Tax Increment Financing: An Incentive for Smart Growth or a Subsidy for Sprawl?

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1 Tax Increment Financing: An Incentive for Smart Growth or a Subsidy for Sprawl? Greg LeRoy Executive Director Good Jobs First New Partners for Smart Growth February 8, 2008 ~ Washington, DC

2 Definitions: TIF & Suburban Sprawl Tax Increment Financing (TIF) A diversion of future property and/or sales tax revenue growth, in a specified district, to pay for re/development costs in the district Suburban Sprawl Causes a spatial mismatch between jobs and job seekers Fringe worksite locations with no public transit access mean central city workers are cut off from regional labor markets. They also mean commuters must use cars, making traffic congestion worse

3 The Thin Cities: How Subsidized Job Piracy Deepens Inequality in the Twin Cities Metro Area Good Jobs First December 2006

4 MAP 1: Subsidized Business Relocations 1999 to 2003

5 MAP 2: Subsidized Business Relocations Access to Public Transit Stops

6 MAP 3: Block Groups with Greater than Average Percentage of Non-White Residents

7 MAP 4: Block Groups with a Greater than Average Percentage of Residents Living in Poverty

8 MAP 5: Block Groups with a Greater than Average Percentage of Residents Receiving Public Assistance

9 MAP 6: Municipalities with a Less Than Average Percentage Change in Tax Capacity

10 Local Perspectives Telephone interviews with economic development directors in communities that had gained or lost at least 3 firms due to subsidized relocations Some officials actively recruit companies from other localities (e.g., targeted mailings to industrial tenants) Others passively accept Prisoners Dilemma bind and do not cooperate with peers when companies play one place off against another

11 Local Perspectives, Cont. Some officials feel trapped in subsidy competition to price land at artificially low levels TIF-based industrial parks are being used by outlying suburbs to grow local tax bases One losing community is responding with an even-handed philosophy, declines to play favorites

12 TIF, Greenfields, and Sprawl Thesis: several historical forces have converged to cause TIF to morph from an anti-slum tool to a subsidy for upscale malls and market rate greenfield subdivisions Long-term cutbacks in federal aid to cities Court decisions giving localities wide latitude Fiscalization of land use caused by tax revolt

13 TIF, Greenfields, and Sprawl Results: TIF strays from original anti-blight mission into newly developing areas Developers make aggressive use to offset high land costs in prosperous areas (e.g., Missouri) In New Mexico, the TIF diversion is expanded to include even the state increment of Gross Receipts Tax

14 TIF Policy Recommendations #1: Back to Basics Restrict TIF to public goods in alreadydeveloped areas that really need help, as measured by specific, measurable criteria such as concentrated poverty, business closings, tax base decline

15 TIF Policy Recommendations #2: Location Efficiency In urbanized areas with public transit systems, restrict TIF to project sites that are served by regular transit service (building on innovations in Illinois, California, and Maryland)

16 TIF Policy Recommendations #3: Reduce Retail Eligibility Strictly curtail retail eligibility for TIF to transit-accessible projects that are clearly located in neighborhoods that lack basic retail amenities such as groceries, drugs, and clothing

17 TIF Policy Recommendations #4: Install Fiscal Safeguards Cap the share of assessed value and/or sales tax revenue that can be TIFed, use pay as you go TIFs when possible, install trigger system to take the foot off the pedal when private reinvestment returns

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