Since Richmond Mayor Levar Stoney announced the $1.5 billion Coliseum redevelopment plan in August, city officials have promised that the project will be a boon for public schools. The developer, NH District Corp., says on its website the project “will not divert any existing money from Richmond Public Schools.”
But education policy experts say Richmond is likely to lose some state education funding if city officials approve the proposed project.
In order to pay for building a new downtown arena, Richmond Mayor Levar Stoney has proposed turning 80 blocks of downtown into a special taxing zone, known as a tax increment financing district (TIF). Any new property tax revenue in that area will be reserved for repaying a $350 million loan. A private developer, NH District Corp., is also planning to construct around $900 million in apartments and office and retail space surrounding a new coliseum.
Chris Duncombe, the policy director at The Commonwealth Institute for Fiscal Analysis, said the state calculates how much money they give to Richmond based in large part on property values.
“In the case of a TIF deal, where the new [property tax revenue] is designated for bond payments, it would give the appearance that the locality has an increasing tax base, but those revenues will go to something other than schools,” Duncombe said.
Virginia uses a funding formula, called the Local Composite Index, to determine how much the state should pay toward education. Because most localities fund school districts with property taxes, the value of the property is the largest factor in determining how much the state will pay. They also factor in the overall income of city residents and local sales tax revenue.
Essentially, if a locality has higher property values, the state assumes they have more local dollars for schools and gives them less money. But if new property taxes go to bondholders instead of schools, then there is a net loss.
“The local composite index is basically a measure of a locality’s ability to pay for their schools,” said Jim Regimbal, a fiscal policy consultant for Virginia First Cities and the Virginia Municipal League. “If the state calculates that you have a bigger ability, then they make you pay.”
While the city has released numbers on how much the project would cost in increased services like police and utilities, they haven’t estimated how it would impact state education funding. It’s unknown exactly how much Richmond would lose over the 30 year life of the TIF bond.
Kristin Reed, an anti-Coliseum activist and co-founder of Richmond For All, has been pushing the city to provide those estimates. She said she’s concerned that Richmond won’t be able to make up for lost state education funding.
“It’s upsetting to see very reasonable questions about how this development will affect our state funding formula brushed off as if it’s not a real concern,” Reed said. “It’s the job of our elected leadership to think about these contingencies and make an informed assessment about whether this deal is really good for the City of Richmond.”
Mayor Levar Stoney told VPM News on Tuesday that while the city has not attempted to estimate the Navy Hill development’s effects on state education funding, he’s confident they have done their due diligence.
“We were, I think, quite thorough in our approach,” Stoney said. “The analysis performed thus far indicated that Navy Hill would [lead to] a significant increase in local funding for schools compared to doing nothing at all.”
Davenport & Co., the city’s financial advisor, has estimated the project would generate $1 billion in excess revenue over the next 30 years in the best case scenario. And Stoney has proposed a resolution that could ensure half of that money goes to Richmond Public Schools.
“I will never accept the premise that this city should not invest in itself,” Stoney said. “We have to grow or we are not going to see the revenues necessary to fund the entire operation of the city, whether it’s schools or tackling challenges like our roads.”
Activists like Reed, though, say they think the city should not be relying on potential revenue to cover very real shortfalls.
“The increased revenue from a TIF district in Richmond is speculative, while the funding formula is certain,” Reed said.
She pointed to the city of Baltimore as a cautionary tale of financing economic development through TIF districts. In 2017, Baltimore officials were considering a large-scale redevelopment of the Port Covington community. The project, spearheaded by Under Armour CEO Kevin Plank, promised billions of dollars of private development as long as the city took out more than $500 million in TIF bonds.
A fiscal analysis conducted by city officials showed Baltimore would lose $300 million in state education funding over 30 years due to its widespread use of TIF districts. Maryland’s funding formula for schools, like Virginia’s, takes into account rising property values.
While Baltimore’s mayor and state representatives vowed to make changes to its funding formula to not penalize local governments using tax increment financing, the task proved more difficult. The Maryland General Assembly has agreed to freeze its education contribution to Baltimore while it studies the issue.
Richmond officials say they too could lobby the Virginia General Assembly for a freeze if the state contribution falls significantly.
But fiscal policy analyst Jim Regimbal said the chances of Richmond’s state education funding being held harmless by the General Assembly are very low. Both Regimbal and Duncombe said, as far as they know, the state has never frozen its education contribution because of a financial deal.
“The state is not likely to start carving out exceptions for things like this, how Richmond decides to finance building,” Regimbal said.
Richmond officials could also ask the state to change the education funding formula, but that would also be unlikely. Localities have long lobbied the state to increase funding and provide more money for support staff. The funding formula hasn’t changed substantially since 1979, and per student state funding in Richmond is already down 16 percent.
Richmond City Council is currently considering the redevelopment deal, which totals more than $1.5 billion. The Navy Hill Development Advisory Commission was created by the city council earlier this year to independently vet the proposal.
Second District City Councilwoman Kim Gray has publicly raised concerns about the effects of TIF districts on school funding. She’s hoping that the commission can provide the estimate activists have asked for.
“I think this could have an impact on our budget if this goes forward as presented,” Gray said. “I want all of the implications of this TIF district to be known, regardless of whether people ultimately decide it’s a benefit.”
