Last month the Club shared how Tax Increment Financing (TIF) is a tool used by local governments and city planners to subsidize projects that benefit politically connected developers and landowners.
That is not the only problem with this financing scheme: TIFs are also a creative way for governments to steal money from other governments and taxpayers and thwart spending limitations.
TIFs Rob Peter to Pay Paul
In other states that have TIFs, Cities constantly compete with other districts and taxing jurisdictions for the revenues levied on the same tax payers. Local taxing districts in Chicago lost $3.6 million in revenues to a single TIF district in just six years. Another Chicago TIF, the North Loop, actually generated less property revenue in 2006 than it did in 1984 when it was originally created. Multnomah County, in Oregon, was forced to cut budgets for health, public safety, libraries, and other programs for nine straight years because TIF districts in Portland. As a result, taxpayers outside of these specialized districts are forced to pick up the tab.
TIFs are Void of Transparency
Since TIFs are complicated and rely on future revenue growth to fund their existence, property owners are typically unaware that their tax dollars are being siphoned off. Unlike other districts and jurisdictions which show up on the property tax bill, in most states TIFs do not. In 2007, residents of Cook County were oblivious to the fact that $892 million of their property tax dollars (10 cents of every dollar) had been sucked out and diverted to their 402 TIF districts. Aggregate property tax bills showed the county was assessing $720 million, however the reality was actually $1.2 billion, a figure absent from the Cook County Annual Budget as well. Hidden inflation and lack of transparency make TIF the invisible tax.
TIFs Lead to Run-Away Debt
Another clever gimmick commonly used by local governments to expand their borrowing capacity is to avoid calling TIF a debt. This has been held up by many courts, as debt is generally understood to require the full faith and credit of the tax payers. Absent of that, TIF has sneakily been the culprit of billions of dollars of indebtedness, without the accountability of debt limitation statutes. The cities love being able to run up the credit cards and dodge spending accountability. But calling a TIF a spending earmark does not change the terms and reality of repayment. Although it might not meet the legal definition, if it looks, talks, and walks like a debt – it’s a debt.
TIFs everywhere are failing
In 2011, Governor Brown of California announced his intention to close the state’s $25 billion budget gap by dissolving the more than 400 TIF districts. TIFs were sucking $5.5 billion a year from schools and other services that the state was left having to backfill. Estes Park citizens in Colorado in 2010 voted by over 60% to rid their community of TIF. The mask is slipping. Taxpayers are starting to see that under the complicated formulas and explanations behind TIF are bad policies that hurt the general population.
TIFs are like that bad penny, they just keep turning up. Each year the TIF peddlers try to pass another version of the financing scheme in Arizona, and they will likely be at it again next year. The Club will be watching to see which lawmakers side with the TIF lobby over hardworking taxpayers.
FOR IMMEDIATE RELEASE: Wednesday, December 9th, 2015
CONTACT: Scot Mussi: (602) 508-6088
Legislature Votes for Overhaul of Arizona Commerce Authority
Phoenix, AZ—Today the joint Senate and House Commerce Committee voted 9-0 to recommend a complete overhaul of the Arizona Commerce Authority, a decision that the Free Enterprise Club strongly supports.
The Arizona Free Enterprise Club has long been skeptical of the agency’s merit. The ACA is afforded $20 million a year of which half goes to a small group of well-connected businesses. Whether those dollars are spent to subsidize job training for a handful of corporations, as a sweetener to “close deals,” or as a credit to wealthy investors to hedge their risky ventures – the ACA is an agency whose very job is to pick winners and losers in the marketplace.
“If the legislature sees an advantage to renewing the ACA’s charter, substantive reforms need to be a condition of the renewal.” Club President Scot Mussi said at the hearing. “That includes a full review of mission, scope and role the ACA would play in promoting broad based economic growth in Arizona.”
Recently the Auditor General did a full report on the ACA’s practices and performance and the findings were very troubling. The audit found agency’s job creation claims to be grossly exaggerated. Instead of reporting actual jobs the ACA claimed to successfully attract, they reported “committed jobs.” Additionally, it was unclear to the auditor what happened if committed jobs never became actual jobs – in the cases where tax credits are awarded or checks written to select businesses.
The Arizona Free Enterprise Club is a 501(C)(4) policy and advocacy group that is not affiliated with any other organization. For more information please visit www.azfree.org
The Club is at the forefront of combatting the government practice of providing special handouts to select businesses. States and cities compete to out-spend each other landing the hottest business. In the meantime, billions of dollars are extracted from other productive tax payers in order to fund these incentives.
Yet the majority of our jobs and economy are powered by businesses that receive no special treatment whatsoever – and often have the extra hurdles of regulation and taxation.
In this Free Enterprise Spotlight, Aimee Rigler with The Club interviews David Tait, the owner of EVO Swim School. Tait shares the ups and downs of business ownership and his inspiring accomplishments building an enterprise on his own. David is part of the 99% of entrepreneurs who start a business and create jobs without government subsidies – and for that we celebrate him!