By Paul Gorski
Local tax increment financing (TIF) districts are failing because property values are dropping and because the businesses in those districts are not unique enough to spur enough new business. That is the conclusion of this article. Here is the back story.
Local politicians too often use two common financial tools to create jobs and improve business conditions: tax abatements and TIF districts. I am focusing on TIF districts for this article.
Staff Writer Jim Hagerty described the premise of TIF districts well in “City could turn Auburn Street into 33rd TIF district”, Feb. 19, 2012.
“In a TIF district, a municipality borrows against projected increases in real estate tax revenue on properties before they are redeveloped. Funds are distributed to property owners within the district to finance improvements. As redevelopment occurs and values increase, the difference between the original tax revenue and new revenue generated after properties are improved, represents the tax increment. In short, a municipality recoups its investment in a TIF project by capturing the tax increment.”
So, skim tax money off the top of the tax bill and plow it back into the special tax district to improve business conditions in that area. Our problem is property values have been dropping in many of these areas, so there is not enough money coming in to repay the money borrowed to improve those areas. Not only are we not improving these areas significantly, we are putting ourselves deeper into debt.
Michael Kleen, a frequent contributor to The Rock River Times, documented problems with Rockford TIF districts in his article “Those troublesome TIFs” at http://therockfordblog.com/2013/10/08/those-troublesome-tifs/. Kleen points out that most of Rockford’s TIF districts are failing to spur economic development as originally planned.
We are not the only Illinois community where TIF districts are failing. A 2006 study of TIF districts in Illinois found “non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF” and “commercial TIF districts tend to decrease commercial development in the non-TIF portion of the municipality.” Read the study summary at: http://www.lincolninst.edu/pubs/1078_Tax-Increment-Financing.
Compounding the problem of dropping property values and tax revenue is that many of the businesses in TIF districts are not unique enough to draw new business. We can improve a road, pave a parking lot, or give a building a facelift using TIF dollars. But if that business is a simple dollar store or restaurant that competes with dozens of others like it in the city, that business is not likely to draw many new customers or bring in new tax dollars.
So, why do local governments continue to rely on TIF districts to spur growth? Because TIF districts can work, sometimes. However, “sometimes” is not enough to gamble taxpayer dollars.
The solution is to use TIF districts sparingly and use them to support the development of new or substantially unique businesses in blighted areas, businesses that will attract new customers and create economies in these districts.
Paul Gorski (firstname.lastname@example.org) is a Cherry Valley Township resident who also authors the Tech-Friendly column seen in this newspaper. Read “Tech-Friendly” at http://rockrivertimes.com/?s=tech-friendly.
Posted March 18, 2014