A Tax Increment Financing (TIF) primer, noting TIF’s chumminess with insider corruption, and certain grassroots alternatives to big ticket glitz.

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Tax Increment Financing (TIF) came up a lot when I ran for mayor in 2015, so much so that the Bookseller created a paper for consultation by our team.

A Baylor Paper on Tax Increment Financing

HISTORY: Tax Increment Financing, commonly known as T.I.F., is a method created by the legislature that allows a city to invest borrowed money in the hopes that the investment will increase property values in a specific geographic area. To the extent that property values do increase, the city may use those new tax dollars to retire its debt on that investment.

TIF areas have expiration dates. Other taxing entities are barred from collecting taxes on the increased value, if any, until the expiration of the TIF area.

PREMISE: Cities are severely limited in how rapidly they can grow their revenues, which are based largely on the assessed value of properties within the city limits. Cities have no control over assessments and their revenues are capped by annual growth limits. Thus, tax increment financing is one way to make ambitious, if speculative, investments in the future without waiting for growth.

But TIF-ability is an asset that must be carefully used and its benefits must be calculable. The Gahan administration has been irresponsible in that respect and has used the T.I.F. function more like a piggy bank or a blue-sky wish list. Current officials won’t be around when the bills have to be paid.

PROPOSAL: I’ll conduct an immediate audit of our T.I.F. programs and will publicly report to the citizens of New Albany the whos, whats, whens, whys, and wheres regarding them.

I haven’t asked Democratic mayoral candidate David White yet, but I strongly suspect his view of TIF programs and the abusive tendencies of their local application corresponds with the preceding. However, I can state with certainty that White fully understands the challenge to future municipal solvency posed by serial TIF misuse. He’d rather face up to it than kick the can further down the high-maintenance-cost road.

As an aside, I cannot recall a time when 3rd district councilman Greg Phipps girded up to disagree with current Anchor Office occupant Jeff Gahan’s addiction to TIF areas as de facto credit cards intended to be pumped dry so as to enable bright shiny “piggy bank” and “blue sky” wish lists, while leaving the burden of debt management to be left for our grandchildren.

Yesterday I spoke of the no-gimmicks Strong Towns platform as a “third way” for New Albany.

+ Stop valuing efficiency and start valuing resilience;
+ Stop betting our futures on huge, irreversible projects, and taking small, incremental steps and iterating based on what we learn;
+ Stop fearing change and start embracing a process of continuous adaptation;
+ Stop building our world based on abstract theories, and start building it based on how our places actually work and what our neighbors actually need today;
+ Stop obsessing about future growth and start obsessing about our current finances.

For more about TIF’s positives and negatives, read this article from the Strong Towns Knowledge Base. It’s also worth contemplating this: How much of Gahan’s pay-to-play campaign finance enhancement would be possible without the gravy generated by TIF projects? He may be corrupt, but he’s no fool when it comes to undercover math.

Your Questions Answered: Is TIF Always Bad? by Jacob Moses

 … This week’s question: Is TIF always bad?

Tax increment financing (TIF) is a financing method used by local governments, often to redevelop blighted or disinvested areas where market-rate development is seen as unprofitable without assistance. Under a TIF agreement, a local government incentivizes a developer to work in a designated geographic area (called a TIF district) by subsidizing a portion of the development costs. The subsidy may help pay the up-front cost of either private development or associated public infrastructure. The city raises the money by selling bonds to investors, and the bonds are gradually paid back out of increased property taxes over the next 20 or 30 years.

As redevelopment causes the value of the property to increase, more property taxes can be collected from within the TIF district. Rather than adding these to the city’s general budget, any additional tax revenues above the amount paid at the time the TIF was established are set aside in a special fund. That fund is reserved for gradually paying back the initial TIF bonds. Once the TIF is paid off, local governments can use the future property taxes for anything—road maintenance, schools, etc.

Questions to ask, and alternatives to be considered.

The intention behind TIF is not always bad—but here is a list of questions you can ask yourself or your elected officials to discover if TIF is best for your city’s or town’s financial health.

Have you considered incremental development?
Incremental development means making small bets on many small projects over a broad area over a long period of time. Because local governments don’t have the ability to guarantee the future success of a project, they should consider growing incrementally.

Instead of constructing a rail line, you start with a shuttle bus; instead of building an apartment complex, you start with a duplex.

This same philosophy applies to TIF districts, which are often used to jump-start large scale redevelopment projects, and justified on the basis that no such mega-project would have been viable without TIF. But should the city first consider a smaller investment to develop the area? Could they invest in helping the existing local grocery meet its needs? Could they practice economic gardening and seek to help hardworking, entrepreneurial residents of the area start and grow companies? Could they make sidewalk and traffic-calming improvements that improve street safety and make a business district more walkable and lively?

What would it take to gradually bring up the value of existing properties instead of doing full-scale redevelopment?

We know these alternative solutions aren’t as shiny and new as the proposed, TIF-funded megaproject. However, because they are small bets, local governments can preserve their resilience if they don’t succeed.

Is the public losing anything?
Before local government can approve a project for TIF, they must ensure the project passes the “but for” test: but for the TIF subsidy, the development wouldn’t happen.

If that’s true, then the TIF is jumpstarting development but the public isn’t losing anything, because the money to pay off the initial TIF subsidy is coming from property taxes that otherwise wouldn’t have been collected at all.

The problem, however, is that it’s challenging to actually assess that “but for” test in practice, meaning lots of projects that get TIF money probably don’t pass it. That means TIF can end up starving the local government’s general fund—which pays for most city services—because the property taxes are going to the TIF district instead.

Before approving projects for TIF, it’s essential that local governments—to the best of their ability—ensure that the TIF money is going to truly necessary, value-creating projects that can’t happen any other way, and not to subsidize development that could have been achieved by another means.

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