Mark Edelman’s 2003 Study for the University of Iowa examines the consequences of using tax increment financing in Iowa. Many of his conclusions can be extended to their potential use in North Carolina’s municipalities. The name given to the TIF legislation here in North Carolina is Amendement One; lawmakers changed the name from tax increment financing to self-financing bonds and finally to the innocuous Amendment One after the public failed to embrace the measures as either taxes or bonds.
As it has in North Carolina, the issue of TIFs sparked fervent debate in Iowa. Kent Carlson, an Iowa resident, sent the following letter to the editor of The Des Moines Register, an Iowa paper.
Tax-increment financing abused in D.M.
In the March 9 editorial, “Follow the Farm Bureau Framework,” the Register praised the Iowa Farm Bureau’s state tax-increment renewal (STIR) plan to kick-start the Iowa economy.
The Register did take exception to the Farm Bureau’s plan to pay existing tax-increment financing debt in local communities and then abolish the tool at the local level. The plan shifts tax-increment financing (TIF) to the state level.
The Register said, “There is no better example of how TIF can work as intended than downtown Des Moines.” Downtown Des Moines is the poster child for TIF abuse.
While TIF was initially a valuable tool to promote economic development downtown, politicians, city managers and corporations now find themselves hopelessly addicted to TIF. TIF now funds rent subsidies for corporations in Capital Square. It pays for corporate job training. It funded the removal of scores of small businesses and employees from the downtown area. It provided a $27 million subsidy ($135 for every Des Moines resident) to Allied Insurance.
The relative ease in which the city secures TIF funds enabled big spenders to adopt a Western Gateway plan that consultants warned could cost nearly 10 times more than other development plans presented. Gateway is now stalled, and the city has borrowed another $5 million after the business community failed to provide funding. The final price tag is anyone’s guess.
To exacerbate the problem, the city extended the life of certain TIF areas in downtown to more than 50 years. Some of the city’s most valuable tax base won’t fully contribute to the general fund for more than half a century.
According to city and county sources, currently about 38 to 40 percent of the tax increment in downtown is returned to taxing jurisdictions. More than 60 percent simply pays the development debt.
It’s hard to imagine that Farm Bureau’s proposal to borrow $2 billion and convert the entire state to a bureaucratically controlled TIF district could be anything other than scary.
Kent Carlson
Amendment One is North Carolina’s name for the legislation that would authorize the use of tax increment financing. Center for Local Innovation Director, Chad Adams has been a constant critic of using TIFs since the amendment gained momentum earlier this year. He explains the repercussions of passing the amendment in a recent opinion column.