The acronym TIF stands for “tax increment financing.” When public improvements (streets, water, sewer lines, etc.) are extended, or so-called “brownfields” are cleaned up to facilitate new development, it is certainly appropriate to use the increased taxes that new development creates to pay for these improvements.
Historically, we issued “public improvement bonds” to finance these infrastructure upgrades; the bonds were paid off from the increased taxes created by the new development. Across Maine and the nation this process goes back more than a century.
Changing the name of the financing strategy for these public/infrastructure improvements to TIFs didn’t change the reality. These TIF-financed improvements that usually are publicly owned (or controlled) clearly serve both public and private-developer interests.
Somewhere along the line, however – in Portland in the early 1990s, and in other Maine municipalities shortly thereafter – we expanded the role of TIFs to include not just public improvements that a project might need, but a portion of the capital investment that a developer’s project required.
Put simply, developers even in settings where a proposed project required few, if any public improvements, wanted a direct taxpayer subsidy to build. A new breed of TIF was born: a “credit enhancement” TIF.
The name obscures the reality.
The credit of the developer (his bottom-line profitability ) is enhanced by virtue of the fact he has reduced his capital costs by playing off one city against another (sometimes one state against another) to obtain the best deal (i.e., public subsidy) possible.
The municipal portion of these arrangements took the form of this new breed of TIF.
This TIF does nothing more than return to the developer (for however long a period of time he can squeeze the municipality to agree to) a portion of the increased property taxes (also negotiable) his development will create.
This cynical TIF strategy, playing on the hopes and fears of municipal and state officials who want the jobs and the tax base, is little more than extortion. It is an increasingly common corporate strategy in which the winning governmental entity has given away more taxpayer money than the governmental entities it was competing against – a Pyrrhic victory at best.
Economists recognize that “credit enhancement” TIFs are a zero sum game, a form of corporate welfare. The state or nation is no better off. In each instance (and in the aggregate) these TIFs represent a massive transfer of scarce tax dollars to the private sector.
The unfairness to other corporations and to home-owning taxpayers who do not request, or who do not qualify for, TIF subsidies is obvious. These residual taxpayers lose a second time when TIF dollars, diverted from the general fund to benefit a privileged developer, are not available to bear the cost of schools, roads, public safety, etc.
In order to maintain municipal services the property taxes of residual taxpayers (corporations and homeowners) must be raised to cover these general fund losses. One would think this unequal treatment would shock us. It seemingly does not.
Apologists for TIF subsidies claim the increased tax burdens other city property owners must bear are reduced by state statutes. These are euphemistically referred to as “tax-sheltering benefits.”
Lets be clear. These state statutes are not direct appropriations to TIF-granting municipalities to offset some portion of the property tax subsidy given to private corporations. That might be an unwise state expenditure, but at least it would be open and above board.
Instead, the “sheltering” statutes, by gerrymandering state school aid formulas and county funding formulas, allow Portland and other “credit enhancement” TIF municipalities to pick the pocket of non-TIF granting municipalities.
The state provisions allow the assessed value of “credit enhancement” TIF developments to be omitted from the total valuations of the town. This results in TIF-granting municipalities receiving more state school aid than they would otherwise be entitled to, and paying less towards the county budget than they would otherwise have to pay.
Who then pays for these “tax-sheltering benefits”? Clearly, if Portland and other TIF-granting towns get more school aid than they’re entitled to, other school districts (in non-TIF towns) get less; if Portland (and other TIF towns) pay less towards the county budget, other (non-TIF) towns in the county pay more.
In short, the state’s TIF “tax-sheltering” provisions are a shell game allowing “credit enhancement” TIF-granting towns to pass off a portion of the cost of subsidies given to private corporations onto non-TIF-granting neighboring towns and school districts.
Again, where is our outrage? Where is the Maine Municipal Association when you need them?
Non-TIF towns outnumber TIF-granting towns 2 to 1. Where is Portland’s and other TIF-granting town’s sense of dignity and fairness? Or is dumping on our neighbors the new norm?
Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at email@example.com.