As you no doubt have heard by now, Boston 2024’s proposal to use a financing device known as “tax increment financing” or TIF bonds to help build an Olympic stadium has generated a good deal of controversy. For the most part, the controversy is because the use of TIF bonds appears to contradict Boston 2024’s oft-repeated pledge that public funds would not be used to build Olympic facilities but only to finance infrastructure like improving the MBTA.
Is that true? A number of BMGers have been arguing about this (mostly in the comments to this post). TIF bonds are (apparently) issued on the assumption that, following the improvements that the bonds are financing, increased tax revenues from the improved property will suffice to repay the obligations owed to the bondholders. But, of course, that assumes that tax revenues will indeed increase sufficiently to cover the principal and interest payments. And if they don’t…?
Happily, alert reader paulsimmons points to an explainer in the Boston Business Journal that sheds some much-needed light on the subject.
There are several ways to issue a TIF bond in Massachusetts, and Boston 2024 did not specify in the bid document which method would be used. One possibility would be to issue the bond in connection with the state’s District Improvement Financing program, which allows cities to fund public infrastructure by allocating future, incremental tax revenues from a particular area of the city.
However, if a city like Boston issues such bonds through the DIF program, it may have to stipulate that it will pay back the securities with other public funds should the forecasted tax revenue from that designated area of the city fail to materialize.
“In some cases, depending on the certainty or uncertainty around the new development occurring and the new tax growth happening, a city may have to backstop [the bond] with its own general obligation guarantee,” said Laura Canter, an executive vice president at MassDevelopment.
To date, no TIF bond has been issued in connection with a DIF program in Massachusetts, according to Canter, adding another layer of uncertainty to financing the Olympics stadium through the instruments, should the city chose to go that route.
The city or state could also issue TIF bonds through the so-called Chapter 23L local infrastructure development program or through a mechanism known as the Infrastructure Investment Incentive Program, or I-Cubed. In the case of an Olympics-related TIF bond, special legislation may also be required, said Harold Davis, of counsel at Davis Malm & D’Agostine PC.
Put otherwise, taxpayers could indeed be on the hook for TIF bonds. But we’re not really sure, because Boston 2024 hasn’t explained what they are planning to do, nor have they gotten the required buy-in from whichever public agency they were planning to have issue the bonds. So, what exactly is their plan?
Boston 2024 declined to comment about which method would be used to issue a bond, stressing that “many elements contained in those preliminary documents have already changed and some will continue to change as the bid evolves.” The group has said it will unveil another formal proposal to host the Games by June 30.
petr says
… See, now, this part of the problem.
Nobody, ever, anywhere, said that TIF bonds are “magical free money.” Nobody hinted at that. Nobody thought that.
Nobody said anything remotely close because it’s simply not true.
Can we have a discussion about the intricacies of a highly targeted financial instrument without it runs the gamut from mockery to mendacity? Please?
If you read with any perspicacity you will know EXACTLY what Boston2024 plans to do because they said what they plan to do and it includes A) issuing bonds and 2) seeking special legislation. They’ve said this all along. This means that they will go the second route and not the route involving DIF bonds… which are the bonds that will involve backing securities with public monies.
Instead, you choose to beileve that Boston2024 will somehow get the DIF program to somehow issue TIF bonds that have never issued before. The sequence of events necessary for Boston2024 to get to public money in this manner is even less plausible than a Viking longship on the Charles in the sculling competition.
It beggars belief the lengths to which people are going to impugn the organizers.
Trickle up says
People do think exactly that.
People generally undervalue risk, which greatly facilitates various schemes to socialize the risks of private activity (wall street, nuclear power, fracking.)
petr says
TIF bonds have been in use in California since 1953. They were so successful (and yes some were abused) that a long protracted fight to stop CA Governors poaching on the redevelopment authorities funds (fueled by TIFs) ended in a lawsuit over an amendment forbidding the Governors from doing that. The judge in the case said two things: 1) “The state can’t poach from the redevelopment authorities funds…” and 2) “but the state that started the gravy train can end it.” And that’s just what Jerry Brown did. The TIF bonds were so successful they actually started to shift the political center of gravity in the state. I think they were overused and abused and where without much in the way of checks and balances, and so I, in general, agree with the decision to stop them in CA. But that’s an entirely different set of circumstances.
So we understand the risk. California is not the only state that uses them. We understand them and the risks. And if done correctly the risk is minimal: after all, theoretically, you could take any piece of land, apply a TIF to it using all the up front money to buy a huge chunk of gold and bury it in that land. The value of the property will certainly rise, will it not? Where’s the risk there?
johnk says
The 30 for 30 was good, I enjoyed how he walked into Fleet and they just gave him 80 million.
