What’s tax incremental financing? It’s the creation of a tax district where a municipality spends public funds for improvements in roads, etc., to encourage private investment in that blighted area. The hoped-for revenue from that additional – incremental – new private investment goes to pay for the municipal spending on roads, etc.
It’s an if-you-build-it-they-will-come strategy for developed but struggling (blighted) areas.
What’s key about this strategy is that it’s very clear that it’s intended for blighted areas — that is, rundown areas – and not as a means to develop vacant areas or ordinary places within a city. Over the years, communities have used it more expansively, often to their regret.
It’s as though one used bandages not exclusively for wounds, but as fashion accessories. They’re not made for that purpose. Bandages are for the truly injured. Using them for other purposes leaves them unavailable when they’re most needed.
I recall hearing years ago someone on Council (now retired) insist that tax incremental financing presented no risks to the city, because municipal spending would only happen if it were prudent to do so.
Consider that: there’d be no reason to worry about municipal over-spending, waste, or failed incentives because one would only request spending if it were prudent.
Years later, it’s clear that we did authorize imprudent spending.
About TID 4: it didn’t fail because of the Great Recession (very few TIDs across the state did), but because profligate municipal spending as incentives was not backed by adequate private guarantees. TID 4 failed as a result of public managerial incompetency, not bad economic conditions.
There’s a technical term for a public proposal that does not have adequate contractual guarantees in return. I came upon that term once, I think, in a financial journal, or while watching CNBC, or perhaps while skimming the Wall Street Journal. I tend to avoid technical terms, but in this case I’ll make an exception.
A public-private partnership without adequate private guarantees is called a dog-crap deal.
Payment in 2013 of principal for TID 4 is $1.3 million, and for interest alone over $450 thousand.
As longtime readers can guess, I’ve no particular inclination to ingratiate myself with politicians or full-time leaders of the city. (There’s my idea of subtle understatement.) Even so, I have a particular sympathy for the new municipal manager and those now in office on this issue: they’ve been saddled with a mess. I’m quite sincere about that.
Our situation is so odd — the very reverse of normal – that we’re actually forced to allocate outside-district funds to prop up TID 6, as it doesn’t generate enough income to meet its expenses. Four other TIDs (#s 5, 7, 8, 9) generate almost no incremental revenue (less than a thousand dollars between the four!).
Getting past this TID fiasco will take time and hard work.
Any future outlays – where that’s still possible – will require far better guarantees than in the past. The sooner we get past reliance on tax incremental financing schemes the better.