Some Question Use of TIF

Published March 1, 2006

With thousands of cities and nearly all states offering tax increment financing, it has become a staple incentive many businesses now expect. But some analysts are beginning to sound warnings.

The Brookings Institution studied TIFs in Missouri and concluded they are “used extensively in high-tax-base Missouri suburban areas with little need for assistance in the competition for tax base. This is especially true in the St. Louis metropolitan area. There, TIF money very frequently flows to purposes other than combating ‘blight’ in disadvantaged communities, its classic purpose. In fact, less than half of the 21 St. Louis-area cities that were using TIF in 2001 were disadvantaged or ‘at-risk’ when evaluated on four indicators of distress. On another measure, just seven of the 20 suburban areas using TIF fell into the ‘at-risk’ category.”

Economists from Iowa State University concluded from a study that the state’s “existing taxpayers, its householders, wage earners, and retirees are aggressively subsidizing business growth and population via this practice.” They also concluded, “The overall expected benefits [of TIFs] do not exceed the public’s costs.”

Lawmakers Question TIF Role

Last year’s U.S. Supreme Court ruling allowing eminent domain for economic development has caused some state legislators to rethink their TIF laws, where eminent domain is a vital component.

“We have questions about the way these TIFs have been justified,” said Texas state Rep. Lon Burnam (D-Fort Worth). “There’s a spaghetti bowl of issues here, but one thing seems clear: Not many blighted neighborhoods seem to have fallen into a TIF, but a lot of big corporations have. This is so typical of laws ostensibly designed to benefit poor and low-income people that become bird nests on the ground for the rich.”

Duluth, Minnesota Mayor Herb Bergson said, “The failure to reduce tax increment financing districts has not only burdened the taxpayers for years to come, it has also crippled our education system.”

Missouri state Sen. John Griesheimer (R-Washington), chairman of the state’s legislative committee studying TIFs, said they are “undeniably a valuable economic tool for local economies,” but he added states need to “improve the system to ensure they remain a positive development tool rather than devolving into a vehicle of abuse.”

— Daniel McGraw