Simple (and not so Simple) Routes to Improvement for Tax Increment Financing

October 19, 2021

By Kasia Tarczynska, Research Analyst, Good Jobs First

A couple of weeks ago, a Government Finance Research Center blog item written by Good Jobs First’s executive director Greg LeRoy delved into reasons why Tax Increment Financing (TIF) often fails to accomplish its original goals of uplifting disinvested communities.

As described in the previous blog item, too often TIF subsidizes developments in areas that are already doing well or experiencing gentrification; it captures revenue otherwise earmarked for schools, counties, and other local bodies without their permission; it contributes to sprawl and retail overcapacity; and often too little is disclosed about the true cost of TIF and those who benefit from the tax diversions.

What could be done to help reform TIFs? Here are seven approaches:

1. Create transparency: There needs to be full transparency of the program. Among the questions that should be answered online and explained in clear English: How much revenue does each district divert, each year? Who are the TIF district beneficiaries (including more than the names of an LLC or proxy, but also the actual corporate parent)? What are the community benefits? Where are the TIF districts located? When will the diversion of taxes expire?

In addition, states allowing TIFs should aggregate the data from its localities in a user-friendly online database. We cannot have an informed conversation about TIFs if we do not have a clear picture of the tool’s impact.

2. Offer truth in taxation. In Cook County, Illinois, which contains more than 180 TIF districts, when homeowners and small businesses get their property tax bill, if they reside in a TIF district, the bill clearly indicates how much of the payment will pay into the TIF versus into the general fund, school district, etc. (It’s a real issue there; TIFs capture almost a third of Chicago’s property tax base!) Not only is this a great way to help people understand the diversion process, but also a tool that democratizes access to TIF information.

3. Go back to basics: TIFs need to be deployed only in places that genuinely need public support. TIFs in gentrifying neighborhoods or those in areas that qualify as “blighted” only because some buildings are 35 years old defeat the purpose of the device. Governments should go back to their drawing boards and objectively analyze which areas truly need public support for development.

4. Consider community needs and quality jobs: If a TIF district is created, projects located in it should respond to actual community needs, whether they are affordable housing, a grocery store, a day care center or green space. Understanding what communities need is aided with widespread community engagement. All construction and permanent jobs created as a result of a TIF project need to pay wages and provide benefits at least as good as prevailing market rates, so workers can support themselves and their families. This means paying a living wage for service workers at, for example, TIF-supported hotels and prevailing wage for all construction workers.

5. Institute spending caps and time limits. States should change TIF-enabling laws to cap the amount of property value that a locality can divert into TIFs at 2% of their annual Equalized Assessed Value base (i.e., the total assessed value of all taxable property in the city). And instead of 35 or 40 year-long TIFs, based on Good Jobs First research, we recommend 7 years.

6. Democratize control of TIFs. No local body (school, county, library, etc.) should lose revenue because another governmental body declared a TIF. All affected governments should be able to determine if they want to participate in each TIF district or not. Furthermore, to make smart and fully independent decisions, each affected jurisdiction should engage and educate its community members on both the benefits as well as the costs (which are too often missing from public subsidy conversations) of TIF projects.

7. Protect kids first. We at Good Jobs First, have documented that tax breaks, including TIF, have a profoundly negative impact on public education, especially on poorer school districts with the most Black and Latino students. Thus, we recommend that schools’ tax revenue should be exempted from TIF diversion.

I understand that some of these suggestions are easier to implement than others. Some require imagination and a full commitment to a TIF reform, while others can be easily implemented. In all cases, they are worth exploring.