RAD-ical TIF Deregulation a Cause for Concern in NJ

December 17, 2008

New Jersey’s Revenue Allocation Districts (RADs—the Garden State’s version of tax increment financing) may soon undergo severe deregulation. Senate Bill No. 2299 , passed by the Senate Economic Growth Committee, loosens up RAD regulations on multiple fronts. The proposed legislation expands the types of revenue that municipalities may direct within RADs, expands the types of areas eligible to become RADs, and eliminates the requirement that local finance boards approve RAD plans.

The bill expands the permissible sources for incremental revenues. Under the proposed RAD revisions, allowable revenue sources would encompass, among other things, (take a deep breath here) incremental payments in lieu of taxes, payroll and wage taxes, lease payments made to the municipality, sales and hotel taxes, 95 percent of the property tax increment, and income from operation of public facilities. (Full list available here .)

The bill would also allow the creation of RADs in “areas in need of rehabilitation” as well as redevelopment areas. Moreover, under the former RAD Financing Act , proposals were required to undergo two levels of approval—one local and one state. The proposed legislation eliminates the requirement that local finance agencies authorize new RADs. The staggering lack of municipal oversight over the financial impacts of new RADs allowed by the proposed bill is a dangerous turn for local finances. Especially so when one considers that the state legislative fiscal estimate of the bill’s effects on municipal revenue losses and gains is entirely “ indeterminate .”

The legislation is supported by the New Jersey Business and Industry Association, the state Chamber of Commerce and the National Association of Industrial and Office Properties, all of whom know a good deal when they see one. “Now is not the time…to worry about upsetting apple carts or to be timid” with economic development strategies, said Senator Raymond Lesniak , chairman of the Senate Economic Growth Committee and the bill’s sponsor.

We’re not so sure about that. In the current economic climate, TIF is proving to be an unwieldy burden for many cities, especially those faced with tight budgets and outright shortfalls. According to Jon Shure, president of New Jersey Policy Perspective , a nonprofit research organization, “This is like going on a diet because you’re starving. While needs are growing, revenue will shrink. Once more, we’ll prove that giveaways are a poor substitute for building prosperity through public investment.”