California cities do not have a constitutionally given right to steal money from schools and other tax districts to use for their crony capitalism and social engineering, says the California Supreme Court when it rejected a law suit brought by urban redevelopment agencies against a state law abolishing them. As a result, barring new legislation reinstating the practice, tax-increment financing (TIF) comes to an end in California, the state that pioneered the tax tool and, as recently as 2011, did more TIF than all the other states put together.
It is conceivable that, somewhere, sometime, a TIF project was truly worthwhile. In general, however, TIF was mainly a way for cities to build empires, elected officials to engage in crony capitalism, and urban planners to practice social engineering. Almost all of those “transit-oriented developments” that were supposedly stimulated by light rail and streetcars were really simulated by TIF. Nearly all of the cases of cities using eminent domain to take private property and give it to developers involved TIF.
Jerry Brown and Democrats in the California legislature killed TIF to free up tax dollars that should have been going for schools and other programs, not to protect property rights. But the fact that the Democrats saw through the claims that TIF is “free money” should inspire TIF critics elsewhere. In particular, in places where state money is used to help pay for schools, tax guardians can argue that abolishing TIF will help reduce that burden.
Strangely, only a handful of Republicans in the legislature voted for the bill. But the bill’s passage is a victory for Republican Assemblyman Chris Norby, the former Orange County supervisor who has been working hard against TIF for more than a decade.
Since the state contributes to schools, abolishing TIF districts will immediately save the state several billion a year. Before the bill passed, California redevelopment agencies were sucking $5.7 billion out of property taxes each year. About $3.0 billion of this is dedicated to repaying bonds, while the rest was apparently “pay-as-you-go” TIF and is immediately freed up for schools and other entities. As the bonds are paid off, the rest of the money will also be free.