COVER STORY, MARCH 2010

TERRELL’S TIF
Suburb uses tax increment financing to draw new development.
By Coleman Wood

Municipalities have many tools at their disposal to attract business. Some opt to go the route of an economic development corporation, which uses proceeds from a special sales tax specifically to attract new business to an area. This has been a popular option in Texas for years, with hundreds of cities across the state utilizing EDCs.

However, that is not the only option available to cities that wish to spur new development. Another way to raise funds for development is by implementing a tax increment financing district or TIF. Many Texas municipalities have used TIF districts to spur development, and with the population growth that Texas is now experiencing and is predicted to have in the future, many more will do so.

Terrell is a town of approximately 15,800 people that is situated 25 miles east of Dallas. Many living in the city commute to the DFW Metroplex for work and shopping, which is something the city has been looking to change.

“Going into the future, [Terrell as a bedroom community] is not something that is going to be sustainable. We need to have industrial jobs, manufacturing jobs and retail jobs. We need to have medical facilities. We need to have amenities for people…and get out of this suburban commuter mode,” says Hal Richard, mayor of Terrell, adding that the Metroplex has all the bedroom cities it needs and that Terrell needs to offer people the jobs and services that they are now having to commute to obtain.

When one looks at growth patterns in the Metroplex, it is clear the eastern corridor is where future growth will take place, and Terrell is right in the middle of it. Developers have been on the front lines of this for years, having already bought up prime real estate at the interchange of Interstate 20 and U.S. Highway 80.

“East Texas is an area that is probably underserved, and Terrell is a central focal point east of Dallas, between Dallas and Tyler,” says John Alford, a private investor with Terrell-Wally, which owns 48.5 acres in the area.

After years of talks between the city and developers, the city of Terrell decided that a TIF district would be the way to go about developing the city. How a TIF works is that a local government sets up a defined area that is in need of economic development. The government then promises developers that they will be reimbursed for any infrastructure work with funds collected from future property tax revenues. Of course, when it comes to economic development, Terrell has never been one to do it half way.

“Terrell has a pretty impressive record, in terms of economic development,” Richards says, adding the city has won four awards for economic development in its industrial sectors. This time, however, the development would be even more far-reaching. Terrell’s TIF district takes up approximately 4,500 acres — making it the single largest rural TIF district in the state. Based on estimates from the city, the TIF will generate $158 million in public improvements during its 30-year life. Applications from the five developers who wish to build at the I-20/Highway 80 interchange propose to create a total of 10,000 new jobs based on development within the district. 

One of the big names being mentioned is Baylor Health Care System. The medical group owns 52.5 acres and has partnered with CB Richard Ellis to develop a new hospital on the site in the coming years. It is commonly believed that the construction of this new hospital will serve as an anchor for the area — which is being marketed jointly as the Crossroads area — and spur the development of the land parcels around it. 

“People mention Baylor because they’re waiting on an anchor; they’re waiting on a draw,” says Charlie Anderson, president of Fulton Anderson Realty Advisors, which owns 52.8 acres near the proposed hospital site. “That could be Baylor. It could be Walmart coming out [to the interstate] from its internal location. It could be Target. It could be some other office user. Baylor just happens to be a great source of sustainable, permanent jobs that would help drive the retail.”

Other land owners are not as tied to the hospital’s timetable. Oakmont Capital Group owns approximately 255 acres near the hospital site and plans to develop the property into Eighty-Twenty Junction, a mixed-use site that could contain more than 3 million square feet of retail and commercial space as well as a residential component. With a significant component of the project being dedicated to retail, economic recovery is more important than the hospital’s construction.

“You need consumer confidence,” says Bill Grant, president of Oakmont Capital Group. “Consumer confidence will aid the economy and solidify it. Once the economy is back on track and the retailers go into growth mode, we go to work.”

With this much interest, one would think that work would have already begun on several of these projects. However, development within this TIF district, like many construction projects today, lives and dies on having the financing in place to break ground. Until recently, it was thought this would be sooner rather than later. Last fall, the city applied for approximately $20 million in grant funding from the Transportation Investment Generating Economic Recovery (TIGER) program, which funds road construction projects. One of the stipulations of the grant is that the project must break ground by September 30, 2011. This investment in infrastructure improvements — which is necessary, since many of these land parcels are raw —  would move construction timetables forward.

However, Terrell recently found out that it had not been awarded the TIGER grant, which has put many of these projects on the shelf for the near-term. Baylor Health Care does not foresee starting construction on the hospital anytime soon, and many other developers are now biding their time until a recovery takes place and the rooftops expanding out of the DFW Metroplex make their way this far east. This shouldn’t be taken as a sign of defeat, though. The city always knew that it was in it for the long haul when it came to developing this area.

“We just want whatever development goes there to be sustainable,” Richards says.

Private developers have not given up on the area, either, citing the ease they have had in working with the city.

“They’re doing all the right things,” Grant says. “They’ve got a marvelous attitude, especially for a municipality. And they work extremely well with the development community.”

There are many ways that a city can handle economic development. It can choose to do nothing, which, unfortunately, some cities do. It can make an effort to convince companies to come to the area, yet not offer any incentives to attract them. Or it can proceed like Terrell and offer the economic incentives that have put the city’s name on the tip of developer’s toungues in the Metroplex.

“When you create a TIF, and you’re open like Terrell has been,” Anderson says, “you are throwing out the welcome mat to these [companies].”

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