Las Vegas city council gives millions of city dollars to ethics-embattled former colleague
- Tuesday, April 24, 2012
You just can't make this stuff up.
Las Vegas city council members last week — acting in their capacity as redevelopment agency board members — voted to reward one of their former pals with millions of dollars in development subsidies that will ultimately be taken from city taxpayers.
If the story ended there, it would already be egregious. The city's redevelopment agency, which is funded primarily through a complicated mechanism known as tax-increment financing, finances projects that ultimately result in a regressive wealth transfer to benefit the politically connected while starving legitimate government functions of tax revenue.
Here's how it works: For a period of at least 25 years, often longer, taxing jurisdictions are prohibited from collecting more property tax revenue from within the redevelopment zone than they collected for the year in which the redevelopment zone was first created. This cap is not adjusted for inflation, so, in real terms, taxing districts — such as those for fire protection or public school construction — every year thereafter receive fewer resources from the redevelopment zone than they did the year before.
That doesn't mean residents within the redevelopment zone are not paying higher property taxes, however. Instead, any increase in property tax payments beyond the level that existed when the redevelopment zone was first created (1986, in the case of Las Vegas) is diverted to the redevelopment agency, whose governing board, coincidentally, is the city council. Acting as the board of a redevelopment agency, council members typically bond against this revenue stream in order to receive a lump of cash that they can award as a "financial incentive" to private developers who wish to build within the statutorily defined redevelopment zone.
How does the council measure success for this scheme?
Believe it or not, it's whether the typically low-income residents of the redevelopment zone wind up facing a larger property tax bill. The theory behind tax-increment financing is that new development will raise the property values of the surrounding properties, as determined by the county assessor. As a result, neighboring residents will face a higher property tax liability for every "successful" project subsidized through the redevelopment agency. Where does this extra property tax revenue go? Back into the redevelopment agency, of course, to finance new projects and begin the process all over again.
The end result is that the residents of a redevelopment zone wind up facing higher tax liabilities while receiving fewer public services in return.
So, where does all that extra loot wind up?
Usually, in the hands of well-off private developers who happen to have a few chums on the city council.
Which brings us to last week.
That's when Las Vegas city council members voted to award their former colleague Michael McDonald $3.5 million in redevelopment funds, as well as $1.1 million in federal grant funding to subsidize the cost of constructing a downtown housing development that will include some "affordable" housing units for seniors. McDonald was also awarded a 75-year land lease — worth $1.4 million in present value — for just one dollar.
City council members voted to approve the project even though city staff recommended they not do so.
Staff noted that the city's subsidy alone would amount to more than $115,000 per unit. (McDonald's estimates were much lower — about $65,000 each for the first 60 units — although, once the state subsidies sought by McDonald are factored in, total taxpayer support would amount to $183,000 per unit.) Yet the median value of existing homes in the surrounding area is only $72,000.
Thus, given the glut of vacant housing in the Las Vegas valley, it would be cheaper for the city to purchase homes outright and use them for "affordable" housing.
Staff also highlighted the facts that first, McDonald lacks any experience developing properties like the one he proposed, and second, that McDonald's previous contracts with the city had been cancelled due to nonperformance.
In April 2009, the city council gave McDonald a sweetheart deal, selling him a 3.9-acre parcel of land for $1.3 million. They did so with full knowledge that McDonald planned to immediately spin off the property to a supermarket chain for $3.1 million — netting himself a quick $1.8 million by shorting taxpayers on the value of their land.
Moreover, McDonald was convicted of violating city ethics laws involving another land deal that he pushed for while a member of the city council in 2000.
Redevelopment financing is an area where those with political connections routinely exploit low-income taxpayers. However, the city council's current deal with their ethics-challenged former colleague — against the advice of city staff — blatantly rubs salt in the eyes of citizens.
Last year, state policymakers in California finally decided to rid themselves of redevelopment agencies and the "juice" industry that accompanies them, so that tax dollars once again will finance legitimate government services.
McDonald and the Las Vegas city council are demonstrating why Nevada should follow suit.
Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit http://npri.org.