The steamroller pushing through the $168 million tax increment financing package for Dr. McHealthy’s Amazing Fruit and Nut Farm in Cabarrus County might want to consider the cost of what they are doing. Nah, they won’t do that. So the rest of us should.
Bottomline, the TIF package is a very expensive way to deliver scare government resources to a very risky, private development project.
“Tax increment financed bonds, or TIFs, are more expensive for local taxpayers than other options, such as general obligation bonds or certificates of participation,” said report author Joseph Coletti, JLF Fiscal Policy Analyst. “A TIF scheme will also allow local governments to hide the targeted tax incentive they’re providing to a private developer.”
The Kannapolis council is scheduled to finalize its TIF plans Nov. 26. Most of the borrowing is tied to a private developer’s plans for the North Carolina Research Campus, Coletti said. The state Local Government Commission will address the plans in December. The LGC must sign off on any TIF proposal, Coletti said.
“Tax increment financed bonds have three disadvantages for taxpayers, and it’s no surprise that these disadvantages make TIFs extremely valuable to some government officials,” he said. “First, TIFs do not require voter approval. Second, TIFs divert tax revenue before it reaches the general fund. That means the fiscal effect is hidden, along with the TIF’s role as a taxpayer subsidy to private developers. Third, the lack of voter approval and transparency help make TIFs far more expensive than other forms of debt.” …
Whatever name it takes, tax increment financing costs taxpayers more money than other borrowing options, Coletti said. He analyzed the costs of different options for generating $67 million for the North Carolina Research Campus in Cabarrus County. “In present-value terms, a general obligation bond could save local taxpayers $6.8 million compared to the TIF,” he said. “Over the life of the debt, the interest savings could be $38.5 million.”
Advocates contend that TIFs impose no burdens on taxpayers, Coletti said. “This is simply not true, and those who say it have confused costs with budget items,” he said. “It is true the government does not use general tax dollars to pay the debt tied to a TIF. That’s because the revenue never makes it to the general fund in the first place.
“This has no cost in the same way that having taxes deducted from your paycheck has no cost,” Coletti added. “The money used to pay off the TIF debt is not available for other needed services, even in the special TIF district itself. A private development without tax increment financing would pay the same amount of taxes, with all of the tax revenue available to pay for city services instead of new debt.”
As we’ve said before, North Carolina is ripe for a series of TIF project explosions, then implosions when the numbers do not pan out. It is a toss up whether the Fruit Farm or the North line commuter rail project will be the first to go boom, but local taxpayers are sure to be left holding the bag.
Bonus Observation: Did anyone in Cabarrus stop to think that the reason they are having to jump through hoops and offer a property tax hiking $70 million bribe to local billionaire Bruton Smith is that they plan to fork over $100 or so in infrastructure goodies to California billionaire Dr. McHealthy?
