published Thursday, June 14th, 2012

TIF for all?

The Hamilton County Commission voted unanimously to approve bonds for a private development project under the tax increment financing process permitted by law in Tennessee. This is the first time the county has engaged in such financing, and there was no public discussion among county commissioners on the matter, the Times Free Press reported.

Tax increment financing was conceived in California as an incentive for local governments to encourage development of real estate that otherwise would be considered blighted or of low value to stimulate growth and boost property values. The financing uses a tax revenue increase to fund projects that benefit the public. Developers pay for projects and pay themselves back over a 20-year period with other tax revenues.

The use of the financing has been extensive in cities such as Chicago, which designates districts eligible for the taxpayer-subsidized developments, and the money is "used to build and repair roads and infrastructure, clean polluted land and put vacant properties back to productive use, usually in conjunction with private development projects." The intent has been to improve low-valued properties that never would be developed without the incentive or tax breaks.

Tennessee Gov. Bill Haslam signed into law a broadening of the tax increment finance tool, allowing local governments to expand their defined uses for the funding.

The Hamilton County-approved project was for a $9 million bond over a 20-year period to create a mixed-use community just across the valley from Lookout Mountain, overlooking the Black Creek Mountain golf community.

The City Council's Legal, Legislative and Safety Committee discussed the Aetna Mountain development request for tax dollars to fund a 1.5-mile "spine road" that would access the projected $560 million project. Good questions were asked.

Councilman Peter Murphy asked about the current scope of tax increment financing subsidies, "That's where I'm wondering if this passes the test of: Does it happen if we don't do this?"

Pam Ladd, council chairwoman, noted the need to develop criteria to award such tax breaks, and said she expects a precedent to be set for other developers to seek these city subsidies.

Councilwoman Deborah Scott, who represents the district in question, did her job. While acknowledging the welcomed development, she represented existing citizens awaiting undelivered services they're already paying for, such as city water, through their taxes.

In contrast to the unfolding situation in Hamilton County, Knox County and Knoxville city governments have been successfully in using tax increment financing for development, guided by specific criteria and a detailed process for application, review and selection, according to knoxdevelopment.org.

A few logical questions: Since there is no apparent process now in place defining criteria for taxpayer subsidies, shouldn't there be to avoid arbitrary decisions? In the Hamilton County-approved agreement and the one under review at the City Council, is there a claw-back provision that mandates repayment by the investor group receiving the taxpayer money if the project does not live up to its promises?

The Tennessee Advisory Council on Intergovernmental Relations wrote in "Tax Increment Financing: Opportunities and Concerns" that "expansion over time of the use of TIF to aid in any development project, rather than to aid only in the development of 'blighted areas' that would not be redeveloped 'but for' TIF, has created some controversy." The "controversy" is related to the squeeze for tax dollars for existing and backlogged projects and public services competing with private-sector development.

Area taxpayers want and have benefited from economic development and job creation. Good stewardship of our tax dollars includes asking difficult questions and establishing processes that define an obtainable and objective pathway to success -- for all.

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aae1049 said...

Even for citizens that pay attention to local government, we did not see this TIF approval on the radar. There was no prior media coverage or notice of a public hearing. If there was, we sadly missed it.
By the time we learned of this, a unanimous vote, with no discussion approved $9 million going to Black Creek Mountain Group. I know of no other private subdivision development, where the public has participated in funding the infrastructure. This seems very high risk, why should the public fund this particular projects under the umbrella of "pubic benefit?" The initial investment was the roadway and infrastructure for the developer to proceed selling lots. On the surface, it appeared that all the risk was public, and the profit was private. For this higher end development, a trip to the bank for a loan would be more appropriate that lobbing for public tax dollars. We have school roofs that leak and and existing infrastructure needing repair. The Black Creek project does not meet the public good measure, unless you are the developer.

June 14, 2012 at 7:07 a.m.
librul said...

"A unanimous vote with no discussion." Just another case of local patronage politics, blind developmnent resulting in the public getting hung out to dry for developer profiteering. DISGUSTING.

June 14, 2012 at 1:10 p.m.
Newton said...
 The problem with this process is that there is no horse race between different projects and no assurance that the best horse won. Every government expenditure has a potential for leaving behind a better idea in favor of the one that seems to be already chosen. Project selection in transportation has been broken badly since the Clinton Administration with the advent of Planning as a required element of consideration. The Metro Planning and Rural Planning Organizations are a disaster with respect to accountability and respect to the quality of the choices that are made.
 It amazes me that a project of over a half billion dollars can't find $9 million for a road to get there. Most developers have to build the transportation infrastructure to their developments and turn it over to the local government. The system of redistribution of money to local governments works a hardship on larger urban areas. This is by design. The old Depression Era Theory was that roads need to connect urban areas to their rural areas where food and fiber come from. The system of redistribution does that. But, it means that urban areas are eventually going to use larger and larger fractions of their tax base to have transportation system within their urban boundaries. A more perfect system would be to redistribute money to local governments based on their current lane miles and vehicle miles traveled. As long as projects are speculative and their merits discussed secretly, The best system in the world is of little value. 
 This TIF fiasco is the natural and logical consequences of giving subsidies to industrial development. Once the legislature was used to doing that, the next logical move was to jump to other categories of economic activity. Even though all urban areas in Tennessee have had net losses of industrial jobs in the period from 2001 to 2010, the feeling that tax money can make something good happen still hangs on. According to the Bureau of Economic Development, Hamilton County lost 8,499 industrial jobs from 2001 to 2010. Nashville lost 12,050 in the same period. Even with the ability to condemn land and build industrial access roads to industries, the policy designed to boost industrial jobs is a failure. All we are doing now is going on to commercial and residential developments, mixed use, to see how that will turn out.
June 20, 2012 at 9:35 p.m.
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