The Junction: What Next?

Tough decisions confront our community -- UPDATED

By Dan Schroeder

In two recent articles I’ve tried to provide an overview of Ogden’s Junction development and a detailed look at its revenue shortfalls. The most pressing problem is how to make the $1.9 million annual payments on the Junction’s “Series C” bonds over the next 17 years.

Revenue Sources

For the short term, most of this money can come from the tax increment revenue that the Ogden RDA receives from the mall redevelopment district (which includes the Junction plus the block west of Grant between 22nd and 23rd). This year the tax increment should be about $1.1 million, and over the next two or three years it should creep up a little higher, as more of the new buildings are completed and taxed at their full value.

A second source of revenue is tax increment from the American Can redevelopment district, north and west of the Junction. About 10% of the funds raised by the Series C bonds actually went toward the American Can parking garage, not to the Junction (as I should have mentioned in my earlier articles). In return, the American Can district is contributing $200,000 per year to the debt service.

A third revenue source is lease payments from Junction tenants to the Ogden City RDA. Most of the Salomon Center lease revenue is being used to pay off the Series B bonds, but there is about $100,000 per year left over that can be applied to the Series C bonds.

In addition, it was hoped that the Boyer Junction developments (Megaplex Theater, Wells Fargo building, restaurants, and smaller residential and commercial buildings) would be generating lease revenue by this time. But much of Boyer’s space is still vacant, so it isn’t yet making a profit or passing any income on to the RDA. City officials are now refusing to predict when this situation might change. Two years ago, however, they apparently projected that the city would receive over $300,000 annually from Boyer. It seems possible that this could still happen eventually, but not in the next few years.

The final source of funds is lease revenue from Business Depot Ogden. BDO currently provides the city with about $3 million per year, and a substantial portion of this money has gone toward the Junction bond payments during the construction phase.

The Short Term

For the next few years, however, it appears that the subsidy from BDO can decline dramatically: $1.1 million from mall district tax increment, plus $100,000 from the Salomon Center, plus $200,000 from the American Can district gives a total of $1.4 million, leaving only $500,000 needed from BDO to make the $1.9 million bond payment. And the mall district tax increment should soon climb to $1.2-1.3 million, allowing the BDO subsidy to decline further.

That’s the situation until 2015, when the mall district tax increment is scheduled to revert back to the taxing entities. Even in a best-case scenario (with $300,000 in Junction lease revenue from Boyer), the BDO subsidy would then have to climb back up to about $1.3 million. Whether the city can afford this would depend on what other uses it has in mind for the BDO lease revenue.

Long-Term Tax Revenue

Presumably there are other uses for the BDO funds, because the RDA is now asking the Taxing Entity Committee to extend the tax increment on the mall district through 2026, when the Series C bonds will be fully paid off. To understand the magnitude of this request, let’s make a few more projections.

By 2015, all of the existing Junction buildings should be completed and fully on the tax rolls. Even if we allow for a slight decline in the tax rate, the tax increment on the mall redevelopment district should be at least $1.25 million per year from 2015 through 2026. Barring some unexpected catastrophe, this is reasonable low-end estimate.

In a more optimistic scenario, the two vacant Junction parcels will be developed by 2015 and contributing additional tax. If the value per acre of these parcels is then comparable to the rest of the Junction, they could provide about a half million dollars of additional tax revenue, bringing the total annual tax increment to about $1.75 million. (Two years ago, city officials dreamed that these parcels would be developed to much higher values, resulting in a fantastic projection of over $3 million in tax revenue. I’ll ignore that projection in this reality-based article.)

So when the RDA asks the taxing entities to extend the collection of tax increment, it’s asking for about $1.25-1.75 million per year, over a period of 12 years.

The Taxing Entities

Now let’s look at where this money will go if the RDA’s request is declined. The answer is about the same for the Junction as for any other property in Ogden. Here’s the breakdown from my own recent property tax statement:

I’ve simplified this chart by combining taxing entities with similar purposes; for instance, “Schools” includes both the Ogden City School District and the Statewide School Basic Levy, while “Health & Safety” includes the Weber-Morgan Health Department, Paramedic Fund, 911 Service, and Mosquito Abatement.

Multiplying these percentages by the total projected tax increment of $1.25-1.75 million gives the following annual revenue to the taxing entities:

(Click the highlighted link for a more detailed version of the above table.)

If the tax increment is extended for 12 years, each of these entities will either have to do without this revenue (and thus provide a lower level of service) or make up the revenue by raising taxes on the rest of us.