Trickle up says
They say the Olympics should pay for itself.
I say, the Olympics should pay for itself.
petr says
… does the use of TIF bonds thwart the standard whereby the Olympics should pay for itself??
Trickle up says
It should pay for itself.
HR's Kevin says
The temporary stadium will be funded by future tax revenue of buildings that will replace the stadium and could just as well be built without the Olympics. If you just skip the Olympics and do the same development (assuming that is really what we want), then you have saved your self hundreds of millions of dollars that you do not have to fund with your TIF bonds. The stadium doesn’t generate revenue or add any value to the land after it is torn down, so that has zero value for paying back the bonds.
In any case, when Boston 2024 says that the Olympics should pay for itself, I believe they are following the long-standing tradition of not including any public expenditures that would otherwise put the Olympics in the red. If *their* books are black at the end of this, they will claim that the Olympics made money, even if the City had to spend billions of dollars for extra security, public works, temporary infrastructure, and permanent infrastructure that otherwise would not have been a priority.
petr says
… is that the temporary stadium will be funded by bond investors. The stadium and anything else on the site (that is 80+ acres in size) will be funded by the money of the people who purchase the bonds. It’s not taxpayer money that will fund the bonds. it is the money of the purchasers of the bonds.
They will later be remunerated through the increased valuation of the land and only through the increased valuation of the land. No taxpayers will be harmed in the production of this Olympics.
HR's Kevin says
The bonds have to be paid back. It is not free money. So perhaps you can say that the bond holders are funding the construction in the same way that you might say that a bank is funding your mortgage, but in the end it still needs to be paid back. And in this case it is going to be paid back by public funds. So it would not be truthful to say that the stadium is not funded by public money. Given your bogus logic you could just fund the Olympics with a gigantic 20 billion state bond fund and claim that means that no public money would be used.
Whether or not existing tax payers tax rate goes up or not, it is public tax money that is going to pay for the temporary stadium. A stadium that cannot possibly add any value to the land because it won’t exist at the end of this process.
The tax payers do indeed lose, because we have to pay for a stadium that does not generate tax revenue. If we were to just skip the Olympics and go straight to the mixed-use development — assuming that is what we really want, of course — then we would save ourselves several hundred million dollars that would not have to be paid back in future taxes.
I don’t understand why you keep ignoring the fundamental issue here that a temporary stadium cannot generate increased property taxes.
Mark L. Bail says
trouble, can you quote the bid document that discusses TIF’s? I’m not sure it would shut everyone up, but it might be edifying.
petr says
The original, redacted, documents speak as thus (sec 2.3 “Financials” page 11,);
“The stadium site will be controlled by a public building authority or agency, either existing or to be formed . Acquisition and improvements will be financed by the issuance of bonds supported by value creation for private development – the first phase of which will be initiated before construction of the Olympic Stadium .
The un-redacted documents specific TIF’s but I can’t find a downloadable version and the images I’ve seen won’t let me cut and paste…
petr says
Tried to include this link for ‘documents’ above, but it didn’t take…
petr says
here is a link (previously linked to in this thread) that specifies TIF funding…
Mark L. Bail says
I tried googling, but met with no success.
Christopher says
Probably not, given the history here:(
jconway says
They really should only be used in actual urban blighted areas to encourage permanent and sustained economic development, you know, not a three week corporate event the average Bostonian won’t be able to afford to attend.
They have been grossly abused in Chicago for decades.
petr says
… but nobody decided to ban, altogether, the practice of mortgaging homes. Why? Because, despite the possibility of abuse, the fundamental financial principles remained sound. Today banks still give mortgages.
You know, this kind of snark might belie your purported sincerity wrt the “only person here who’s actually worked on an Olympic bid”…
One might be tempted to think you have a higher opinion of Chicagoans than Bostonians.
That, or you’re just not sincere…
kirth says
But a whole bunch of people wanted to ban the practices that made mortgages a “disaster.” You’re comparing apples and oranges again.
hesterprynne says
among the city of Boston, the state and Vertex Pharmaceuticals.
This stuff is definitely outside my area, but I do see that the state is guaranteeing $50 million for bonds for infrastructure (paragraph 1 of Menino letter on page 7), and there’s a clawback requiring the city to pay for any shortfall if new state tax revenues are less than the debt service on the bonds (page 9, last paragraph).
And PS: Jeffrey Leiden, the CEO of Vertex Pharmaceuticals, the company benefitting from the TIF, is also the co-chair of Boston 2024’s Innovation and Technology Committee. (Incidentally, he made $36.64 million last year.)
HR's Kevin says
Whether or not there is a significant risk to the City to back TIF bonds that don’t pay off, it is still public money that comes from taxes and therefore from tax payers.
