Those who have read the preview of REVITALIZATION publisher Storm Cunningham‘s third book, RECONOMICS (coming January 2020) know that he sees three basic problems with the practice (not the tool itself) of tax increment financing (TIF).
He feels that tax increment financing is an excellent revitalization tool, but it’s often 1) misused [for sprawl], 2) abused [developer subsidies], and 3) overused [revenue depletion].
Now, economist David Merriman of the University of Illinois at Chicago reviews more than 30 individual studies in the most comprehensive assessment to date of tax increment financing.
He also finds three problems with the way TIF is used, but they are three different problems from the ones that Storm identified.
The report finds that while TIF has the potential to draw investment into neglected places, it has not accomplished the goal of promoting economic development in most cases.
First implemented in the 1950s, TIF funds economic development within a defined district by earmarking increases in future property tax revenues that result from increases in real estate values in the district.
The tax revenue can be used for public infrastructure or to compensate private developers for their investments, but TIF is prone to several pitfalls: 1) it often captures some revenues that would have been generated through normal appreciation in property values, 2) it can be exploited by cities to obtain revenues that would otherwise go to overlying government entities such as school districts, and 3) it can make cities’ financial decisions less transparent by separating them from the normal budget process.
The report recommends several ways that state and local policy makers can reform TIF practices going forward.
Both photos are from the report.