User:RockinAndyCook

Amendment made to the article “Tax increment financing”:

Following the second paragraph of the section “Controversy,” I propose adding a link to a new article: “Misuse of Tax Increment Financing (TIF).”

Misuse of tax increment financing (TIF)

Tax Increment Financing (TIF) is a controversial and often misused public finance method used by municipalities to encourage redevelopment in blighted areas. TIF has been a common financing tool since 1952.1 TIF strategies are implemented by taxing authorities in areas where unemployment and underemployment are high and urban decay has taken hold.

Tax Increment Financing is described as the freezing of property and income taxes at very low rates to encourage investing in the area by businesses and developers. Results have been mixed, mostly due to poor selection of TIF designated areas by legislators2. Evidence shows that this form of finance is effective only when deployed in the proper location: “Selection bias is a very real threat to analysis of TIF impacts because blighted, low-value neighborhoods are more likely to be designated as TIF areas than more economically healthy areas.”3

A study based in England, where the TIF approach has also been embraced noted that the incentive, if inappropriately applied to an area unsuitable for redevelopment, can be a high risk for developers. The TIF designation has been used to mislead developers in the past. The study adds that “There is a risk for developers in investing in a new and unproven location that may not attract occupiers, especially one with a previously poor image and unattractive appearance. Few developers wish to be the first to develop where demand or occupier interest is uncertain, or where major new infrastructure has yet to be provided.”4

However, municipalities have deployed TIF incentives in the hopes of spawning job creation and other positive externalities associated with redevelopment. They have often underestimated the value of selecting appropriate locations for TIF areas, however. In an effort to boost the local economy, legislators have historically applied Tax Increment Financing to areas lacking requisite labor availability as well as infrastructure strength.

Pressure has been placed on municipalities to establish a framework for analysis of TIF districts. “Municipal governments across the United States have come under increased pressure to provide quantifiable evidence that the tools they employ in the name of economic development have the potential to contribute to private investment.”5

In order to establish what technically a “blighted” area is, the state of Illinois has published its own methodology. The subjective qualities that determine blight are:

Deterioration, Stagnant or shrinking property values, Vacant buildings, Undesirable land use, Obsolescence, Lack of ventilation, Dilapidated buildings, Brown-field issues, Inadequate utilities, Building Code violations, Illegal use of structures, Overcrowding of structures, and Lack of community planning.6

Legal remedies have also been designed to limit the abuses and misuses of Tax Increment Financing. Many states have enacted a formal methodology for use in identifying areas that are appropriate to designate as “blighted” and thus to designate as TIF areas. Many municipalities still have freedom to interpret blight as they see fit, however, and continue to use TIF to give tax breaks to large corporations and conglomerates looking to build locally.7

These qualities, however, do not determine the success of a TIF district, because their success depends on the underlying strength of the market in these blighted areas. In particular, there needs to be an educated population and infrastructure.

While the controversy surrounding TIF has intensified, several examples of its misuse have earned attention.

•	In Fort Worth, Texas, legislators sponsored a bill which would zone an area purchased by Cabela’s department store as a TIF area. Though the area was not truly blighted – it was an area where property taxes had been steadily increasing and development had been steady – it was given the TIF status regardless.8

•	In the downtown section of the City of Pittsburgh, Pennsylvania, an area was designated a TIF area to encourage the development of a Lazarus department store. The property never became successful, did not bring other investment to the area, and did not spawn redevelopment in the surrounding downtown. The city lost $70 million in tax revenues as a result.9

Certain discourse bodies have formed to protest this form of public finance. The Municipal Officials for Redevelopment Reform (MORR), headed by California Representative Chris Norby, is a particularly outspoken group. The MORR seeks to address issues of TIF abuse. The group sponsors an annual convention in San Jose to alleviate the abuses of TIF. The 15th annual convention is planned for August 2010.10

In Illinois, a similar group called the Neighborhood Capital Budget Group (NCBG) was formed to study the City of Chicago’s 36 TIF districts and identify abuses. 11 The group’s findings confirmed that the TIF deployment was targeted at areas that did not need tax incentives to promote development, instead subsidizing building in upscale areas that were free of any urban blight.12

See Also

Public Finance

Tax Increment Financing

References

1. “A History of TIF” Retrieved 3-24-2010. 2. “Mixed-Use Development and Financial Feasibility: Part I - Economic and Financial Factors.” Joseph F. Rabianski, et al. Retrieved 3-24-2010. 3. “Mixed-Use Development and Financial Feasibility: Part II – Physical, Phasing, Design and Public Policy Factors.” Joseph F. Rabianski, et al. Retrieved 3-24-2010 4. “The Economic Effects of Regional Shopping Centres.” J. Robertson and J. Fennell. Retrieved 3-24-2010. 5. “If you Promise to Build It, Will They Come? The Interaction between Local Economic Development Policy and the Real Estate Market: Evidence From Tax Increment Finance Districts.” Brent C. Smith. Retrieved 3-24-2010. 6. “If you Promise to Build It, Will They Come? The Interaction between Local Economic Development Policy and the Real Estate Market: Evidence From Tax Increment Finance Districts.” Brent C. Smith. Retrieved 3-24-2010. 7. “Giving Away the Store to Get a Store” Retrieved 3-24-2010. 8. “Perry’s Worst Gambles” Retrieved 3-24-2010. 9. “Tax Increment Financing: A Bad Bargain for Taxpayers” Retrieved 3-24-2010. 10. “Conference on Redevelopment Abuse” Retrieved 3-24-2010. 11. “Tax Increment Financing: A Bad Bargain for Taxpayers” Retrieved 3-24-2010. 12. “Chicago TIF Overview” Retrieved 3-24-2010.

External Links

	“Redevelopment: The Unknown Government” written by MORR founder Chris Norby. 	“Tax Increment Financing.” A report prepared by the National Association of Realtors. •	An analysis of Chicago TIF districts, “Chicago TIF Overview,” by the Neighborhood Capital Budget Group.