I don’t necessarily object to TIF being used to fund development in a blighted area that would otherwise not be developed. But I fail to see how building and tearing down a stadium improves anything. In any case, it is crystal clear that if TIF is used to fund any Olympic venue construction then it would violate Boston 2024’s and the Mayor’s promise not to use public money.
Of course, the whole stadium plan assumes that the food co-op is willing to sell the land to Boston 2024 (what if there are other bidders?) or that Boston is willing to take the land by eminent domain. It is not at all clear that either of those are likely.
petr says
… of whomever it is who buys the bonds. The bonds will get paid back via the increased value of the land. I, a taxpayer, will pay nothing extra. You, a taxpayer, will pay nothing extra. The owner of the land will have a piece of land with increased value, on which increase of value he/she will pay the appropriate amount of taxation.
ryepower12 says
The revenue doesn’t always materialize, and when it doesn’t, the city ends up having to step in and pay the difference.
This has happened in many cases.
Stop burying your head in the sand.
David had your argument pinned — you think it’s magical money. But he’s also right in that it doesn’t exist.
petr says
… it might come true.
But then again, maybe not.
SomervilleTom says
I don’t understand why you’re so stuck on this.
“Increased value of the land” isn’t money until it’s taxed. When it’s taxed, the tax on that value (whether increased or not) is PUBLIC MONEY. The owner of land will pay more money. The owners of other nearby parcels will pay more money, since the “increased value of the land” does not respect boundaries drawn on assessor maps.
You admit this yourself when you write (emphasis mine): “The owner of the land will have a piece of land with increased value, on which increase of value he/she will pay the appropriate amount of taxation.”
Money paid in property taxes is PUBLIC MONEY.
petr says
Bond purchasers fund the bonds. Funds increase value. Value increased pays for bonds upon maturity. Tax revenues are merely an organized way of planning for and paying out funds against a property whose value increase occurred exactly because of the bondholders purchase. Todays taxpayers pay nothing extra nor do rates increase or in any way are existing and future taxpayers impacted…
You’re coming dangerously close to claiming adjacent landowners are scared of increasing the value of their properties.
SomervilleTom says
I’m saying that if the contemplated project is successful, the value adjacent properties will rise. The property taxes on those adjacent properties will increase. Some of those property owners will welcome the increase in value. Others of those property owners will bemoan the gentrification. The owner of the subject property will certainly pay higher property taxes if the project is successful. If the project is successful, more property tax revenue (ie “public money”) will result — that’s how the bondholder gets paid.
In most current examples of this mechanism, if the project somehow fails to generate the additional revenue needed to pay the bondholder, the government has been on the hook to make up the difference. More public money at risk.
You’ve been making the assertion here, over and over, that no public money will be spent on these. Repetition does not increase the persuasiveness of the argument.
HR's Kevin says
The money gets paid back through taxes. Taxes are public money. This is like saying that if the City borrows money from some bank that no public money is involved.
Saying that taxes — even future taxes that may not have been collected without the development — is not public money is pure sophistry. It doesn’t matter whether anyone’s actual tax bill goes up on a given day. Public money is public money. Every dollar of future tax revenue we hand to a developer is a dollar that we don’t get to spend on something that we actually care about.
Now we can debate whether a given TIF-funded project is worth that future tax money, and I am sure that there are cases when there would indeed be no hope of those future taxes without the development, but it is still public money funded through tax revenue and not through future rent or other revenue generated by the private development.
In this particular case, the Olympics adds exactly nothing to this deal. All of the added value comes from the mixed-use development that is supposed to occur afterwards. So we are talking about using the future taxes of this mixed use development to pay for a large temporary stadium that will not generate any revenue or value for the city. Furthermore, their plan doesn’t really say anything about the cost or funding of the actual development that would add taxable benefit to the City.
As I have said many times before, there is a huge building boom in downtown Boston, South Boston and the Seaport district. That area is going to be developed one way or another and it won’t take the Olympics or any developer-friendly public financing deals for it to happen, nor will we have to wait ten years for it to happen. So we are really talking about giving away years of future tax revenue to some developer who is cozy with Boston 2024.
petr says
… it is a loan, from the bond purchasers to the land owners administered by the government.
That’s it. Otherwise, you can’t use the phrase “The money gets paid back…” It’s not taxpayers money to begin with, value gets generated by targeting improvements to the site and some of the increased value goes to repaying the bond investors.
“The money,” you see, is the bond purchasers money. And it goes to the landowners for the express purpose of increasing the value of the property. The government is only the arbiter of the valuation. If “the money” wasn’t the bond purchasers money then it wouldn’t need to “get[] paid back”…
HR's Kevin says
If a building developer wants to pay back a loan based on the increased value that the construction will cause in terms of rents then they can do that. Paying back from taxes is using public money.
