A Different Kind of TIF

The Antiplanner’s visit to Lafayette, Louisiana was highly educational. Among other sights, I saw River Ranch, a very successful New Urban development that (according to local tax activists) was built without any tax subsidies. Although I personally would not want to live there, the development commands high prices even in the recession.

River Ranch Rowhouses start at $375,000 for 2,000 square feet, but owners are asking nearly $600,000 for the 2,800-square-foot corner model shown here. Single-family detached homes for sale include a 2,500-square-foot house for $550,000 and a 4,300-square-foot house for $725,000. Most single-family homes appear to be on fairly small lots. Given Lafayette’s median family incomes of less than $50,000, these homes are hardly affordable, but the development proved to be very successful.

I also learned that Louisiana tax-increment financing (TIF) is quite different than in most other parts of the country. In 1988, the state authorized cities to use property taxes, sales taxes, or hotel occupancy taxes for TIF. But property tax TIFs are limited to that portion of property taxes that are not already obligated to some specific purpose–and most property taxes are so obligated, so most if not all Louisiana TIFs rely on sales and hotel taxes instead.

Also, most, though not all, sales-tax TIFs are in the form of an additional sales tax on top of the existing tax (which is 4 percent for the state and a variable amount, generally around 4 percent, for local governments). TIFs that are on top of, rather than out of, the existing tax do not take money from schools, fire, and other urban services, which eliminates many of the objections to TIFs. (At least some other states that use sales tax TIFs, such as Colorado, also add the tax on top of, rather than out of, the existing tax.)

Still, there are problems. If an improvement benefits a retail store, why can’t the store just raise its prices by 1 percent and fund the improvement itself instead of funding it out of a 1 percent tax which must be filtered through the local government? TIF advocates say shoppers can “vote with their wheels” and simply go to a store that doesn’t have the higher TIF sales tax if they want. But the stores in TIF districts do not have any signage indicating that patrons will be charged a higher sales tax. If a TIF is put in a low-income neighborhood, shoppers in that neighborhood end up paying higher prices than shoppers elsewhere, partly because they have less mobility and are more dependent on local stores.

In the end, TIF is still just a way for elected officials to hand out favors to selected developers and other special interests. There is no reason to think that cities in Louisiana that use TIF grow any faster than ones that do not. Instead, all the TIFs do is shuffle new developments around, favoring certain property owners in the TIF districts over owners outside of the TIF districts. TIF may even reduce growth as developers who don’t get TIF subsidies may decide to build elsewhere where they won’t have to compete against subsidized developments.

When confronted with this argument, the Antiplanner was told, Lafayette’s mayor said, “Ever been to Disney World? That was built with a TIF and wouldn’t have happened without TIF.” It turns out that is a pretty strong exaggeration.
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Most of the land in Disney World is in something known as the Reedy Creek Improvement District, which was created by and for the Disney company. Within the district are two incorporated cities, Lake Buena Vista (population 16 according to the 2000 census) and Bay Lakes (population 23). The officials of the cities and the improvement district are, no doubt, all Disney employees. The town of Celebration is on former Disney property but not in the improvement district.

Any taxes collected by the RCID, Lake Buena Vista, or Bay Lakes are paid by Disney or its customers and spent on behalf of Disney. For example, the improvement district built and maintains all of the roads in the district except Interstate 4 and state highway 192. Interchanges between these highways and the district roads were paid for by the state out of state gas taxes, but gas taxes collected from the auto traffic generated by the Disney complex no doubt covered those costs.

According to a book critical of Disney World, there was no tax-increment financing of any Disney operation until the mid-1990s. At that time, Universal Studios had asked for and received $50 million in tax-increment financing to pay for a freeway interchange serving its billion-dollar theme park.

“The Universal deal aroused serious interchange envy” among Disney officials, says Richard Foglesong, author of Married to the Mouse. So they asked Orange County for a similar $53 million tax-increment finance package for an interchange to Disney’s Animal Kingdom, a new theme park in the Reedy Creek Improvement District. This was slightly controversial because it turned out that most of the interchange was in Osceola County, though all the taxes collected from the new Disney operations would be in Orange County. While it is possible that there were Disney TIFs before this one, Foglesong doesn’t mention any, and he seemed intent on digging up any dirt on Disney that he could.

In any case, it is clear that TIF did not make or break Disney World, which was mostly built a couple of decades before any TIFs were used in the area. The Antiplanner would prefer that roads be paid for out of user fees instead of TIFs, and it is pretty certain that if TIFs were not available Disney would have found other methods of financing that interchange for the Animal Kingdom park, which had cost Disney $800 million when it opened in 1998. In any case a TIF for a shopping mall in Lafayette is not going to turn Lafayette into Disney World.

Just a day or so before I arrived in Lafayette, California Governor Jerry Brown signed legislation designed to kill the California redevelopment agencies that gobble up $5.7 billion in taxes each year. Ironically, the legislation received the support of only five Republicans in the California Assembly and just one in the Senate. Were the rest bought off by the redevelopment agencies or did they just oppose anything Brown supported on principle? In any case, the redevelopment agencies may sue the state in a last-ditch effort to stay alive.

Redevelopment seems to be one topic that the left and right can agree upon. The former sees TIF as corporate welfare; the latter sees it as theft from downtrodden taxpayers. The only real supporters are the developers, the elected officials who receive their campaign contributions, and the agencies themselves. Of course, they are the ones with all the money and power.

Shortly after the Antiplanner returned from Louisiana, the Denver Post published this op ed criticizing a huge TIF subsidy in Aurora. The subsidy is for a hotel and conference center, which are hardly in short supply in the United States. At best, the TIF will take business away from other conference centers in the Denver metro area. At worst, it will place an additional burden on taxpayers who must pay for fire, police, and other services used by the conference center that would normally be covered by property taxes going to the TIF. We can only hope that California’s example will soon spread across the nation.