Some new thoughts on Tax Increment Financing

Some new thoughts on Tax Increment Financing.

People who know me know that I'm not a great TIF supporter. Perhaps the greatest irony about me is that I have sat on the TIF commission for three cities and in every case, I ultimately voted for the TIF proposal before the committee (surprise!). I believe that there are good TIFs and that there are bad TIFs. There were several interesting developments in the TIF world this week.

First, the Kansas City Star reported that Kansas City's TIF practices are questionable. The article reported that an independent agency suggested that, at this point, developers see TIF as an entitlement and it is a "given." For many years, I've said that you can't build an outhouse without getting TIF funds. I always exaggerated this issue to make the point. The Kansas City Star article now suggests that my exaggeration is now the norm. Several other recommendations from the report suggest the following.

• The city should immediately stop using its general fund to back bonds issued for tax-incentive projects. This practice is not done anyplace else in the country and places much more risk to the city than it should.
• The Economic Development Corp., the city’s umbrella entity for its development agencies, should receive all of its funding directly from City Hall “to assure that their interests are aligned with those of the city. Having the EDC be partially funded by the developers is like the fox guarding the chicken house.
  
• Stop using Super TIF incentives — when 100 percent of the city sales, earnings and other activity taxes generated by a project are diverted to assist that project. What's now happened (IMHO) is that TIF is a given...SuperTIF is what's used to address real blight. Give it 6 more years and SuperTIF will be the entitlement!
  

• The report also recommended that all city incentives should produce at least a 33 percent return to the general fund.

Perhaps the most interesting point is that it is not clear whether the TIF districts will actually reach the return on investment for six years or more. Why does this matter? Simply, more TIFs are being approved, and we don't know if the existing TIFs are paying off. Consider the worst case. Downtown KC's entertainment district tanks. Zona Rosa stops growing, etc. More money from the General Fund go to pay the TIF bonds and are diverted from basic services. Not only are more funds diverted, but the need to address real blight (e.g., Antioch Shopping Center) are delayed. This study was long, long overdue.

Second, the city of Blue Springs is calling for a TIF district to help redevelop the old Wal-Mart site. While this makes sense in one way (e.g. developing a site that is "prime" but has sat empty for several years) it is very interesting in another. What makes this interesting to me is that this may be the first TIF that is established to redevelop something that was originally created as a TIF!

Finally, I've been watching SB20 in Jefferson City very closely. I hope and hope every day that this passes. This law would tighten the some of the loopholes in the TIF law in Missouri. For instance, one point that SB20 would address is that TIF identifies several reasons that property can be considered blighted. While SB20 doesn't change the definition of TIF, it does require that a piece of property match up with more than one blight standard. Good move! SB20 also requires that if a city council over-rides the TIF commission's recommendation, the city council must vote unanimously and likely will have to take the override directly to the people. Another good move.