Tax-increment financing (TIF) costs taxpayers around $10 billion per year and is growing as fast as 10 percent per year, according to a new report, “Crony Capitalism and Social Engineering,” published by the Cato Institute. Though originally created to help renew “blighted” neighborhoods, TIF today is used primarily as an economic development tool for areas that are often far from blighted.
The report argues that TIF does not actually generate economic development. At best, it moves development that would have taken place somewhere else in a community to the TIF district. That means it generates no net tax revenues, so the TIF district effectively takes taxes from schools and other tax entities. At worst, TIF actually slows economic development, both by putting a larger burden on taxpayers and by discouraging other developers from making investments unless they are also supported by TIF.
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While bond companies maintain a national database of TIF bond sales, there is no national database of overall TIF revenues. Such revenues are significantly larger than the bond sales, both because they must repay bonds with interest and because many states allow cities to spend TIF on a pay-as-you-go basis–that is, as the revenues come in rather than to repay bonds. Some Oregon cities sell no bonds and use all their TIF revenues this way. The Cato report used data from several states to estimate the extent and growth of TIF nationwide.
The available data show that California cities currently collect an average of $160 a year in TIF revenues from every resident of the state. Most of the other 48 states that allow TIF collect far less. In the early 1990s, California accounted for more than 80 percent of TIF bonds, but this declined to 60 percent in the late 2000s. This shows that TIF is growing much more rapidly outside of California. If left unchecked, eventually other states will also be collecting $160 or more per resident.
I knew that redevelopment agencies siphoned a lot of property taxes, but had no idea how much. In Sacramento, $26 million of $31.2 million paid by downtown property owners went to redevelopment.
http://www.sacbee.com/2011/01/24/3346321/sacramento-redevelopment-agency.html
Which would be fine if their properties needed no public services. But they do, and the services are paid for by diverting taxes paid by property owners like myself who didn’t have the good fortune to live in a redevelopment district. Of course, we were required to pay (as we should have been) the full cost of developing our area, through supplemental property taxes (Mello-Roos bonds) to pay for our infrastructure or development fees charged to developers who passed the cost through to buyers in the purchase price. We had just assumed we were getting a fair return on our taxes, not realizing that the quality of services we received had been degraded so we could subsidize the superior lifestyles of those more affluent than ourselves who bought the very expensive downtown properties.
When I read in the newspaper that cities give Wal-mart or a mall tax incentives to move into an area, is that TIF?
They often say that the incentives are both property tax and sales tax incentives, yet the stores still collect the same sales taxes as any other store. So are the sales taxes collected by the store being kept by the store?
When I read in the newspaper that cities give Wal-mart or a mall tax incentives to move into an area, is that TIF?
It can be.
They often say that the incentives are both property tax and sales tax incentives, yet the stores still collect the same sales taxes as any other store. So are the sales taxes collected by the store being kept by the store?
Often, but it depends.
DS
And shame on the California Republicans, supposed opponents of Kelo-type decisions, defenders of private property rights, and scorners of crony capitalism, for blocking Governor Moonbeam’s attempt to end redevelopment in the Golden State. They are either captured and corrupt, or they are reflexively opposing Brown because he is in the other party. Either way – shame.
Metrosux said:
I wish his posts were always so succinct.
Nodrog said:
…They [California Republicans] are either captured and corrupt, or they are reflexively opposing Brown because he is in the other party. Either way – shame.
All of the above.
It would be nice if there were any facts in this post. Although I do not disagree with Randall Otoole on many things, his data analysis and the actual data he uses is often not accurate or just wrong. He never accounts for any externalities or any other expalaition for his so called “evidence.” Just because a guy writes papers for a psuedo think tank does not mean that he should be quoted. The odds are stacked against him as he is often trying to disprove long held and often repeatedly studied areas and he is the lone dissenting voice. This is further need for him to produce high quality, factual writings and not his often loose interpretation of anecdotal evidence and misinterpretation of figures. Maybe the Kato institute needs a new spokesperson to tow the party line, because O’toole just isn’t cutting it.
MIZON,
You’re trumpeting what has been said by many of Mr. O’Toole’s opponents for some time now. And the fact that “he is often trying to disprove long held and often repeatedly studied areas and he is the lone dissenting voice,” is obviously the biggest hill all Antiplanners have to climb.
But personally, as a planning professional, Mr. O’Toole serves an important role in my life. When writing plans, designing services, and crunching numbers, there is a little O’Toole in my head keeping me honest.
I often disagree with his analysis and use of data, but it’s important to understand that there is A LOT of bad planning out there (usually do to politicians ignoring the planners) and not much of it get’s by Mr. O’Toole (the over use of TIFs is a great example).
I guess my point is, while I often vehemently disagree with him, I don’t want to see him go away. He challenges my profession respectfully (at least more respectfully than most zealous libertarians, conservatives and Tea Party members), and I’m happy to butt heads with him once and a while. Embrace the struggle.