Tax-increment financing is the most insidious type of economic development subsidy. Whereas it’s clear in programs such as property tax abatements that public revenues are being given away, proponents of TIF have often persuaded public officials that it provides something for nothing. That’s wishful thinking, of course—TIF-subsidized projects increase the demand for public services but don’t contribute to the revenues needed to pay for them—but too many officials have succumbed to the illusion. TIF is now used (often overused) in every state but Arizona.
The good news is that concern about TIFs is spreading from specialized policy organizations to activist groups. The latest sign of this is the
on TIF just published by the U.S. PIRG Education Fund.
In addition to explaining to the uninitiated how TIFs work, the report provides a detailed critique of their pitfalls. These include a tendency to encourage development in areas that are not blighted; enrichment of well-connected developers; and a dangerous diversion of revenues away from vital public services.
The U.S. PIRG report also does a good job in cataloguing the accountability shortcomings of TIFs, including the failure by many jurisdictions to disclose which parties are benefiting from TIF deals or even summary data about the costs of the program. Also included is an appendix providing details on each state’s TIF practices, including whether there are requirements for the creation of a TIF district or the approval of a TIF deal.