Part I
:: Trickle Down…
Issue 1
Volume 2
"Blight" + Tax Increment Financing
by Chris Hu
Nonetheless, city officials remain adamant that the plan is necessary to fuel the city’s redevelopment. Thomas Deller, head of the city’s Department of Planning and Development, argues that TIF is necessary to complete the city’s development plans for downtown, particularly by enabling the construction of a large parking garage, “’so we can keep the economy in downtown going, which creates jobs.’” Even many skeptics concede that there is some value to the infrastructure improvements enabled by the TIF plan, and would simply like to see the Westside Connector TIF modified or more publicly debated. As Councilman Segal told the Brown Daily Herald, “Some of these projects, like connecting Westminster Street, are things the city already wanted to do in the past, and now the TIF will provide the money. This isn’t necessarily a bad thing, but it is a matter of trade-offs and priorities.”
Tax Increment Financing and Urban Development
Much of the existing literature on TIFs focuses on Chicago and neighboring Illinois cities, where TIFs have been used extensively since the 1970s. In fact, public officials in Providence still seem to regard Chicago as a model—City Council President John Lombardi recently traveled to Chicago to consult with community leaders about the effectiveness of TIF districts in that city. Dye and Merriman (2000), in a much-cited study, found that in Illinois, municipalities that have adopted TIFs have grown more slowly in terms of property values than those that have not. Furthermore, they found, within cities that adopt TIFs, the TIF area grows at the expense of the rest of the city. Although Richard Dye, who was interviewed by the Providence Journal for a story about the Westside Connector TIF, warned that this study “may not necessarily apply to Rhode Island,” it has been adopted up by Providence activists who are skeptical of the city’s TIF plan.
However, Weber et al. (2003) found that at least in the case of industrial parcels, designation of a mixed-use—rather than purely industrial—TIF increases the demand for and value of the property, probably because low-value industrial properties can be sold and/or converted for more lucrative residential and commercial use in what is suddenly a more attractive site for investment. Although this study is not particularly applicable to the Westside Connector TIF, it is certainly instructive for the ALCO TIF, as well as any future TIF districts that the City of Providence may create to facilitate the conversion of industrial land for residential and commercial purposes.
TIFs have also occasioned think tank studies on the efficacy of their use by municipalities. Haulk and Montarti (1999), in a report issued by the Allegheny Institute for Public Policy, a self-described “conservative policy think tank,” analyze the use of TIFs in Indiana and the Pittsburgh area, arguing that while sometimes a useful redevelopment tool, “overuse or inappropriate use of TIF”—such as for projects which fail to significantly increase property values, and thus property taxes—“can lead to rapidly diminishing returns to taxpayers in cases where private funding should have been used.” Talanker and Davis (2003), writing on behalf of Good Jobs First, a liberal economic development think tank, studied state TIF and enterprise zone laws in order to show that in many US states, the anti-poverty intent of such programs has been diluted in order to allow for more general urban redevelopment. Or, as they put it, “Programs that were originally intended to provide tax incentives to businesses for locating in impoverished areas now often end up subsidizing economic development in affluent areas.”
That cities have strayed from the “blight” and “but for” maxims of the first TIF laws seems to be in little doubt, but what Talanker and Davis seem to overlook is the fact that this means that TIFs tend to be used in relatively depressed—if seldom truly “blighted”—areas expected to experience large amounts of private investment, rather than to further enrich in already-affluent ones. As Weber (2002) argues, municipalities have had trouble justifying TIF projects based on “compromised use-value” alone, and have instead found more success creating TIFs in areas where the potential for rapid development is great. She notes that “cities have used TIF primarily for large-scale downtown redevelopment projects and in gentrifying neighborhoods, bypassing the slow-turnover parts of the city” where the potential for generating new property tax revenue is not as great. Dye and Sundberg (1998), for their part, found that “TIF has the largest payoff for communities with the highest expected rate of growth rather than the greatest need for development.” Finally, Gordon (2004) holds that “the very logic of tax increment financing undermines the ‘but for’ test,” since cities necessarily create TIFs in areas where they expect to see increases in property tax revenue. Thus, he argues, it is unsurprising that redevelopment authorities pass over truly blighted areas and instead create TIFs in areas where property values are relatively low, but private redevelopment is already occurring or slated to occur. This, of course, seems to describe the area encompassed by the Westside Connector TIF rather closely.
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