They’re back. They’re chirping for joy. And they just need to die. No, it’s not only the 17-year cicadas I’m talking about.
Every 11 years (1982, 1993, and one hopes in 2004), the voting public has decided to defeat legislative measures calling for tax-increment financing. TIFs are simply another way to raise government debt without specific voter approval.
The premise here is that local governments (cities or counties) declare a certain area as a tax district. They sell bonds to provide tax-supported projects to benefit one or more developers in the district. These bonds are sold just like general-obligation bonds, except for the fact that the voting public would not have the right to vote on them. Supposedly, the difference between what the property tax value was before the improvements and its value after the improvements would be the “increment.” In theory, the additional tax revenue is used to pay back the bonds.
The folks wanting this policy change realize that you probably won’t support anything with the word “tax” in it, so they conveniently changed the name to “self-financed bonds.” However, since that term has apparently proved confusing or suspicious, you will now hear growing support for “Amendment One.” This sounds innocent. But in all honesty, if they have to change the name twice, it’s probably still a bad idea.
Why do we need TIFs in North Carolina? TIFs are hailed as a desperately needed (revenue) tool for local government because 48 other states have them. Now, were it up to me, I would rather tout that other states, including our neighbors, have lower corporate and individual income taxes and that we should emulate those policies. A recently released study by Iowa State University researched the period between 1989 and 1999 and found that “TIF-increment spending at the county level has not yielded measurable and distinct fiscal, economic or social outcomes.” Iowa State researcher David Swensen said that “there is virtually no evidence of broad economic or social benefits in light of the costs.”
Case in point: Duluth, Minn. In June, the home county of Duluth accused the city of being “addicted to TIFs.” Businesses now won’t come to town unless they get the benefit of TIFs, and growing public-service needs are not funded because all the tax growth is paying for TIF debt.
With TIFs, you are co-mingling the success of one or more companies with paying back taxpayer debt. What it means is that if the companies that benefit from TIFs go under, the local government is still responsible for the bond payment.
Beyond this, there is the matter of making private property tax value a matter of public need. What we say, in essence, is that the government should do things to increase the value of private property. This brings us one step closer to taking property away from private citizens for the purpose of development because it will be worth more to the local government in taxes. Before you think this is laughable, the Connecticut Supreme Court has ruled that using eminent domain is appropriate to do just that. We should not erase the line between public and private action, even with good intentions, because the results will certainly not be good for free enterprise or for good government.
The National Federation of Independent Businesses, a small-business organization, and countless other organizations have shown that small businesses create more than 80 percent of all new jobs in North Carolina. Yet we unfairly tax and punish their efforts by giving away their tax money to subsidize big industries whose failures can be crippling, and whose successes are not as predictable as economic development staffs would contend.
The real goal of government should be to create an environment where small businesses flourish and large businesses are welcome. We should say to all business owners, “We’ll never tax you to pay someone else to bring a company here to compete with you for land, labor, capital, or customers.”
From the local to the state level we should be looking at regulations and taxes that are obstacles preventing North Carolina from being competitive. We should focus on ways to lessen the burden of government. We should aspire to be the best state in which to start a business, large or small. Tax-increment financing, self-financing bonds, Amendment One — by any name, it still smells as sour.