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Edinburgh Waterfront leads the race for TIF approval
Published: 2009-08-17 12:06:21
Edinburgh could become the first UK local authority to fund infrastructure for regeneration using tax increment financing. The city aims to apply the funds to its waterfront regeneration programme.
“We have received a flashing amber signal from the government minister,” said Dave Anderson, director of city development, for City of Edinburgh Council, in an exclusive interview with SocInvest.
But, before it reaches a decision, the Scottish Government has asked for a more detailed business case to show what the city's waterfront development programme could generate in business rates. In Edinburgh's case, the decision on the scheme's eligibility lies with the Scottish Government which has devolved responsibility for economic development and is also the rate-gathering authority for the country.
"Last year we commissioned PricewaterhouseCoopers (PwC) to investigate ways of funding infrastructure investment for the five hundred acre redevelopment of Edinburgh's waterfront from Leith to Granton," Anderson said. "Subsequently we have considered the key infrastructure priorities at Leith Harbour which include the extension of roadways, new dock gates, a new finger pier for the Royal Yacht Britannia and visiting cruise liners, and a new esplanade outside the Ocean Terminal shopping Centre.
"The initial costs were estimated at £50 million but have risen as a result of plans to install double rather than single dock gates."
PwC is looking in more detail at the likely scale of new office and business space development and what it would generate in rates, taking account of any possible displacement effects. The TIF scheme would involve raising funds against the projected future business rates.
"We would plan to use prudential borrowing to fund infrastructure investment and to repay this from future growth in rates revenue," said Anderson. "Edinburgh contributes £100 million each year to the rest of Scotland through its rates. We would want to see the for the proposed TIF area in Leith ring fenced over the next 25 years until the initial borrowing has been repaid.
"For the scheme to succeed the City Council will need to own the key assets and the developer, Forth Ports, has signalled it would be willing to agree to this arrangement."
The scheme involves a contingency budget to cover the period between the start of infrastructure work and the point where rates would be payable from new development. "In the first seven years the PWC model shows a gap before business rates come through," Anderson told SocInvest.
Edinburgh anticipates that the scheme could generate between £2.6 and £3 million a year from new development rates. "The City Council would take on the risk for half of this amount, and look for a government guarantee for the other half. After seven years, we are confident that the revenues will grow to ensure the investment become self financing over future years."
The main risks would be that "we put in infrastructure and Forth Ports do not develop the site. They would need to compensate the council if development doesn’t take place. Or if the new offices remained unoccupied. Some US TIFs have failed for this reason."
Anderson first became aware of TIF after a 2005 study tour of the US and has been at the forefront of proposals to use tax increment financing for infrastructure development. He recently gave evidence to the House of Commons all-party committee on urban development. In the current economic environment, the case for this form of financing has become even stronger. "When push comes to shove, you either fund from savings, current earnings or future earnings," he said, "and Edinburgh as a Council does not have significant reserves to draw on.
"Developer contributions aren’t available now that land values have collapsed so that option doesn't stack up at present; nor does conventional borrowing."
Edinburgh expects to know more about the prospects for its proposal this autumn. Dave Anderson will speak at "Preparing for Tax Increment Financing and Accelerated Development Zones", the SocInvest Masterclass on 15 October 2009, London. More information here.