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As cities expand their land use people disregard once thriving centers of industry and business and locate next to newly developed “Greenfield” type businesses. Often times the only thing left in the wake are rundown, abandoned business districts. In an effort to revitalize these deserted areas, councils in charge of economic development will use many different policies. An occasionally controversial policy is called a TIF or Tax Increment Financing. Tax Increment Financing is the use of tax revenue generated by a designated section of the city towards the development or redevelopment of the same section of that city. From a public policy perspective, TIF programs encourage cities, towns, and counties to initiate development projects that might not have been undertaken (Huddleston 1982). TIFs are gaining in acceptance and in use, yet they find opposition almost as much. As a basis for reference, a background on the perceived positive and negative aspects of Tax Increment Financing will be discussed; followed by examples of real instances involving the implementation of this policy. The growing popularity of TIFs is not unjustified. They provide one of the easiest and quickest ways to derive economic funds within a financial setting. Money is derived through the collection of property taxes. Additional revenue is earned from these properties through the belief in economic expansion. If a TIF works properly, the amount of taxes paid by property owners will rise as the improvements called for by the TIF, such as building exterior refurbishment or infrastructure upgrades, boost the value of that property (Podmolik 2000). The increase in taxes paid is known as the increment- the difference between taxes paid after appreciation in relation to the base property tax. This newly acquired property tax revenue is used to improve the infrastructure and pay off existing bonds. City improvements are probably the greatest achievement of the TIF program. In Columbus, Ohio the “TIF provides a tool to redevelop a long-neglected inner-city site (Ball 1999).” The site would call for a revamped on and off ramp on I-71. After completion there should be a marked decrease in “traffic congestion in the area (Ball 1999).” . Councilmen in Kansas City believe that “street upgrades are critical because they would provide a gateway to the proposed Town of Kansas Archeological Park (Davis 1999).” Roads are not the only benefactors of these programs. Overall aesthetics within the TIFs are also improved. With the increase in property taxes, better looking housing replaces existing rundown buildings. Carl Anderson, a resident of Chicago, states that “Property values are going up, and it’s starting to look nice. I can remember when we first moved in 12 years ago and my car was in the back and someone burned it (Podmolik 2000).” A long with improved safety people are finding increased street lighting, shrubbery, and green grass. Utilities like buried electric power lines, increased police force, and increased fire support are all faucets of TIFs. An example of how TIFs work to help rebuild a city is as follows: In Melbourne, Florida a once flourishing downtown retail district was in shambles. In 1962, a developer by the name of Simon Debartolo built a mall on Babcock Street that started the downward shift. As shopping trends shifted away from downtown, the downtown retail district slowly lost tenants, faced vacancies and experienced declining property values and rents. The downtown area was soon considered blighted. Property owners tried to make improvements on their own, but to no avail. Things started looking up in1982 when the city council implemented a tax increment financing plan. Over the first nine years, more than $1.4 million was produced for improvements. The plan now generates roughly $250,000 annually. The money is being used to fix streets and sidewalks, and add brick trim to buildings. It improved small parks. It added parks, benches, lighting and trash cans. It expanded the streetscape, bought parking lots and made other improvements as well. Revitalization brought an unexpected benefit to property owners, who noticed their property values stopped declining and started to appreciate. Soon thereafter Debartolo induced another shift in the retail district on Babcock Street by building a mall west of his previous site. Soon the Babcock Street redevelopment committee was established. “As property values go down, so do our tax base,” explains Cindy Kay Dittmer, a member of the committee. Goals of the committee include streetscaping, landscaping medians, putting in sidewalks, burying utility line and marketing the area to complementary service, retail, restaurant and entertainment businesses. Since the mall already offers many businesses the council feels it will be an easier task than the downtown area. In fact they are relying on the 16,000 some daytime workers located within 1 mile of the mall. Melbourne, Florida is not the only place in the Southeast where TIFs are being used. In Georgia, State Representative Doug Teper said that “public officials only began using the tools after realizing they needed new ways to fund investments that could stop businesses from fleeing to the suburbs (DeSue 2000).” In other attempts by cities to attract economy Philadelphia plans to borrow $62 million in their largest TIF deal ever. Philadelphia is planning to use the money in a waterfront development project. Their hoping the “project enhance the city’s reputation as a tourist destination (Higginbotham 2000).” “The benefit to the city is the jobs (Higginbotham 2000).” The city will have to consume the property tax but will receive revenue from the increased wage tax. The city of Chicago plans to use $35 million from its upcoming $150 million tax increment financing bond sale to help cover the costs of the proposed Millenium Park. “The TIF has proved lucrative for the city, allowing it to acquire Loop sites, promote new theater construction, finance a facelift for the State Street shopping area, and provide subsidies to developers (Shields 2000).” With all of these positives it is hard to believe that negative aspects could be found. With good there is bad. TIFs generate enormous amounts