Tax increment financing (TIF) refers to a process of paying for redevelopment activity with anticipated increased property tax revenues from the redevelopment project itself. For decades, politicians have disregarded the social costs of this dislocation.
First, they disregard the ex-ante risk-reward imbalance that cities sponsoring redevelopment impose on the rest of the taxpayers.
Second, they presume that but for redevelopment there would have been no growth within designated redevelopment project areas.
Third, redevelopment projects seldom create new demand. They simply shift demand from other areas into redevelopment project areas. The larger the boundary of the other taxing entity, the more likely it will be a net loser of property, sales or hotel transit occupancy taxes due to redevelopment “cannibalization.”
Fourth, nothing prevents cities from using TIF to subsidize the sorts of local “public goods” like parks, libraries, street and sidewalk improvements that were traditionally financed from local general funds, general obligation bonds, or special assessments.
Fifth, TIF encourages RDAs (redevelopment authorities) to subsidize projects that will yield higher property taxes such as high rise, glass curtain wall condos or greater sales tax proceeds such as hotels and shopping centers, even at the cost of displacing lower and working class populations.
City officials regard tax-increment financing as free money, when actually they are stealing it from the rest of the city. Many people see the problems with tax-increment financing and think that TIF laws need reform. But in fact, no reforms will work; tax-increment financing should simply be abolished.
The conventional rationale for TIF is that schools, counties and special districts would not lose any property tax revenue. They continue to receive property taxes based on the assessed values of properties within their domains in the year before redevelopment. In time, a pot of gold awaits the rest of the city at the end of the redevelopment rainbow when all TIF debts are repaid. At that point, the rest of the city starts to receive the tax increment bonanza that redevelopment made possible.
The first problem is that some of the increment (increase) in tax revenues will simply come from inflation. The TIF district will capture that increment even if no new development takes place in the zone. But other tax districts will see their costs increasing due to inflation without a matching increase in revenues, so they will end up having to spread their funds thinner or ask city taxpayers to accept higher tax rates.
Second, any new development that actually takes place in the district will impose new costs on the city. Fire departments will have to provide fire protection; if there are residences in the TIF district, schools will have to provide educations for children in those residences. Since taxes on new developments in the district don’t go to the city, other people in the city will have to pay higher taxes or accept a lower level of city services.
Third, numerous studies have shown that any new development in the TIF zone would have taken place without the TIF, though it might have been elsewhere in the region. All the TIF does is move some of that development to within the TIF district.
Who are the scoundrels who would take this money from schools and other worthy causes? Regardless of the answer, my point is this: leaving a bucket of money untended is just as foolish as leaving your keys in the car and the doors unlocked: it provides undue temptation for those who might otherwise be honest people. In the same way, no matter how it is reformed, allowing politicians to use TIF creates a temptation that will inevitably lead to abuse.
Attached is the proposal for TIF 17 in the city of La Crosse, and a study done by the local UW extension giving some background on La Crosse area TIF history.