You keep conveniently ignoring my repeated point that the stadium cannot actually add any tax value and therefore doesn’t represent any kind of improvement that could generate tax value to pay for itself. So that means it has to be taken from the City’s cut of future taxes, and thus most definitely comes from the tax payers.
ryepower12 says
because when the revenues fail to materialize, cities pay them off through other funding sources.
So while few TIFs have defaulted, that’s only because cities are paying the shortfalls.
It would be like praising parents co-signing onto mortgages as a way to get young families into homes, because there are low “default rates” associated with that, even if there are very high “mom and dad have to pay the mortgage now” rates… which is why typically only wealthier families tend to do those kinds of things.
petr says
… to structure these things so that scenario simply cannot occur,/b>. Boston2024 has said that they want to structure this so that this does not occur.
You simply don’t want to believe them. Fine. Just, don’t let’s pretend that the parade of horribles you posit comes from anywhere besides your cynical premises.
SomervilleTom says
You assert that “there are ways to structure these things so that scenario simply cannot occur”. Some of us don’t accept that assertion. We don’t accept it from you and we don’t accept it from B2024.
The “parade of horribles” (your characterization) is a simple enumeration of the many ways that your assertion has turned out to be false when actually attempted.
Money — bond money and mortgage money — doesn’t simply appear unless we’re talking about the feds increasing the money supply. Surely the experience of the S&L collapse, the ENRON collapse, and substantial portions of the Great Recession of 2008 provides evidence of this for those willing to see it.
Bob Neer says
Let’s see what they come up with at the end of June. Petr makes excellent points, but so do his interlocutors, in MHO. It’s impossible to resolve satisfactorily because we don’t know the specifics of the proposal. But I suspect what everyone can agree on is that 2024 has done themselves yet more political damage: to the extent public entities are potentially liable for expenses — bond defaults, whatever — public funds are involved for costs like stadium construction. That sounds very different from 2024’s earlier statements on the subject.
Mark L. Bail says
Petr brought them up today. In this case, the important questions are, exactly how would they work in the case of an Olympics and how well would they work for a Boston Olympics?
My opposition to Boston 2024 isn’t predicated on TIFs, but personally I’d still like to understand them. Can anyone offer an unemotional, unbiased explanation of how TIF’s might work in this case? There are still a lot of unknowns, but it would nice to be able to separate fact from supposition.
I oppose the Boston Olympics based on the cost overruns of previous games, the expert opinion of Andrew Zimbalist, my observations of big projects, and my personal experience with projects with a lot of moving parts. All this is prior to my fairly mild suspicion of the players involved.
Jasiu says
Today’s Boston Globe says “probably not” to the TIF plan:
In any case, I think the wrong point is being debated in this thread. It isn’t so much the details of the plan as why it was redacted in the initial public version. It is another “own goal” by B2024 in the transparency and trustworthiness department. If this was such a good idea, why did they not reveal it initially and defend the plan?
IMO, it isn’t so much the details of what and how but the inept management of the whole process by B2024 that is causing the bid to tank.
HR's Kevin says
I think it is both the ineptness and the details that are causing this to tank. I don’t think there are many people who are happy with either the concept or with the management.
Until they publish a plan that clearly demonstrates that they can easily pay for all venues solely with private money or Olympic revenues, there is really no reason to believe that it is even possible. Unless they can come up with some very deep pocketed corporate or private sponsors who are willing to sign iron-clad contracts, I don’t see how it is possible for the City and State to not be on the hook for the inevitable cost overruns.
Christopher says
…to either others for 2024 or previous bids, especially American ones, with regard to transparency? People seem to like to gripe about it and I can understand the more sooner wishes, but I have no idea whether this is par for the course for Olympic bids or if Boston is overdoing it in the confidentiality department.
Jasiu says
This reminds me of when I’d get caught doing something as a kid and I’d try to use the “but Billy was doing it too!” excuse. My Mom’s response was always, “If Billy jumped off a bridge, would you do that too?”
This whole process involves getting into bed with some pretty unsavory characters (who who knows if a FIFA-like investigation is underway with the IOC) and, for a lot of us, that raises the bar on what needs to happen locally.
Christopher says
…and believe me, this is nowhere near he did it too territory. For all I know there could be very legitimate reasons to keep things under wraps while negotiations are ongoing and such. If this is what is expected or required by parties involved that’s one thing. If Boston is being more secretive than necessary that is something else.
petr says
… because LA and DC, amongst others, were also putting forth competing bids and Boston was thought, at the time, to be a long shot, dark-horse. Details are always played close to the vest in instances like this. I would have played it no differently. I think you would have also played no differently…
Now, this playing close to the vest is being turned into ‘incompetence” and ‘lack of transparancy” which makes me question the sincerity of the anti-Olympics fulminators: it is either cluelessness or mendacity to rally around this flag.
