Pros of TIF Districts Really That Pro?

I remain uneasy with the proliferation of tax increment financing, especially for projects like Madison’s new commercial/residential TIF district across from the new hospital that look like they could succeed without public subsidy.

But Governing columnist Scott Beyer looks at the bright side of TIF districts:

There are several advantages to using TIF, rather than money from the general fund, for these public goods. First, it forces neighborhoods to fund their own amenities. People who benefit from proximity to a project via higher property values, added commerce, or use of that amenity, will actually pay for it. This matters in an age when struggling inner-city neighborhoods and outer suburbs alike resent funding downtown projects that have little to do with them, especially if that means their own services are cut. Second, TIF incentivizes governments to use the land within TIF boundaries for high revenue-generating purposes.

Of course, TIF doesn’t guarantee against boondoggles. But a third asset is that TIF, if structured properly, encourages accountability. If officials know that a project must pay for itself through added tax receipts in a specific location, they’ll be more cautious about what and where they build. And because TIF demands a before-and-after look at an area’s revenue levels, it clarifies whether an amenity has worked [Scott Beyer, “The Perils and Promises of a Popular Yet Controversial Financing Method,” Governing, May 2016].

I’m dubious on that first point: an important part of funding certain neighborhood projects should be to unite a city, to make everyone within the jurisdiction realize that we all benefit from public goods, even if we don’t live right next door to them or use them on a daily basis. I can also see some circularity in the caution point: if cautious officials only engage TIFs for projects that are sure to produce a return, then aren’t they leaning right back toward projects that should be able to take off on their own under free-market rules, paying the full freight of their tax bill from year one?

As for the accountability point, I’m all for government keeping a close watch on the books, but don’t city finance officers and county equalization offices record accurate property values and tax revenue figures every year, within and without TIF districts?

18 Responses to Pros of TIF Districts Really That Pro?

  1. Karen McGregor

    Rapid City uses TIFs to encourage economic growth. The problem is that school taxes are levied back against the rest of the taxpayers who absorb the increase, and there is no growth in tax revenue to pay for services-like law encorcement and other county services. TIFs are granted in areas that are not blighted and to developers who will be successful without them.

  2. Steve Sibson

    Karen is right. TIFs are a tool to increase the profits of certain business people by taking money out of the pockets of taxpayers. It is an example of public/private partnerships, that represents a marriage of government and business. It also fosters cronyism. This is also happening in Mitchell.

  3. yep. Spearfish hands out TIFs like they are going out of style. And gives them away to their handpicked developers. Like Karen said, in areas that aren’t blighted and are not “stunting” progress or growth.

  4. Dana, Karen, are we getting into a situation where so many towns are giving out so many TIFs that developers expect TIFs for any project they bring forward?

  5. owen reitzel

    If TIFs are done right they work well.
    I’m on the city council in our small town and we are on our 2nd TIF.
    Both are residential and the first one is complete. We’ve paid off our bond early and we’ve started a second one. The tax money on the homes in the first TIF is starting to come in now.
    We got another bond to put in the the infrastructure which has now started. It’s for 10 homes. This time the developer has to share 5 of the lots. 1 house has been built, another lot has been sold with a house to be built and another developer will be building a spec home. Looks like this TIF will go well as well.
    WhileTIF’s can be abused, they can be used well. It’s a gamble for us as a small town but the rewards can be big.

  6. Owen, how much did the TIFs knock off the developers’ price for those projects?

  7. owen reitzel

    I don’t think anything. The TIF, for us, was meant to put in the infrastructure to encourage the developer to build.
    We actually have covenants that say the homes have to be a certain price and that someone can’t buy a lot and either not build on it, put a garage on it or a Governor’s house.
    We need these rules so we can get the full tax value off the land and pay for the bond.

    The key is we have a developer that will build homes. He builds a spec home and usually by the time it’s built it’s sold and he starts on another spec home. On the second TIF we have a second developer building a spec home.
    I don’t believe the developers could afford the coast of putting in the infrastructure.

    For a small town like ours it’s a gamble, but it’s beginning to pay off tax wise. It’s also brought in young couples with children which, of course, helps our school. What helps as well is being close to Mitchell. We get a lot of people who want the small town life and the smaller school.

    TIFs are very complicated and hard to understand and open to abuse. But as proven so far in our town, TIFs are a very good thing and our town is growing because of it.

    It’s a win-win for our town and for the developer.

  8. Cory raises some good questions about TIFs but Scott Beyer’s assertion of accountability seems ridiculous given recent scandals including GEAR UP and EB-5. Just how accountable has our local and state government been?

  9. Once you start allowing TIF’s for residential development, it becomes nearly impossible to say NO to any future residential TIF. If development A (with a TIF) can sell their lots for a discounted price, proposed development B will be at a disadvantage and be unable to complete with development A unless development B also gets a TIF. This cycle just continues on and on with any new proposed development needing a TIF to compete with the previous development that got a TIF.

  10. Cory, is sure seems like it. (I can only speak to my experience in Spearfish) The developers (2-3 in particular in Spearfish) seemed to massage and over-use the “blighted” justification to ask for TIF’s. And the city leaders signed off on it without the blink of an eye.

