XML FeedsTax Increment Financing Study
Tax Increment Financing is usually sold as a savior of depressed local economies but there's evidence that it slows growth instead of fostering it. This form of municipal financing is often referred to by it's evangalists as creative financing. More accurately it's a gamble in fiscal privatization:
It is a form of privatization of public revenues for the benefit of a specified portion of the city. The use of TIFs is usually justified on the grounds that a given development will yield net economic benefits to the city even after allowing for the TIF or that a development is particularly worthy in terms of the population served, the historical character of the area, or for environmental reasons.1
A study conducted by The Institute of Government and Public Affairs at The University of Illinois found TIF districts reduce municipal growth both inside and outside of the TIF districts they were created to save.
In contrast to the conventional wisdom, we find evidence that cities that adopt TIF grow more slowly than those that do not. We argue that our empirical finding is plausible and present a theoretical argument explaining why TIF might reduce municipal growth.2
The outlook is worse than they even imagined:
TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.3
Hamtramck City Council met in a special meeting Tuesday night to discuss reinstating a TIF district in the Central Business District. The proposed district would run on Jos. Campau from Carpenter to Denton, alley to alley. The TIF would tax businesses in the district at a rate of two percent based on property taxes. It would exclude the Town Center development as that's already part of a TIF district involved with the R-31 ruling.
I urge the DDA and City Council to consider this study on Tax Increment Financing. Are there other studies on the subject? Are TIF districts really the engines of econonomic development we thought they were?
Because all local governments and their residents are affected by the consequences of municipal TIF districts, the results of this study suggest that state and local policymakers should revisit the issue of TIF districts as economic development tools and the question of whether school districts and other local governments should also have authoritative roles in the decision to create TIF districts.4
Though there is evidence that TIF districts slow growth, the plan will likely pass City Council at the behest of the city's Economic Development Director and the Downtown Development Authority. Effectively, it's a clever tax-hike that will not go before the voters.
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1 Tax Increment Financing: A Few Thoughts by Joseph Persky, Professor of Economics, University of Illinois at Chicago
2 Study finds that cities without TIFs grow faster by Richard E. Dye and David F. Merriman.
3,4 The Effects of Tax Increment Financing on Economic Development by Richard F. Dye,
Institute of Government and Public Affairs University of Illinois, Chicago.
72 comments
"The Citizen" reported that "The council is scheduled to vote on the proposals at its Sept. 27 meeting." I contacted various city offices today, and was informed that the proposal is a work in progress, which will not be on this coming week's agenda.
The revenue projections from "the captured tax", as reported in "The Citizen", do not match the figures in the proposal I reviewed (which was the proposal presented at the special meeting).
The same newspaper article also stated that the city received "a federal and county grant", for the JC streetscape, which is incorrect. There were federal grant monies, contingent on proportional matching funds from the city, which the city borrowed from the county.
I notified the editor (who also wrote the story), of his factual error in reporting. I hope he makes the correction in the upcoming edition.
The county loan (not grant) was made with future parking meter revenues as the first line of collateral, and future CDBG funds as the second line of collateral. The city is obligated for those loan payments for the next several years.
The cost for that "debt service", for this fiscal year (2005/06)--(according to page 68 of the DDA proposal), is $75,000.00 on the principal plus $17,075.00 in interest (for a total of $92,075.00).
Next year that figure nearly doubles to a loan principal payment of $152,000.00 plus another $30,400.00 in interest (for a total of $182,400.00).
Parking revenue projections are approximately $200,000.00/yr, which has it's own associated costs.
Currently, parking meter revenues go into the city's general fund. If the proposal passes, the DDA (comprised of political appointees) will have control of that funding, plus the incremental increases in property tax that would ordinarily go to the schools and the county, as well as the 2% increase.
According to our new charter, the city manager is responsible for the city budget. If the DDA gets the spending authority it's requesting, the city manager will have one vote out of nine, as to how that money is spent, if I'm not mistaken.
If past practice is any indication, there needs to be adequate oversight. The DDA (under former mayor zych) improperly spent tax money that was collected without proper authority, according to state law requirements, which is why the EFM had to eliminate the tax.
Many of the same members are still on the board.
the TIF is the business tax increase/reinstatement for the dda (that the citizen opined we should support?) and is actually a displacement of city funds that taxpayers pay interest on and does nothing to help economic growth?
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