Jasiu says
I can’t see why a TIF financing plan would be something that would have to be kept under wraps from a competitive point of view.
And please don’t assume anything about how *I* would have played this.
petr says
…the question will you believe me?
‘Cause, to date, every answer I’ve given –and Boston 2024 has given for that matter — has been met with fantastic contortions designed, apparently, to avoid having to believe the answers.
Jasiu says
That might be the key point here.
You (and Christopher) seem to be OK with how the Olympic organizations are run and how they try to mold the agreements. I am not and venture that many others here are not.
If *I* were playing this, I’d be opening the process for 2028 now, making a big public stink about how I want to get together with anyone and everyone who has an opinion on having an Olympics in Boston, what they want it to look like, what creative financing options there might be, and how much of a stomach the area has for the inevitable disruptions (and how to possibly compensate for those). There would be no big surprises once a bid came out (and a bid would only come out if there was significant public enthusiasm) because everything that is in there would have been hashed out beforehand.
If the IOC and USOC are truthful about wanting to make the games cheaper to host, they should welcome this approach with open arms. If not, well, why have on Olympics on their terms rather than one on our terms?
petr says
More contortions. Nobody here gives a hang about the “wishes” of the USOC and/or the IOC. In a competition that you want to win you play your cards close to the vest. That was what you asked and that was what I answered.
kirth says
I think you should check with this petr fellow, who says below:
It certainly looks like Murphy & co. gave something of a hang about the wishes of the USOC. Or does your use of the word “here” indicate that you’re only talking about people on BMG? If so, why?
petr says
Murphy and Co give a hang about being at a competitive disadvantage.
Instead of trying to catch me in an inconsistency why don’t you read things?
Jasiu says
They care about being competitive and to do so are willing to play by the rules set down by the USOC and IOC.
That doesn’t seem to bother you. But it bothers a lot of others given what we know about these organizations.
petr says
I can understand that. And maybe there’s something to that. I would say it bothers me less, because the IOC has made some attempts to change… and I question why that doesn’t enter into “what we know about these organizations.” But you’re not wrong and there is a risk.
However, this is distinctly different from the ‘incompetence’ and ‘inept management’ of Boston2024 you posit’d upstream. You asked why they didn’t release the information and, before getting an answer, posit’d incompetence as the reason. I called you on it. Maybe corruption is the real reason or just maybe the real reason is straight up not wanting to be at a competitive disadvantage.
This is what’s so infuriating. You (and others) go from one purported problem to the next, seamlessly without let or hindrance regardless of how contradictory they are to each other…. Whatever, it seems, that fits your initial ‘no’…
Jasiu says
The basis of my objection to the Olympic bid is the reputation of the IOC, but that in no way disallows me from calling incompetence when necessary. There is a very high bar for any sort of bid to pass muster with me. That means ignoring USOC advice regarding competitiveness if it is going to cause eventual problems with local support (and especially when it is the right thing to do). You may not agree, but I hope you are smart enough to understand that.
Regarding ineptness, B2024 has shown this in multiple ways. What I was referring to above is the decision to redact material but to have absolutely no plan better than “probably not” when that information was made public.
petr says
…whatsoever, in which to say either 1) I’m not actively trying to understand the situation or B) that I am “just argu[ing]”
I decided, a long time ago, to understand and I don’t enter into arguments where I don’t understand.
I understand it. I don’t particularly think that it is the right thing to do and don’t begrudge the Bid Committee not having done it any more than I begrudge Bob Kraft not divulging his Patriots strategic thinking with me. You may say that this is different, but it really isn’t if you think about it. Neither Bob Kraft nor the Bid Committee wants to use public funds. The difference, it seems to me, is that you would believe Kraft when he states such, but you aren’t willing to believe the Bid Committee… Or, at least, you would be much more skeptical, I think, about Kraft’s ability to get at public funds, whatever his desires, than the apparently widespread belief that Bid Committees ability to get at public funds is unbounded…
David says
That is not an adequate answer. As you perhaps had forgotten, Boston 2024 did not release any details of the bid until after the USOC announced that Boston was its choice. At that point, back in January, B2024 posted a (we now know heavily) redacted version of the bid on its website. But why did it do so? Why did it not post the whole thing at that point, since as of then the other American cities were no longer in the mix? If it had disclosed these details back in January, there still likely would have been a kerfuffle about TIF bonds and other details, but it would have happened months ago, before B2024 had already shot itself in the foot a number of times over other issues.