    In the subdivision that went up next to where I used to live, that justification was used. In that justification, the developer also said it would be an economic boon to Spearfish. Well, this is what REALLY happened.

    The developer, bought 40+ acres of land. Asked Spearfish to annex it. They did. Then, he “sold” a chunk of that land to the City of Spearfish (for an inflated price) , who in turn “donated” it to Prairie Hills Transit (PHT). Which is a non-profit bus transportation service. On that “donated” land, PHT built a multi million dollar bus facility, by using SD stimulus funds (stimulus funds that were supposed to help SD with roads and bridges – but then Gov Rounds gave a chunk of that to his friend, Barb Cline, who is exec director of PHT, who greased the wheel to have the multi million dollar facility built) Obviously, as a non profit, PHT pays $0 dollars in property taxes. PHT gets federal, state, and city subsidies to operate. PHT “management” consists of the exec director, her husband, her daughter, and a city councilman (who a job was “created” for after he voted to approve the PHT deal. Coincidence, I’m sure) PHT management makes very good wages – much higher than the average bear in Spearfish. MUCH higher than their $11.00/hour drivers – I know a few of those drivers who have to be on food stamps to make ends meet.

    A second chunk of that land (several acres) was touted by the developer as “work force” housing. Many houses were built, and the majority of them were (with the agreement) of Spearfish, on “leased” land. So, no property taxes into the city coffers!

    Many of those houses on leased land, were bought up by realtors in the Black Hills, who have turned them into rentals.

    Another chunk of land, was sold by the same developer to a national “low income” apartment builders. (they build and manage numerous “low income” apartment complexes all over the country) The name of this company escapes me right now, but they are ALSO a non-profit. Therefore, not paying a lick in property taxes. The majority of their tenants are the poor or working poor – soooooo, because of the low wages in South Dakota, these tenants are more than likely on food stamps to help them make ends meet.

    So let that sink in for a second. Let’s say a fair market rate for an apartment there is $500. A tenant there pays rent based on their income. Let’s say, based on their income, their rent is $250, with the taxpayers picking up the rest of the tab. We taxpayers have now subsidized the land and building of the apartments (with TIF and other taxpayer funding), picking up half of the monthly rental tab, and, we are helping them with their food stamps, etc. So, the TIF’s aren’t really helping…..only if you count that they are helping the higher ups in the equation!!

    Obviously, with that growth in that subdivision, requires more resources. Police, fire, public works, etc. From what we could see, the city didn’t plan for this. Gosh, and we wonder why the city was pushing so hard for annexation of us county folks after they had approved so many TIF districts?

    Also with this subdivision, population of school age children increased dramatically. The school district had to find funding to “expand” the recently built elementary school. AND, they had to re-open, the recently closed East Elementary school in order to educate all of the children. Who paid for all of this? Not the developers nor the people that moved into this subdivision. The taxpayers! These developments didn’t do a darn thing to the economic boon in Spearfish. It only cost the taxpayers more. Private gain, public pain.

    I agree with what Owen said. If TIF’s are used the way they are intended, I can totally see the benefits for all involved. But when they are used the way I witnessed? I think the only ones that benefit are the developers. And they benefit in a big way.

  11. Douglas Wiken

    TIFs should be abolished. They are more abused than useful and the benefits are always questionable. Taking money from Peter to line Paul’s pockets does not seem like either a good liberal or conservative policy.

  12. owen reitzel

    That’s where the covenants come in to play Scott. I also see your point.
    We had the opposite happen. The developer that owned the land the the TIF is in had to give 5 of the 10 available lots. We put a covenant in that he had to sell those lots at a fair price. No price gouging.
    Again it looks like our TIF is looking pretty good.

  13. owen reitzel

    I disagree Mr. Wiken.
    I think more regulation might be needed, but let’s not throw the baby out with the bath water.
    In the long run it’s for a greater good.

  14. happy camper

    Some people on welfare don’t contribute enough to their own well being, some rich folk think they’re worth more than what they are no difference.

    TIFs are not complicated improvements normally incurred by the developer are paid by the city and taxes first go to pay for those improvements.

    Pay your own way.

  15. Are TIFs promoted by sx falls bond counsel dougherty dawkins i wonder? Might be a good insider interview. Hc-my word u have a conservative streak.

  16. happy camper

    Southdacola just wrote on TIFs, and if I remember right a couple years ago he said the city of Sioux Falls wasn’t disclosing investors and that Mayor Huethers wife was a major investor in a huge apartment complex. No conflict of interest there. They’ve come to expect it. Most of these things would be built anyway it’s just added profit from the taxpayer when they removed blighted as a criteria but simply economic development, not that even that mattered much depending on politics. Legalized corruption.

  17. Owen, I notice the “no Governor’s House” covenant. Does that requirement price some people out of moving in?

  18. happy camper

    He has many other blog entries on TIFs, but here’s one on Huethers. Too easily abused: “Huether likened his role in Canyon Creek to buying shares in any other investment. And he said that elected officials, including city councilors, governors, county commissioners and mayors, should be able to invest their money.”