Current TB vs. Proposed TB

Similarities

The proposed tiebreaker (PTB) and the current tiebreaker (CTB) are similar in that they both focus on leveraging. The CTB was implemented to spur the investment of redevelopment dollars into 9% deals, thereby leveraging the limited 9% resource.

Hindsight being 20/20, the fundamental flaw of the CTB is that it measures leverage as a percentage of total project costs (TPC). It asks, what percentage of the project’s costs can you get local agencies to pay for? It assumes higher percentages of public funds means getting units with less tax credits. For years the tiebreaker worked splendidly because the credits allocated per unit went down as redevelopment agency investments went up. However, this dynamic reversed itself when unsuccessful applicants learned they could improve their score by holding public funding constant and reducing TPC by reducing units. Since the CTB didn’t ask how many units were produced or how many credits were requested, developers continually lowered their project size to make limited public funds a higher percentage of TPC.

On the other hand, the PTB uses a more direct measure of leverage—most units per million credits. It simply states leverage our resource, by producing more with less, if you want to be awarded.

The PTB and the CTB both attempt to level the playing field for projects in different locations. The CTB levels the playing field by being indifferent to TPC, not wanting to put high cost areas at a disadvantage to lower cost areas. The CTB promotes cost neutrality by increasing one ratio and decreasing the other ratio when TPC changes. Unfortunately, the CTB ignores all cost differences whether they be location based differences, unnecessary costs, or design flaws.

On the other hand, the PTB can include an address specific cost adjuster module, based on prior cost data, to neutralize only the location based cost differences. This method generally levels the playing field for all locations yet still requires developers to make prudent decisions “at the margin” about product type, unit count, material selection, and design. 

Differences

Unlike the CTB, the rationale for the PTB can be explained and defended; adjustment modules in the PTB have a simple and understandable effect; and the PTB results in a meaningful expression, “what is produced with each million credits.”

The CTB ignores what politicians and the media harp on—cost per unit and credits per unit—whereas the PTB is based on credits per unit, which is improved by lowering costs per unit. Only the PTB incentivizes developers to increase production, decrease costs, decrease resource usage, and increase leverage. The CTB is either neutral towards or disincentivizes these positive outcomes.

The CTB ignoring credits requested makes it impossible to incentivize developers to return credits. Since developers minimize their credit request in the PTB, incentives for returning credits could be implemented.

The CTB having two ratios with various multipliers, divisors, inverters, and add-ons is convoluted and difficult to adjust. The PTB’s intuitive design allows for tweaks and additions as policy goals change.