I have never found the “competitive” argument convincing for keeping bid details secret. I certainly don’t in these circumstances.
HR's Kevin says
and it was pretty clear that they originally had no intention of ever releasing the bid document to the public. It is clear that they realized they were going to have to release something but realized that the existing document would conflict with their public representation of the deal.
petr says
From the answer I provided to Jasiu earlier…
Christopher says
When DC and LA were still in the running did they or did they not engage in greater transparency than Boston did?
In previous years when an American bid city has been chosen have they or have they not engaged in greater transparency than Boston is currently doing?
Trickle up says
What Boston 2024 is doing is the equivalent of running out the door without wearing pants.
Transparency ain’t in it.
Christopher says
If someone is running out the door with no pants that’s probably MORE transparent than any of us want to see.
Now, how about somebody answering my questions. If they are less transparent than other bids there is a legitimate critique, but if this is standard then there’s no “there” there.
SomervilleTom says
Let’s see. KnockemDown Realty and ReallySleazySlums Property Management Corp have long public histories of doing nothing for their buildings, paying off local inspectors as needed to avoid expenses of bring property up to code, paying kickbacks to local realtors in exchange for ads that misrepresent their properties, trading sex for rent when the tenant is appealing, and arranging for local “consultants” to do a “hot renovation” when they’re about to be on the hook for expenses to demolish any of the condemned properties they own.
You’re looking to rent an affordable apartment. Your broker tells you about a special deal on an incredibly cheap place that looks too good to be true. Your friends warn you that the landlord is unsavory and that many of his properties are slums.
You share your concerns about the landlord with your broker. Her response is to say “He’s no worse than KnockemDown Realty and ReallySleazySlums Property Management”.
I walk away from the deal. Do you?
Christopher says
I don’t KNOW (because nobody has yet told me) what other cities have done with regards to transparency and if there are good reasons for the lack thereof. Besides, there is a huge difference in how obviously inappropriate your hypothetical landlords’ methods are and the Olympic issue.
SomervilleTom says
I did indeed offer obviously inappropriate behavior of my hypothetical landlords, in the interest of making my point clear.
As we’ve observed elsewhere, “everybody does it” is an inadequate standard for evaluating the B2024 proposal or process. The level of transparency of other cities is, in my view, irrelevant to the question of whether the B2024 bid is sufficiently transparent to allow it to be evaluated on its merits.
Christopher says
…if that is in fact the case? I’m still holding out the possibility that for the sake of negotiations there are reasons for not being as transparent as some would like. It is VERY relevant, especially if there is good reason for it.
HR's Kevin says
These type of mega-project bids are kept secret mostly because (a) they haven’t actually thought everything through and transparency would make that all too clear and (b) there are details that will be unpopular and could kill the deal if they aren’t kept secret until it is too late for anyone to do anything about them.
In any case, they promised this Olympic bid would be *different* from past bids, not more of the same. They promised openness and transparency. We haven’t gotten that.
HR's Kevin says
We were promised that this bid was going to be different and that we were going to get transparency. Marty Walsh promised that this was going to be the most transparent bid ever. Both Boston 2024 and Marty Walsh have not lived up to their promises.
If you are going to argue that Boston 2024 is just going to do things the way they have been done in past bids, then I think that will only drive more of the public away from supporting the bid.
Christopher says
…because it’s a wash if that’s how it’s done, especially if negotiations require it. I also have not seen the fundamental argument as to why Boston has to be exempt from SOP.
Trickle up says
Salesman: Sign here and it’s yours, but we own your house and your firstborn works for us for 30 years.
You: That’s a lousy deal.
S: Standard industry practice, everyone does it.
Y: Oh well in that case, where do I sign?
How is that a wash?
Sorry, I feel as though I a missing something essential.
Christopher says
…your hyperbole and obvious wrongness of your hypothetical hurts your argument. The “wash” is simple. Somebody will get the Olympics. If all bid cities have the same amount of transparency or lack thereof, we really don’t have a leg to stand on. Otherwise you are implicitly arguing let another city deal with this problem (yet God forbid I refer to that as NIMBYism, which yes, it still feels like sometimes).
Will someone PLEASE tell me if other cities have done this and at least try to explain what the reasoning behind it might be? After several attempts I’m starting to suspect there really isn’t an answer to my fundamental question.
SomervilleTom says
This sub-thread is a response to your assertion the transparency of other cities provides an appropriate benchmark against which to measure the transparency of B2024. You repeat that assertion here (“If all bid cities have the same amount of transparency or lack thereof, we really don’t have a leg to stand on. “).
One important purpose of “transparency” is to allow the independent prior examination of a proposal in order to assure that the proposal says what the proponents say it does. Another is to assure that the proposal avoids making commitments that come as a later surprise.
