IN RECENT YEARS YOUNG PROFESSIONALS WITH SIX-FIGURE INCOMES, BMW AND LEXUS SEDANS, Visa Gold cards, and busy travel schedules flocked to small towns such as Grapevine, Colleyville, and Southlake to build massive homes conveniently close to Dallas—Fort Worth International Airport. Developers hot on the trail of their disposable income saw plenty of raw land but nary a big shopping mall. Thus began the mall wars. Not since the eighties has there been such a push for so many new megamalls aimed at affluent shoppers. West of the airport in Grapevine, the 1.6-million-square-foot Grapevine Mills mall will include a Rainforest Cafe (with talking trees and artificial storms), an IMAX 3D theater, and upscale outlet stores such as Off Saks Fifth Avenue. Only six miles away in Irving, land is being cleared near DFW’s north entrance for the 1.3-million-square-foot SuperMall of the Southwest. Near DFW’s south entrance, in Euless, the 1.3-million-square-foot Bear Creek Fashion Mall will house a 26-screen movie theater and maybe a Macy’s. Meanwhile, Ross Perot, Jr., intends to build a 1.3-million-square-foot mall on his Circle T Ranch property in Westlake. And North East Mall, in nearby Hurst, plans to renovate and add a Nordstrom. “It’s mall madness around here,” says Bernard Weinstein, a University of North Texas economist who is among the many retail experts warning that the region’s consumers likely can’t support all the new malls.
Yet survival isn’t the only issue; there’s also school finance. To lure the new malls and the thousands of new jobs and millions of dollars in property taxes they’ll bring, some city officials are creating tax-increment financing districts, or TIFs, to pay for roads, drainage, parking lots, and even landscaping. A TIF works like this: The value of the property to be improved—say, a shopping mall site—is recorded on the tax rolls before anything is done to it. The TIF district—whose participants can include city and county governments, school districts, and hospital districts—sells bonds to pay for the improvements. “Developers get a windfall,” says Republican state senator David Sibley of Waco, who chairs the Senate’s Economic Development Committee. The property taxes paid on the difference between the base property value and its value after it is improved are diverted to repay the bondholders or to pay for additional improvements. Thus school districts, for example, would collect school taxes from the mall owner and promptly hand them over to the TIF—but once the bondholder debt is retired, they could spend them as they wish.
And that’s where things get tricky. According to the Robin Hood law, the Texas school-finance plan that seeks to equalize public education funding, school districts that are considered “property wealthy” (those with more than $280,000 of wealth per student) must kick in a portion of their tax revenues to a pool that is divvied up among poorer districts. Yet because of a loophole, a school district in a TIF can exempt the value of any property being improved from the calculation of its total property wealth—so a district that joins a TIF to attract a mall can shield the mall’s taxes from capture under Robin Hood. In July Sibley’s committee estimated that Texas school districts shielded $4 million in tax revenues in 1995 as a result of joining TIFs and that amount is expected to increase this year.
Consider what has happened in the wealthy Grapevine-Colleyville Independent School District, which has joined a TIF that will pay for $27.5 million worth of traffic signals, roads, drainage, landscaping, parking lots, and other infrastructure improvements at the site of the new Grapevine Mills mall. Without a TIF, Grapevine city officials feared the mall’s opening would be delayed several years and that the rival SuperMall of the Southwest would open first. The city persuaded the school district to join its TIF and sold municipal bonds to pay for the improvements—and now the mall is set to open in November 1997. Once it does, the city will get an estimated five thousand new jobs and $3.5 million a year in sales taxes. The school district joined the TIF expecting that the mall’s property value and the taxes it will pay—about $2.5 million a year—would not be subject to Robin Hood. Yet the Texas Education Agency decided this summer that the district, which will contribute $11.4 million to Robin Hood in 1996, will have to count the mall’s taxes after all. That would have cost the district another $500,000, but the city rejiggered the TIF to cover the tab. The Hurst-Euless-Bedford ISD has a similarly sweet deal: It joined a TIF this year to fund $29 million in improvements to the Bear Creek mall.
In the upcoming legislative session, however, Sibley plans to investigate whether school districts should be allowed in TIFs in the first place. Conceived in 1981, TIFs were originally intended to encourage economic development in poor areas where it normally wouldn’t occur. Critics say that improving shopping mall properties doesn’t meet that standard and amounts to a handout to private industry. “I don’t want my tax money to pay for some guy’s parking lot,” says John Carlson, a Grapevine resident who filed suit in July arguing that the Grapevine TIF is unconstitutional. (Interestingly, part of the suit’s legal fees were being paid by allies of the Hapsmith Corporation, the developers of the rival SuperMall of the Southwest, which is not being built with the aid of a TIF.) In early September a district court judge ruled that Grapevine could not be barred from issuing bonds on behalf of its TIF, though the Texas Attorney General still must address the question of constitutionality.
Aside from the legal issues, other critics wonder whether TIF benefits are real. “It’s bad economic development,” says Jon M. Roberts, a former director of business development at the Texas Department of Commerce. “People are seduced by job creation even though the jobs are low-paying.” Some school district administrators counter that they feel obligated to support local business and bring a broader tax base to their districts—“My personal belief is that it’s incumbent on us to assist in economic development,” says Larry Groppel, a Grapevine-Colleyville ISD assistant superintendent.
All this could be moot, of course, if Governor George W. Bush reforms property-tax laws next session. But if he doesn’t, Sibley will take on TIFs himself. “I anticipate every wealthy district will set one up at the drop of a hat if we allow this to go on,” he says, “but we’re going to change this.”