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.

 

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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.