If the standard industry practice is “no transparency”, so that all bid cities have the same lack of transparency, then bid documents that say something different than their promoters said and that contain hidden commitments could be common to all cities. We KNOW that the bid documents for B2024 had these (and other) issues.
If promoters in another city promised “no public funds would be spent” to the governments and voters of that city while simultaneously submitting a bid proposal premised on a commitment of spending public funds, and if the promoters of that city used the apparently standard industry practice of keeping those documents secret as long as possible, then the lack of transparency in that other city makes the result there AS BAD as the result in Boston.
That lack of transparency elsewhere DOES NOT make the same lack of transparency acceptable here. If the city that hosts the Olympics MUST expend public funds on the Olympics, then any process that causes the Olympics to land in a city that DOES NOT want to expend public funds on them has failed. If standard industry practice is to offer NO transparency, then that standard industry practice contributes to or even causes the failure.
If Kalamazoo doesn’t want to spend public funds on the Olympics, and if a non-transparent bid process results in the Olympics choosing Kalamazoo, and Kalamazoo ends up on the hook for, say, $1B in public funds, then demanding transparency is a way of protecting Boston from the Kalamazoo failure.
Capiche?
Trickle up says
if other cities put up with behavior that ought to be unacceptable and if so why they do.
I want to know why that matters at all in the instant case of Boston 2024.
If you ever learn the answer to either of these questions, do let us know.
jconway says
The tension between IOC requirements and public promises. I do give Walsh credit for actually meeting with his critics, critiquing Boston 2024 on it’s shortcomings, and committing to a referendum. It is terribly sad that his young Mayoralty was consumed by this bid proposal, and his allies in Boston 2024 and the business community failed him.
The USOC also failed us, by properly vetting our proposal at all. If we end up losing the bid and the USOC selects another city ( with, in my subjective but experienced opinion, better designed bids) the blame shouldn’t rest exclusively on Boston’s shoulders.
LA could host an Olympics next week if it wanted to, and we shouldn’t feel bad about that. After all, so much of what makes Boston unique is already here, why would we want to reinvent the wheel, or at least, redesign the Hub, to host a three week event with global exposure we already get from our educational institutions and sporting powerhouses? Not to mention, Greater Bostonian athletes disproportionately kick ass at the Olympics no matter where they are held.
mimolette says
Not my area either, but conceptually this is simple enough. A TIF of any flavor creates a tax expenditure, and it does so whether or not the public becomes liable for payment to bondholders in excess of the increased tax revenues that were intended to provide for repayment.
Consider the basic scenario in front of us. Boston 2024 wants to build a temporary stadium on a piece of land, and needs to borrow money to do it. They propose to have the Commonwealth lend them the necessary money by issuing bonds that will be bought by private investors. Those bonds are to be repaid by the Commonwealth. So far, so good, and Petr can tell us that the money is coming from the buyers of the bonds, not from the Commonwealth.
But repayment to the bondholders will come from the Commonwealth: that is, from public funds. The magic of the TIF mechanism, if magic it is, is that the investment funded by the loan is supposed to raise property values sufficiently that the repayment can be made out of tax revenues that wouldn’t have existed in the absence of that investment. Sometimes that’s likely true: the private sector wouldn’t have made the loans that allowed the project to be built, and the project did make the difference between stagnation and markedly increased property values and tax revenues. But sometimes it doesn’t work that way: the project doesn’t succeed in raising those values and revenues (in which case the repayment to bondholders will generally come out of public funds anyway, because it’s still owed), or else the increase in value would have happened in any event, either because the area is hot and values would have shot up without the project or because loans to build the project could have been obtained in the private market.
No matter how well the project works, though, it’s clear that public investment is being made. You can see that if you think for a moment about the difference between the situation where the original loan to build the project comes from the Commonwealth and the one where it comes from private parties. If the funds are raised through, say, debt instruments issued by the project owner, those bonds have to be repaid by the project owner. Private investment, private repayment; and the Commonwealth still has the benefit of any increase in property values spurred by the project. The public keeps all of the additional revenue based thereon. But if the funds were raised through a TIF, it’s not the project owner that has to repay the bonds, it’s the public treasury. If we’re fortunate and have invested wisely, we’re paying for it out of funds that we’ve raised by doing the project, but we’re still the ones paying for it.
In cases where it’s clear that no private investment could have been found, and where there’s a permanent improvement in value that wouldn’t have happened otherwise, this can be a good deal for the public. Where there is no such permanent improvement likely, or where the real estate market is such that value improvement will take place even if this project doesn’t happen, or where funds for the project could be raised from private sources, it’s a terrible deal for the public, which is spending anticipated future revenues unnecessarily.
