There, it had to be said. Smith, head of the Uptown rah-rah outfit Center City Partners, is letting his pursuit of an Uptown baseball stadium careen into la-la land. Smith actually told the Observer’s Richard Rubin that a new stadium would spur residential housing growth Uptown and that the city would quickly recoup any money spent on the project as a result.
There is simply no evidence for that. Moreover, Smith and other advocates of routing property income from new projects away from the city’s general fund are playing with fire. Such tax-increment financing, as it is known, is not such a wonderful investment. Other locales are finding that out the hard way.
Daniel McGraw documents the damage done by TIF deals in the January issue of Reason. The article should be required reading for all local officials. McGraw sketches out what happened in Ft. Worth when the city used a $30 million TIF deal to pay for a Cabela’s hunting store and acted like it was a great deal for the community:
Unless spending is cut — and if a TIF really does generate economic growth, spending is likely to rise, as the local population grows — the burden of paying for these services will be shifted to other taxpayers. Adding insult to injury, those taxpayers may include small businesses facing competition from well-connected chains that enjoy TIF-related tax breaks. In effect, a TIF subsidizes big businesses at the expense of less politically influential competitors and ordinary citizens.
“The original concept of TIFs was to help blighted areas come out of the doldrums and get some economic development they wouldn’t [otherwise] have a chance of getting,” says former Fort Worth City Councilman Clyde Picht, who voted against the Cabela’s TIF. “Everyone probably gets a big laugh out of their claim that they will draw more tourists than the Alamo. But what is worse, and not talked about too much, is the shift of taxes being paid from wealthy corporations to small businesses and regular people.
Sound familiar? Charlotte’s wrinkle is using a “synthetic TIF,” a financing deal that does not issue bonds or feature special taxing districts, but the principle is the same. The principle is simple but often obscured: The new thing is so great that it should not have to pay taxes into the general fund. That is how the $150 million Uptown arts plan is being funded — by letting Wachovia direct the $40-something million property tax bill for a new building towards the arts facilities, not the general fund. Carolina Theatre development subsidy approved last week? A $4 million synthetic TIF.
The baseball plan? The stadium would not pay taxes to the city, freeing up several hundred thousand dollars a year for debt service. In effect, the city of Charlotte will pay team owner Don Beaver’s mortgage, a very synthetic form of TIF.
McGraw continues:
Local officials usually do not consider how much growth might occur without a TIF. In 2002 the Neighborhood Capital Budget Group (NCBG), a coalition of 200 Chicago organizations that studies local public investment, looked at 36 of the city’s TIF districts and found that property values were rising in all of them during the five years before they were designated as TIFs. The NCBG projected that the city of Chicago would capture $1.6 billion in second-stream property tax revenue—used to pay off the bonds that subsidized private businesses—over the 23-year life spans of these TIF districts. But it also found that $1.3 billion of that revenue would have been raised anyway, assuming the areas continued growing at their pre-TIF rates.
The experience in Chicago is important. The city invested $1.6 billion in TIFs, even though $1.3 billion in economic development would have occurred anyway. So the bottom line is that the city invested $1.6 billion for $300 million in revenue growth.
The upshot is that TIFs are diverting tax money that otherwise would have been used for government services. The NCBG study found, for instance, that the 36 TIF districts would cost Chicago public schools $632 million (based on development that would have occurred anyway) in property tax revenue, because the property tax rates are frozen for schools as well. This doesn’t merely mean that the schools get more money. If the economic growth occurs with TIFs, that attracts people to the area and thereby raises enrollments. In that case, the cost of teaching the new students will be borne by property owners outside the TIF districts.
As a result of this kind of actual analysis, TIFs are losing favor as the public gets a good look at them. But as with light rail, official Charlotte has once again latched onto yesterday’s bad idea and is it treating it like tomorrow’s wave of the future.
Michael Smith surely wants what is best for Charlotte. What’s best would be a tax burden that is fair, low, and broad as opposed to an unsustainable tax scheme that is either crushing or non-existent depending on who you know.
