year extension on its entitlement to Junction tax revenues (and by a lull in the summer when I had few other responsibilities), I set out last week to remedy this situation. This article summarizes what I’ve learned.
The Lay of the Land
The Junction occupies the former Ogden City Mall site, taking up two square blocks (about 20 acres) of downtown. Here’s a graphic from the Ogden City web site, showing a simulated aerial view facing west, which I’ve labeled with the names of the major Junction components:
When the Ogden City Redevelopment Agency (RDA) bought the old mall site, it acquired the entire two blocks with the exception of the Episcopal Church. The RDA still owns most of the site, but not all. At the south end, the RDA traded some additional land to the church in exchange for a parcel across 24th Street. At the north end, the RDA granted one parcel to the Treehouse Museum and sold three parcels for commercial development. Those three parcels are now occupied by the Ensign Plaza building, the Earnshaw building, and the vacant land that was intended for the Ashton Square condominiums. (The privately owned parcels are tinted yellow in the graphic.)
The RDA continues to own the parking garage, the Salomon Center, and the vacant land that was intended for the Midtown Hotel (these properties are tinted green in the graphic). However, the Salomon Center is leased to Health & Fitness L.C., an entity set up by Gold’s Gym and Fat Cats.
The rest of the land at the Junction is also still owned by the RDA, but is under long-term lease to the Boyer Company, which built the Megaplex Theater, the Wells Fargo office building, and the various restaurants, retail space, and apartments. (These properties are tinted blue in the graphic.)
To finance its Junction-related expenses, the RDA has issued three different sets of bonds, referred to as Series A, B, and C. (For details, see pages 63-64 of the city's 2008 Comprehensive Annual Financial Report.)
The Series A bonds, totaling $7.3 million, were used to help finance the construction of the Salomon Center. The payments on these bonds are about $550,000 per year, and are coming from tax increment revenue from 10 other redevelopment districts throughout the city.
The Series B bonds, totaling $8.9 million, were also used to finance the construction of the Salomon Center. The payments on these bonds are about $590,000 per year, and are coming from the lease payments that Health & Fitness L.C. pays to the RDA.
The Series C bonds, totaling $22.4 million, were issued to consolidate the rest of the city’s Junction-related debt: $6 million to purchase the mall site, $4 million for demolition, $5 million to settle with Woodbury Corp. for its interest in the mall’s tax-increment revenue, and the rest for streets, sidewalks, utilities, and miscellaneous expenses including legal fees. The payments on these bonds are about $1.9 million per year, and are coming from a combination of tax increment revenue (from the mall redevelopment district itself and from the American Can RDA district) and lease revenues from Business Depot Ogden (BDO). If/when Boyer’s Junction developments ever make a profit, the city’s share of that profit will also be applied to paying off these bonds.
All three sets of bonds were issued in 2005 and will mature in 2025-31. Of the total original debt of $38.6 million, the remaining unpaid principal is approximately $36 million.
Incidentally, this bonded debt doesn’t account for all of the city’s investment in the Junction. The city also used various one-time allocations to pay for miscellaneous expenses, cost overruns, and repairs.
As mentioned above, the city (RDA) has two types of revenue to pay off this debt: tax increment and lease revenue. Each of these requires some explanation.
Tax increment financing is the whole premise of the RDA. When a redevelopment district is created, any additional property taxes from new development in the district go to the RDA for a certain period of time. Normally this revenue is used to pay off a portion of the debt from that development. Under some circumstances, however, tax increment revenue can be moved from one redevelopment district to another. In Ogden, tax increment revenue is now flowing from 10 other redevelopment districts to the Junction. Tax increment financing is controversial because it deprives all the taxing entities (school district, city, county, etc.) of the property tax they would normally collect from the new development. Proponents argue, however, that without tax increment financing, much of the new development would never take place at all.
When the city owns a piece of property, it can receive additional income from leasing that property. The city (RDA) leases the Salomon Center directly to its tenant, and began receiving lease payments in July 2007. The RDA also leases 6.3 acres of Junction property to Boyer, under an agreement whereby Boyer pays the RDA 50% of its net profit (if any) on this property. The city has a similar arrangement with Boyer for BDO, which is now returning about $3 million annually to the city.
The Junction’s retail properties, including restaurants and entertainment, also generate some sales tax revenue. The city’s share of this tax is 1% of sales, and this revenue goes into the city’s general fund (not to the RDA).
The revenue streams to pay off the Series A and B bonds seem to be coming through, at least for now. In particular, there is no sign that the Salomon Center tenant might walk away and default on the lease, leaving the city responsible for the Series B bond payments.
The problem is with the Series C bonds. The tax increment revenue from the Junction (including the block west of Grant between 22nd and 23rd Streets, which is part of the old mall redevelopment district) seems to be covering only about half of the $1.9 million annual payment. Most of the difference is being made up by BDO lease revenue, which the city would prefer to spend on other projects.
But in just five years, the situation may become much worse. That’s when the time limit on collecting tax increment from the mall redevelopment district runs out. For the next 12 years after that, the entire $1.9 million annual payment on the Series C bonds would have to come from BDO and/or other sources.
One of those other sources was supposed to be lease revenue on Boyer’s Junction developments. But with so much of its office, retail, and residential space still unleased, Boyer has yet to make a profit. Ogden Community and Economic Development Director Scott Waterfall has stated that he doesn’t anticipate receiving any income from Boyer in the near future.
In an upcoming article I will show in more detail how the Junction’s tax increment and lease revenues have fallen short of what we were promised. I’ll also describe the administration’s proposal to obtain additional revenue by extending the collection of tax increment on the mall district for an additional 12 years.
Meanwhile, the floor is open for comments.