In any case, though, it’s a public expenditure, even if the bonds are paid entirely from increased tax revenues and the general funds never have to be touched. I’m not sure how you can argue that it isn’t.
petr says
This entire kerfuffle started when somebody wrote that “Taxpayers will be on the hook”. This is not true. Taxpayers are not on the hook. The ‘Hook” is where bond holders will find themselves if revenue doesn’t materialize. No taxpayers will be harmed in the production of this Olympics. It is a bondholders expenditure where the government administers the books. That’s it. People have twisted themselves into various pretzel like shapes to connect dots that cannot be connected… With the possible exception of neighboring parcels of land (if any… Widett Circle is like surrounded by train tracks and expressways) no taxpayer will pay any more. And please don’t argue that neighbors will balk at anything that increases the value of their land holdings…
The real risk, in the TIF scenario, is not that taxpayers have to pay anything back, it’s that the bonds don’t sell well enough and not enough money gets raised: prospective investors might look at the projected returns and decide to give it a pass. TIF’s have been fairly successful to date because they have been deliberately targeted at areas thought to be undervalued or deliberately neglected. It’s relatively easy to raise property values in those instances. It’s maybe not so clear that Widett (sp?) Circle is undervalued at present… Having said that, however, if I had the money I would invest in this. The danger is that bonds are issued and lose value and not enough money gets raised. I don’t know what Boston2024 plans for in that case….
Not mentioned previously, and partly my fault for getting into the weeds on TIF, are two things: A) the temporary stadium is not the only thing in play, the entire 80+ acres of Widett (sp?) Circle is to be re-developed and (hopefullly) have it’s valuation increased and 2) repayments to bondholders is also projected to come from leasing revenues of commercially developed sections of the 80+ acres, in addition to Tax Increment Funding,
HR's Kevin says
Sure you can argue that the risk that taxpayers will be left holding the bag if the deal doesn’t generate enough revenue is fairly low. I don’t think we really have enough information to judge that, but it is reasonable argument.
But you keep insisting that also inherently means that public money is not involved in the deal. That is ridiculous.
You also keep ignoring the point that the post-Olympic development really has nothing inherently to do with the Olympics. We could just as well do the same plan without the Olympics and the City would gain more from it because it wouldn’t have to pay for any Olympics-related non-revenue generating cost.
In any case, the plan simply cannot go forward without either the City utilizing eminent domain, which the Mayor insists he will not do, or with the agreement of all of the existing land holders, none of which have indicated they want to sell or move. As long as the existing property owners realize how desperate Boston 2024 is to obtain the land, the price is going to be at a premium over what they can get selling to some other developer. That increased price is going to get added on to the cost, which if it were TIF funded would mean a longer time window until the City sees any tax benefit (unless of course the Mayor violates his pledge not to take the land).
BTW, I don’t sense that anyone not in the construction or real estate business is actually excited by the development planned for the area in question. I think that Boston 2024 realizes that they are going to have a very hard time getting voters to see the benefit of funding this through current or future taxpayer dollars.
A much more reasonable approach would be to target the Suffolk Downs property. That has a single owner and is hugely underutilized. I suspect that the real estate and construction powers behind Boston 2024 do not anticipate that they will be able to reap as much profit from such a deal.
mimolette says
If you define being ‘on the hook’ as only relating to liability to make up any shortfalls in projected revenue that the repayment was supposed to be made from, and if we presume that the bond instruments are written so that there’s no public guarantee beyond that specified pool of funds, then I agree: taxpayers wouldn’t be ‘on the hook’ for a payment stream that by the terms of the bond they’re not obligated to pay. The bondholders would take the haircut.
But if you define being ‘on the hook’ as being liable for the repayment of those bonds up to the extent of the anticipated (and dedicated) revenue pool, then taxpayers are still on that hook. Because, again, if it were private financing rather than public financing, that revenue would still be paid to the taxing authorities — we the people — and we would get to keep it. Having not borrowed from anyone ourselves, we would not be liable for repayment: only the actual borrower would be. That’s a tax expenditure, and a genuine public cost.
Admittedly, it’s only a cost to the extent that the increase in value that produced the increased tax revenue would have occurred even in the absence of the public investment, either because private funding would have been found or because it’s a hot property market and other, private projects would have fueled that growth in value. That’s not always the case, which is why these mechanisms can be successful tools under the right circumstances. But it’s always a public investment: there’s no situation in which we’re not borrowing against anticipated future revenues, and promising public funds for repayment. The only situation in which the taxpayer wouldn’t be ‘on the hook’ at all is the one where the tax revenues available for repayment under the terms of the bonds fell to zero, which is unlikely enough that for the sake of this discussion it seems fair to disregard it.