Dr. Michael Burayidi, Director of the UW Oshkosh Urban and Regional Studies program, sent the following op-ed to the Northwestern and copied it to the City Council. Money quote:The TIF program started out as a noble idea by state governments to help cities revitalize blighted neighborhoods that otherwise would not attract economic investment . . . As is often the case with all things noble, there is potential for abuse. How else does one explain the request by the EAA for a $1.9 million TIF support from the city to build an exhibition hall; a project that does not meet any of the TIF requirements?
Here's the full op-ed
It’s Time for a Moratorium on TIFs
Let’s take a time out in creating new tax increment districts. The first such district in Oshkosh was created in the 1970s and since then, we’ve not taken the time to critically reflect and assess the program to see if we are getting our money’s worth. Luckily, one of the newly established goals for the City Manager is a requirement that he provides an annual report of each of the city’s TIF districts to the Common Council. This should provide us with the opportunity to evaluate the program.
The State Department of Revenue which monitors the TIF program requires municipalities to report the base and current values, as well as the TIF increments overtime. These requirements may not be enough because they don’t help us answer some of the most important questions such as: How do the TID value increments compare to the rest of the municipal property value increment? How many jobs, and what types of jobs were created in the TIDs? What is the public expenditure/job ratio? What is the average wage rate in the TIDs? What has been the tax burden of the TIDs for the county and school district?
In an independent research that I am conducting using data from over three hundred TIDs in the state, I am finding that municipalities do not routinely collect these types of data, hence making it difficult to answer the aforementioned questions. The Common Council can require that city staff make these types of data a part of the report they submit for review.
A quarter of our annual budget currently goes to service the city’s debt. Not all of this debt is due to the creation of tax increment districts, but it does add up. The City of Oshkosh currently has seventeen TIDs, some more successful than others. Appleton and Green Bay each have six tax increment districts, and Fond du Lac has eight. TIDs are costly to communities not just because of the upfront infrastructure cost that municipalities have to bear, but also because they defer revenue that would otherwise go to counties and school districts until the TIF debt is paid off. For school districts in particular, this could mean that they are unable to hire more teachers or undertake needed building repair.
TIFs also have the potential to increase the tax burden for community residents. When TIFs promote residential development such as the one on the 100 Block, they increase the population that resides on the site. The new residents require, and are provided with city services. Their garbage must be collected and they need police and fire service, among others. In the meantime, the increased taxes generated from the development are not available to the city to help pay for these services. This is because the increased tax revenues are put into a segregated fund to pay off the TID debt. This could take decades to pay off. The result is a potential increase in property taxes to meet the shortfall in revenue.
The TIF program started out as a noble idea by state governments to help cities revitalize blighted neighborhoods that otherwise would not attract economic investment. To provide incentives for redeveloping these sites, municipalities would bear some of the cost of redevelopment through land clearance and infrastructure provision. Once the area is redeveloped, the cost of providing this initial land preparation will be recouped from the increased taxes collected from the redeveloped site. In theory this would be a win-win situation for municipalities and the private sector. Cities are able to reduce unsightly and underdeveloped properties and business gets reduced cost for investing at these sites. As is often the case with all things noble, there is potential for abuse. How else does one explain the request by the EAA for a $1.9 million TIF support from the city to build an exhibition hall; a project that does not meet any of the TIF requirements?
So let’s take time out to regroup and assess the program. In the process we should also outline clear and unambiguous criteria to serve public notice of what projects are fundable under the TIF program. It will save city staff time and headache and inform the private sector that the till is not open for anyone’s taking.
It’s Time for a Moratorium on TIFs
Let’s take a time out in creating new tax increment districts. The first such district in Oshkosh was created in the 1970s and since then, we’ve not taken the time to critically reflect and assess the program to see if we are getting our money’s worth. Luckily, one of the newly established goals for the City Manager is a requirement that he provides an annual report of each of the city’s TIF districts to the Common Council. This should provide us with the opportunity to evaluate the program.
The State Department of Revenue which monitors the TIF program requires municipalities to report the base and current values, as well as the TIF increments overtime. These requirements may not be enough because they don’t help us answer some of the most important questions such as: How do the TID value increments compare to the rest of the municipal property value increment? How many jobs, and what types of jobs were created in the TIDs? What is the public expenditure/job ratio? What is the average wage rate in the TIDs? What has been the tax burden of the TIDs for the county and school district?
In an independent research that I am conducting using data from over three hundred TIDs in the state, I am finding that municipalities do not routinely collect these types of data, hence making it difficult to answer the aforementioned questions. The Common Council can require that city staff make these types of data a part of the report they submit for review.
