— David Sirota (@davidsirota) April 4, 2014
I’m not a big fan of tax increment financing (TIF) — property tax assessments that split off revenues derived from increases in property valuations and new construction in a geographically defined portion of a city. These revenues go into a separate pot that funds improvements to school buildings, sidewalk and curb construction and other infrastructure, away from a city’s general fund. I think splitting off revenue streams makes managing a city’s finances more complex, and reduces flexibility as the city’s fiscal priorities change.
Many cities, such as Boston and Pittsburgh, have TIF programs. Some are well-structured and monitored. Others — like the Redevelopment Agency (RDA) in San Bernardino, California (which the state dissolved in 2012) — tried to divert funds illegally. California is allowing bonds issued through the RDA program to mature, but is not issuing any new debt.
Detroit is using a TIF in a particularly egregious way, allocating over $200 million of TIF property taxes to the new Red Wings hockey arena — while general obligation bondholders are slated to receive 15 cents on the dollar in the city’s bankruptcy. Using TIF revenues in a bankrupt city for an entertainment venue is hard to rationalize.
Chicago’s TIF program began in 1984, with the goal of promoting business, industrial and residential development in areas of the city that struggled to attract or retain housing, jobs or commercial activity. The program is governed by a state law that allows municipalities to capture property tax revenues from the increased value of properties — above the base property valuation that existed before an area was designated as a TIF district. Chicago had 150 TIF districts in 2012 and closed 10 of them that year: