Tax Increment Financing vote a bad precedent

Tax Increment Financing vote a bad precedent

June 21st, 2012 in Opinion Times

The Chattanooga City Council voted 5-2 Tuesday to approve the use of city's first Tax Increment Financing plan for a multimillion road up Aetna Mountain. Private developers say the roadway is essential to construction of what they claim eventually will be a more than $500-million mountaintop community of homes, offices, commercial and retail buildings and greenspace. The council's affirmative vote allows the project to move forward. It does not eliminate reasonable questions about the approval of TIF for such projects.

Developers say -- and some public officials agree -- that the use of TIF does not expose government to risk. The plan, governed by state law, allows developers and their lenders to put up funds for the road and then recoup the cash over a period of a decade or more by using future tax revenues above current general and city taxes -- but not the county's school tax -- to pay off the loan. Neither the city nor county would benefit from increased tax revenue until the loan is repaid. TIF is a novel idea and has been used successfully elsewhere in the state. Still, its use in this instance is questionable.

The question the City Council had to answer Tuesday was whether the Aetna project met the criteria put forth by the state Legislature when it authorized the use of TIF. The requirement for such assistance is that a development would not take place without the use of TIF. City taxpayers are unlikely to ever know if the Aetna project would have gone forward if TIF had not been approved.

The council vote, it should be noted, was not unanimous. Councilwoman Deborah Scott urged the council not to approve TIF. She and Councilman Peter Murphy voted against it. Andrae McGary, who rightly said the city needed more time to consider the long-term ramifications of approving the TIF, and Sally Robinson abstained. Council members Jack Benson, Carol Berz, Russell Gilbert, Pam Ladd and Manny Rico voted affirmatively and the TIF resolution was approved.

Approval sets a bad precedent. It allows private developers to do their work with a public subsidy -- the sort of tax abatement granted by a TIF can hardly be described as anything else. Moreover, approval of the TIF for the Aetna Mountain project no doubt will inspire other private developers to seek the same sort of assistance from government. Given what transpired Tuesday, it would be difficult for the council to deny such requests, even though it could impact city revenues.

TIF and similar programs have their place in community and regional development. Generally, though, such tax abatements and subsidies should be reserved for projects that create jobs -- new businesses or expansion of existing businesses -- or for enterprises like downtown redevelopment that serve the entire community rather than the interests of the few at the expense of the many. The TIF plan approved too quickly by the City Council on Tuesday does neither.