Because the schools would take the biggest hit, the RDA is offering to pay them back $300,000 per year through so-called “mitigation payments”. As you can see, these payments would make up no more than half of the lost revenue to the schools. The RDA is also offering to sweeten the deal by handing some real estate over to the school district. There have been no reports of similar offers to the other taxing entities.

In order to extend its collection of tax increment, the RDA must convince six of the eight members of the Taxing Entity Committee (TEC) to vote for this proposal. The eight members include two from Ogden City (currently Council Chair Amy Wicks and CED Director Scott Waterfall), two from Weber County, two from the Ogden School District, one from the State Board of Education, and one from the Central Weber Sewer District (nominally representing most of the smaller taxing entities). The Ogden City representatives are being asked to relinquish general fund revenue in exchange for five times as much revenue going to the RDA. Everyone else is simply being asked to hand over their money to the RDA--although the school representatives are being offered part of their money back.

Why any of the TEC members (except those from Ogden City) would vote for such a deal--against their own best interest--is beyond me. The RDA could perhaps argue that it is morally entitled to the tax increment because without the new Junction developments, the revenue wouldn’t be there in the first place. But this argument should have been made before the buildings were financed, not after. Instead the city was promising, until just two years ago, that the Junction taxes would revert to the taxing entities in 2015.

So at this point, the RDA is effectively begging the taxing entities for a bailout. But assuming that the entities would even consider such a gift to charity, they should be asking how much the RDA truly needs.

Just how needy is the RDA?

Unfortunately, that question doesn’t have a simple answer.

One complication comes from differing attitudes toward the BDO lease revenue. On one hand, this is the revenue that formally underwrites the bonds, so perhaps it should be used to pay them off. On the other hand, anyone can think of other uses for that revenue.

Another complication comes from our uncertainty over the Junction’s future taxable value. Take the low and high estimates from the table above, subtract the $300,000 mitigation payment, then add back $300,000 from the American Can district and the left-over Salomon Center lease revenue. If you’re optimistic, add another $300,000 from Boyer lease revenue, and you end up with anywhere from $1.25 million to $2.05 million in revenue that the RDA can apply toward the $1.9 million annual payment on the Series C bonds. So there could be a shortfall of $650,000 that would have to come from BDO or somewhere else (still much less than what BDO paid in 2008), but there could also be a surplus of over $100,000, with no subsidy from BDO at all.

Given this wide range of uncertainty, a reasonable approach might be to wait and see how the Junction is doing in 2014 before promising any bailout. Indeed, the minutes of the June 25 TEC meeting show that one of the members asked why the RDA is in such a hurry to get the extension approved. And the RDA’s response was telling:

He [Richard McConkie] clarified for planning purposes, and for staff to have the ability to be able to negotiate on a future hotel or other major retail component, the tax increment plays an important part in sitting down with developers.

Moreover, at an earlier point in the meeting, McConkie specifically stated that in order to lure a hotel developer to the RDA’s vacant Junction parcel, the city would probably have to build a $4-5 million parking garage.

So the reason this is coming up now is simple: The city wants to borrow another several million dollars, and it needs another guaranteed revenue source to underwrite that debt. Then the city can gamble the money on yet another speculative venture such as the much-rumored new hotel. Whether Ogden’s market is ready for a new hotel, which would compete with the Marriott, the Hampton, and the Ben Lomond, seems not to concern the city administration.

Instead of asking the TEC to further enable its gambling addiction, here’s a novel idea for the Ogden City RDA: Sell the vacant “hotel” parcel on the open market (it’s assessed at nearly $1 million), get it on the tax rolls, apply the proceeds to pay down a little of the existing debt, and let the market decide what should be built on that parcel of land--and when. With the Salomon Center and Deseret Books right across the street, any number of businesses should be able to thrive at that location if given the chance. And when the streetcar comes through in a few years, a parking garage will be superfluous.

Selling the vacant parcel may or may not be the RDA’s best option at this point. Perhaps there are other options that don’t require incurring even more public debt at the expense of our schools and other public services. At the very least, I hope more citizens will become aware of the uncertainties, the trade-offs, and the risks that accompany the decision our community is now facing.

Citizens, please weigh in with your opinions!

Update 8/7/09 12:55 p.m. MT: "I've just received word that the Taxing Entity Committee will meet again, to consider the RDA's proposal, on Wednesday, August 19th, at high noon." -Dan S.