of money, but for whom? Themselves. Schools can not benefit from this revenue since they are not included in the TIF. Another objection is that new development projects require basic services such as utility lines, along with police and fire stations. The problem with these improvements is that the TIF does not cover the improvement costs, instead public taxpayers have to cover them. A concern is that “the expanded tax base that is created by redevelopment may fail to generate enough property tax revenues to cover the cost of increased basic service needs, such as police and fire protection (DeSue 1999).” Greenfield investments rather than redevelopment of Brownfield sites are also pushed. When developing these new sites, subsidies and bonds are constantly being offered by the city to prospective companies. Occasionally subsidies are offered to existing companies in order to keep them in the TIF. This is the case in Battle Creek, Michigan where the Kellogg Company is threatening to close down their biggest plant in the city. The plant is located at the center of the TIF and is considered the “heart” of that district. As a result more than $60 million in bonds previously issued to Kellogg would be assumed by the city. “Market participants said they expect the city to cover shortfalls on any of the TIF issues, regardless of their revenue package (Ward 1999).” The city offered up to $56 million in incentives to keep the plant open but was ultimately rejected. Long term affects result from businesses closing within these districts. As stated by one of the board analysts, “Even the city will have a hard time figuring out how its tax base will be affected for some time (Ward 1999).” A fluctuating tax base is more serious than just to the city. As noted earlier Carl Anderson, a resident of Chicago, enjoyed the increase in his communities aesthetics. His problem, as a result of the increase in property taxes, is that he now wants to make some repairs and is not sure if he can cover the expenditure. “If they really wanted to use it as a stimulus, they’d let you be taxed at the same rate for a few years (Podmolik 2000).” Earlier in the article it reads, “TIFs were designed to benefit real estate developers, not small business operators and business property owners. . . (Podmolik 2000).” Mr. Anderson surely agrees with that statement. A major concern of everyone is the revenue being generated by the TIF. While cities continue to create more TIF districts and raise expectations for community development the “anxiety of neighborhood businesses and residents (has them) wondering what changes the TIF will bring to their community – it behooves small businesses owners to involve themselves early in the TIF planning process (Podmolik 2000).” When doubt fills the heads of prospective customers it strains the development process and puts the city at risk of covering infrastructure costs. ‘Tax increment financing projects could never stand on their own because there is no assurance that revenues will increase enough to pay off the bonds once the company hits the tax role. You’re starting with zero and banking on the development’s property tax valuation going up (DeSue 1999).” Since they have no real stability why are there increasing numbers every year? Even though the number of TIF districts grew last year the number of developmental agreements declined. One reason is overkill. “The city has gotten to the point where it views TIFs as the solution to the world. They’re not,” says Toni Hartrich, professor of public administration at Roosevelt University (Hinz 1999). Another reason given is “bureaucratic overload. . .the city tries to do too much with too little, and focuses on creating new TIFs rather than nurturing old ones (Hinz 1999).” An example would be the tripling of TIF districts over the last five years in Chicago. One thing to keep in mind is that TIFs are merely a catalyst. TIFs are better at influencing growth not creating it. A “TIF is not the factor in and of itself that will make an area hot (Hinz 1999).” Some people believe that creating small business loan programs would be more beneficial. Many ideas are available on how to improve tax increment financing, the question is which one is the best. Chang e is eminent in the improving of this financial tool. As more districts are being created all over the country better economic policies will develop. Cities may think about getting smaller programs underway to try and help the city all over instead of focusing on large investments. Simplifying TIFs, making them “interchangeable models that can be applied to many districts will save time (Hinz 1999).” But there are the more risky ventures out there that “throw caution to the wind” and bank on huge returns. City officials are changing their strategies on previous simple strategies like parking lots or shopping centers to involving whole neighborhoods full of numerous economic deals. As of right now roughly 44 states are using TIFs as part of their economic development strategies. As that number, and cities grow, TIF implementing may be the most prosperous economic tool of the next century. “The city has a good system. . .it’s called tax-increment financing. What other tools are there? Show me another one. TIFS work (Hinz 1999).” Ball 1999. TIF targeted at former CAP site to ease road congestion. Business First – Davis 1999. River Market TIF proposal focuses on park. Kansas City Business Journal DeSue, Tedra 2000. Inspired by Urban Success, Rural TIFs Gain Ground in Southeast. Higginbotham, Stacey 2000. Philadelphia to Borrow $62 Million in Largest-Ever TIF Hinz, Greg 1998. Bill would create TIFs without borders. Crain's Chicago Business Huddleston, J. R. 1982. Local financial dimensions of tax increment financing: A cost revenue analysis. Public Budgeting and Finance 2:40-49. Krueger 1999. Taxes, improvements remake retail. Orlando Business Journal 23: 25. Podmolik, Mary Ellen 2000. Back to the ‘hood. Crain’s Chicago Business 15: sb1. Shields, Yvette 2000. CHICAGO TO PULL $35 MILLION FROM TIF FOR SURGING MILLENNIUM PARK COSTS. Bond Buyer 30890: 3. Ward, Andrew 1999. Kellogg plant closure would weaken Michigan TIF bonds. Bond Bibliography: Word Count: 2100
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