If anyone still doesn’t believe that the whole idea of tax-increment financing, or TIF, is morally bankrupt, they only have to look at the latest shenanigans in Portland. The city took TIF money from the downtown Pearl District and used it to build a school at the opposite end of town.
What’s wrong with this? TIF is a California invention designed to kick-start development in blighted areas that otherwise might not attract private investors. Planners like to claim that TIF pays for itself, but in fact, new developments impose costs on fire, police, schools, and other public services, yet the taxes that would cover those costs are used to subsidize the development instead. This means everyone else in the city either has to pay higher taxes or accept lower services.
(For those not familiar with the term, TIF takes the revenues from future increases in property taxes in a specific area and uses those revenues to subsidize development in that area. Or, more typically, the city uses the revenues from bond sales to subsidize the development and then repays the bonds with the property taxes.)
Not to worry, say planners. Even if TIF creates some short-term financial shortfalls, in the long run it adds properties to the tax rolls that will end up being a net gain for the city. But, as the Portland example vividly demonstrates, TIF has become just one more slush fund for politicians to raid.
The Pearl District is usually presented as a wonderful TIF success story. The city used borrowed money to turn a rundown warehouse and industrial district into a thriving mixed-use community of yuppies, restaurants, and boutiques. True, only about 1,100 people actually live there, but many of the condos sell for well over $500,000, and some for over $1 million.
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But a member of the Portland city council saw another problem. The David Douglas School District, located in east Portland 7.5 miles (see map) from the Pearl, needed to build a new grade school to educate all the children in families who had been chased away from inner Portland by gentrification and high housing prices. But it didn’t have any money to build the school, partly because so many of those families are poor and living in subsidized “New Urban” developments along Portland’s light-rail line (many of which had themselves been subsidized with TIF).
So city councilor Eric Sten, had an idea: why not take some of the Pearl District’s “surplus” and give it to David Douglas School District to build the school? This idea was so unheard of, so mind boggling, that no one was able to come up with an official objection before the city council approved it — after which, strangely, Eric Sten resigned from the council.
That doesn’t mean everyone was happy with the idea. While the law may or may not be clear, no Oregon city has ever spent TIF money outside the district from which it was collected (and I’ve never heard of it happening anywhere else either). The Portland, Centennial, and Reynolds school districts (which are all in Portland) wonder why David Douglas was favored when they, too, have money problems. “What makes David Douglas the chosen one?” asked one superintendent. No doubt Portland fire and police officers also wonder why they are being shorted.
The point is, we are now a long way from kick-starting development in blighted areas. Now we are using TIF to steal money from thriving areas in order to subsidize city councilors’ pet projects. To be sure, planners did not conceive of this idea. But this is a natural outgrowth of using funds like TIF to subsidize government program. By advocating for TIF, planners are leaving taxpayers open to this kind of robbery.
It will be interesting to see where Sten lands now that he is off the city council. As Bojack points out, Sten’s city council salary was about $93,000 and his wife works for a non-profit group. Yet they just bought a million-dollar home without selling their previous home in the swanky Irvington neighborhood. He must have some idea of how he is going to pay the mortgage. Maybe, like Charlie Hales (who retired from the Portland city council to sell streetcars to other cities), Sten will go to work for some big consulting firm selling TIF-funded pork-barrel projects to other city leaders.
Of course, the big question is how much do condo values have to fall, in an overbuilt, speculative market, so that there will not be enough money to pay the bonds?
Did you all notice that heads are rolling at the PDC?:
bojack.org/2008/04/major_major_shakeup_at_pdc.html
wweek.com/wwire/?p=11570
Thanks
JK
Antiplanner,
TIF’s (aka TIRZ’s) have also been very liberally used in a certain sprawling, nominally non-zoned city located along the Gulf Coast of the southern United States. Texas law enabled their creation about 20 years ago and TIRZ formation subsequently exploded under a previous mayor. Similar to what you write about in Portland, TIRZ’s were created for several well known blighted areas as the fabled high end Galleria shopping mall. In fact I will see to it that this year’s ADC conference bus tour participants will get to see this heavily blighted TIRZ district and judge for themselves whether the area needed to be designated as such.
