California Study Exposes the Myth that the “Public” Benefits from TIF Redevelopment
Throughout the country, local governments try to artificially spur redevelopment by using taxpayer-funded subsidies to lure large developers to the area. A favorite method of subsidized redevelopment is the use of tax-increment-financing (TIF), whereby redevelopment agencies pay to develop land, then keep any additional tax revenues in the project area. The “public” ostensibly benefits because of the additional sales tax revenue generated by the development and by the elimination of underutilized land. The developer, for its part, can avoid property taxes and sometimes even paying for the land, simply by agreeing to operate the development for a set period of time.
The prevailing argument in favor of TIF redevelopment is that it brings redevelopment to places where developers will not build, because the area is rundown or otherwise not profitable. However, in addition to the questionable logic behind subsidizing unprofitable development (there is usually a valid economic reason why certain land is not developed), recent data has done much to debunk the myth that government subsidies work as intended. In 1998, the Public Policy Institute of California (PPIC) published the most comprehensive study to date on the fiscal impact of such developments, concluding that TIF subsidies are neither necessary nor even desirable for achieving sound redevelopment.1
The PPIC study compared areas in California with TIF-based redevelopments to other similar areas within the same city that did not utilize TIF financing. When the growth rate of the areas with TIF projects was compared to the areas without TIF projects (in terms of per capita income, population size, geographical area and “blight” conditions), the study found that the TIF projects were producing only minimal gains in terms of actual economic growth, but resulted in substantially higher allocations of tax revenue directed toward local redevelopment authorities.2 To achieve those minimally higher rates of growth in TIF areas, cities spent two dollars for every dollar gained.3 About eight percent of all property taxes collected in California, or $1.5 billion annually, ends up in redevelopment agency coffers.4 Moreover, the PPIC concluded that the problem of “no oversight authority to police redevelopment agencies” is a main source of concern regarding the potential waste of public money on TIF projects.5 Thus, redevelopment agency budgets, not cities, are the main beneficiaries of TIF projects.6
1 See Michael Dardia, Subsidizing Redevelopment in California, Public Policy Institute of California (1998), available at http://www.ppic.org/publications/PPIC108/PPIC108.pdf/index.html.
2 Id. at 64-66.
3 Id. at 66 (Figure 5.5).
5 Id. at 27.
6 For more information on eminent domain abuse in California, Municipal Officials for Redevelopment Reform (MORR) has published several editions of its study entitled Redevelopment: The Unknown Government. The 1998 edition of this report can be obtained from the MORR website at http://www.redevelopment.com/norby/index.html. Contact MORR to obtain the latest edition (published Sept. 2002).