A quarter of our annual budget currently goes to service the city’s debt. Not all of this debt is due to the creation of tax increment districts, but it does add up. The City of Oshkosh currently has seventeen TIDs, some more successful than others. Appleton and Green Bay each have six tax increment districts, and Fond du Lac has eight. TIDs are costly to communities not just because of the upfront infrastructure cost that municipalities have to bear, but also because they defer revenue that would otherwise go to counties and school districts until the TIF debt is paid off. For school districts in particular, this could mean that they are unable to hire more teachers or undertake needed building repair.
TIFs also have the potential to increase the tax burden for community residents. When TIFs promote residential development such as the one on the 100 Block, they increase the population that resides on the site. The new residents require, and are provided with city services. Their garbage must be collected and they need police and fire service, among others. In the meantime, the increased taxes generated from the development are not available to the city to help pay for these services. This is because the increased tax revenues are put into a segregated fund to pay off the TID debt. This could take decades to pay off. The result is a potential increase in property taxes to meet the shortfall in revenue.
The TIF program started out as a noble idea by state governments to help cities revitalize blighted neighborhoods that otherwise would not attract economic investment. To provide incentives for redeveloping these sites, municipalities would bear some of the cost of redevelopment through land clearance and infrastructure provision. Once the area is redeveloped, the cost of providing this initial land preparation will be recouped from the increased taxes collected from the redeveloped site. In theory this would be a win-win situation for municipalities and the private sector. Cities are able to reduce unsightly and underdeveloped properties and business gets reduced cost for investing at these sites. As is often the case with all things noble, there is potential for abuse. How else does one explain the request by the EAA for a $1.9 million TIF support from the city to build an exhibition hall; a project that does not meet any of the TIF requirements?
So let’s take time out to regroup and assess the program. In the process we should also outline clear and unambiguous criteria to serve public notice of what projects are fundable under the TIF program. It will save city staff time and headache and inform the private sector that the till is not open for anyone’s taking.
5 comments:
Great post from mike
I read it this morning. I totally agree.
Great post.
I was looking at our local tax database for another reason and happened upon a property that was part of a TIF in the 70's. The corporation owning the property is paying about $2500/yr on property that must be worth several million. The building is vacant. With no property tax "incentive" to sell a TIF district now becomes a blighted area.
There are issues with this postwith regards to its attachment to the EAA project:
1. "What has been the tax burden of the TIDs for the county and school district?" Well, nothing in this case, unless I'm reading something wrong. Is there somewhere in this deal where they'd be taking taxes away from anyone? They're paying for the improvements up front and asking for the tax break on the improvements. It seems that the city and county start no worse off than they are now. This also goes into the assertions made in paragraph 5 of the actual op-ed piece.
2. "Not all of this debt is due to the creation of tax increment districts, but it does add up." What does it add up to? For someone who's looking for actual statistics down to wages earned per city expenditure dollar, "it does add up" strikes me as grandstanding. How about providing a number for the TIF debt as a percentage of city debt? Until that point, I think it's time for a pot-kettle introduction.
3. It's interesting how he takes the short term (and narrowly positioned) approach to property taxes (as opposed to overall economic detriment/benefit) and how they affect the city/county while asking for long term justification for same. In the long term, a TIF should potentially add to the property tax rolls. If it doesn't do so over the long term, it should be rejected out of hand.
4. Residential TIFs should be considered completely separately from industrial and/or commercial TIFs. The 100 block analogy is a good example of what not to do. Yet it's interesting how Dr. Burayidi talks about EAA being a bad idea without even beginning to address the condo phase of the Akcess development, even though that fits perfectly into the warning about residential TIFs as much if not more than the 100 block. Is it the coalition that Akcess is trying to develop with the university, or is it merely selective reasoning?
5. Pointing out the difference between the number of Oshkosh TIFs vs. the number of TIFs in surrounding cities, again without providing the level of detail asked for from the city. How much do the other communities' TIFs total, just for starters? This comment also ignores the fact that the other communities in question are growing on their own without as much need for the community to help stimulate development.
There's some very good argument here and some very valid points, but there is certainly some chaff to be sorted from the wheat and the piece does come across as being 2 parts political agenda and 1 part concern for the city.
Kermie,
I'm not sure if Burayidi reads this blog so he might not respond. I would just like to make a comment on your #1:
An EAA TIF "takes taxes away from" the County and school district because the development will take place even without the TIF. If EAA builds an exhibition hall without TIF assistance, property taxes immediately get distributed to the county, city, and school district. If the project is done with TIF assistance, regardless of whether it is traditional or pay as you go, the school district, county, and city would not reap additional tax revenue for probably 20 or more years. This is why the "but for" test is so crucial and so necessary for the city council to uphold.
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