Our current Mayor has not been entirely pleased with the work of his predecessors. This is because, despite a substantial rise in the price of two widely used types of fossil fuel in recent years and a concurrent boom in population and taxable real estate values, this nominally non-zoned city is still broke. Starting salaries for police officers in said unzoned city are a petty $29,000 per year. Some the reason as to why this is this state of affairs now exists could be laid at the feet of runaway TIRZ formation.
Another critique of TIRZ’s or TIF’s is that they merely move money around, rather than add a greater amount of new development. Money is captured by interests in a particular TIRZ, but if that money is denied to the coffers of the wider municipality, that does not mean that areas outside of these TIRZ’s stop needing help. About 60 percent of the taxable property of another TIRZ that was formed in another well off area of this non-zoned city belongs to a large real estate firm, whose primary holdings in the TIRZ is another prominent shopping mall.
Then there is the matter of who really benefits. Arguably, some of the people who benefit the most are attorney / lobbyists who argue for the formation of TIRZ’s. Here is this city, TIRZ board members are appointed by the Mayor and their activities arguably are largely beyond the reach of democratic political processes.
new developments impose costs on fire, police, schools, and other public services
Wow. Never thought I’d hear such a thing around here.
About 10 years ago when Woodbury, Minnesota was one of the fastest growing cities in the US they used TIFs for a big open air shopping area called Tamarack Village. Woodbury wasn’t only a fast growing city but a relatively wealthy one even by Minnesota standards. That area of the east metro didn’t have much for retail development at the time. The city’s planners were feeling their oats and decided they needed a Home Depot right now. Apparently they could’ve wait a couple years for it to be built and used TIFs to get it going even though it seemed obvious that Menards, Lowes or Home Depot (or all 3) would be building in the city sooner than later even without the money (it’s open farm land being converted into surbubia, after all). They also for some reason rejected Menards for that project. I mention that because if the purpose of a a TIF is to kickstart development, why is it needed when more than one retailer in the same category wants to build there (among other things)?
I’m with D4P. Who knew that new development imposed costs?
Nonetheless, I’m not a TIF fan in most cases, never on greenfields.
The developers around here sure think its a good idea, always rushing to the electeds to see if they can get some TIF funds to jump-start their development; TIFs today, cringing at any hint of restricting markets tomorrow, can I get a tax abatement because city z is offering me one the next day, why are you slowing down business the day after that, can I have economic assistance or else I’m going down the road next week. IOW, TIF goodies are rewards given to panderers.
DS
Is TIF morally corrupt or are politicians morally corrupt when they abuse the TIF system?
Any time TIF funds are taken from one area and used in another there can be abuses. Using TIF funds to finance infrastructure at the point of development could work. The problem is politicians would rather use those funds elsewhere and just collect SDC’s (very immoral) from home buyers and business owners to finance infrastructure at the point of development.
Until corruption is taken out of the system we will continue to have problems.
I’m with D4P too. TIF’s fund can highways as well.
As a planner, I agree with Randal’s idea of getting rid of all TIF’s versus them being used on greenfield sites that shouldn’t require the help. There are some instances (brownfield redevelopment or rehabbing old, historic structures in low-income areas) where I think it’s a valid tool, but it gets abused way too much, so I’d easily take the tradeoff and have TIF’s be gone.
In my experience, developers beg for TIF’s from the governing body, and most times (in both OH where I worked, and PA where I work now), the economic development folks are hand-in-hand with the developers on it. Planners usually don’t get listened to in those scenarios, that’s why every day I get to drive by the hillside that got leveled to make way for a Sam’s Club and a Target (and got TIF to offset the costs) on my way to work…
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