How to protect your communities from misuse of TIF
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First and foremost educate yourself on the pros and cons of tax increment financing.
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This site is a database to assist you in researching facts of how it has been used throughout the country and in NC.
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Not every community or project is the same and certain checks and balances must be in place.
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Remember that any increase in property tax revenues that a development may generate will not go to fund any local government operations, such as fire, police or schools, but instead go towards paying off the TIF bond. The increase in the tax base outside the TIF area must increase to compensate local government for the increased demands of new development.
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Here is an article to research on how another community was falsely sold that TIF use was the answer to redevelopment of a blighted downtown area. Cleveland Gets Stiffed by TIFs, by Chad Adams, Carolina Journal
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The use of this type of financing should unfold in a similar manner in each community and is as follows:
1) Your local government will vote on a project or development of a large
area of your community at a local meeting
2) They should disclose at that meeting that the funding will be utilizing Tax
Increment Financing
3) If approved, the Local Government Commission will review the request for
approval or denial
4) The Local Government Commission typically does not focus on any
positive/negative local funding
occurrences that the use of TIF bonds can create, but instead it focuses on debt
capacity and bond ratings of the local government that is requesting the use of
any bond
5) It will be left up to the citizens of an area to ensure their elected
officials are really understanding the consequences of their actions pertaining
to local funding for other areas that would otherwise be funded by the increased
property tax value
6)
If the Local Government Commission approves the use of tax Increment Financing,
your local government then borrows the money to finance a development.
7) NC cities and counties can only use TIF for up to 5% of its land mass at this
time. Stay focused on whether annexation is pursued to grow the land mass only
for the capability to use more TIF bonds, or whether local leaders are lobbying
State elected officials to amend the 5% restriction.
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Here a a few areas to research when your community considers using tax increment financing bonds
1) First realize that any economic development proposal does not come with any guarantees, but instead it is an expectation based on information, which can have better or worse results than expected. This "crystal ball" view of the future is where citizens and local elected officials must focus on the facts and figures presented by consultants or within any economic development proposal. The life of a bond must be calculated into the mix. After a bond has been paid for the property taxes collected are then directed into the general fund of local government. But what is the increased tax base that otherwise would not have been developed with other traditional methods of financing for the same result?
2) It must be understood what aspect of the economy will be developed, i.e. jobs, sales, housing, commercial tax base etc.
3) To dissect the many aspects of economic development, you must also view the surrounding areas, such as neighboring communities, the entire county or even different areas within the same community to ensure a certain market type is not being "flooded".
4) The power of eminent domain for government to condemn private property and sell it to a private developer is a major concern in using tax increment financing. If your property is not affected, we hope that you will help your fellow citizens who are being forced of their property by local government.
Retail Development: Building a grocery store, home improvement store or other merchandise retail store can paint a false picture of revenues generated. If the development will attract shoppers from outside the area, then that revenue can be viewed as new sales dollars or sales that otherwise would not have occurred elsewhere in the community. If the development is going to attract the same shoppers that would otherwise shop elsewhere, but in the same community, the "pool of money" is only going to another location and no new money was spent. If any competitive type of business is going to be developed using tax increment financing, that results in unfair business practices by government. An example would be if an existing downtown pharmacy was attracting customers from a large area within a community and a large drug store was being developed using TIF bonds in close proximity of the existing pharmacy, then the large drug store is actually threatening business operations of the local pharmacy. This competition with existing business should not be considered with TIF bonds, but instead that is a free market issue and must be dealt with accordingly.
Sales Tax Revenue: NC distributes sale tax generated in each county back to a city based the population within that city. The city the sales occurred does not indicate the amount of revenue that the city will receive. Communities that have a high commercial tax base, may actually receive less sales tax distribution than a smaller community having more residential development. This "job center versus bedroom community" is an area of concern for using TIF for commercial development in an city having a low residential population. A bedroom community using TIF to finance retail development will fair better than a job center community because of the higher population and sales tax distribution methods. So, when your local government predicts a sales tax revenue increase, they must consider the comparison of new residential growth in your community versus other communities within the same county. Here is a link to the NC League of Municipalities pertaining to sales tax.
Ad Velorum Taxes: This is property tax. This revenue stream is the main financial source of local government and the true focus on the "self-financing" aspect of tax increment financing. The increase in property tax within a TIF area that a new development generates does not enter the general fund of local government, but instead is directed to pay for the tax increment finance bond; i.e. self financing. The expected increase in surrounding tax base outside a TIF district or area is what pays for the additional demands that any new development creates, such as fire, police and schools. Citizens and local government must estimate that increase in the tax base and compare the extra revenue stream (higher property taxes) with the impact any new development using TIF causes.
Residential Growth: If new residential development occurs, then the additional demands of fire, police and school funding must be compensated with an increase in the tax base outside the TIF area. The sales tax distribution methods of NC counties provides additional sales tax revenues to that community so long as other surrounding communities do not have more residential growth. Any commercial or retail development that serves this new residential growth is calculated into the sales tax revenue stream, but again, only if it does not simply move the sales from other portions of the community. Grocery stores, gas stations, convenience stores and restaurants are prime examples of this "money movement" within a community. Certainly with new residential development, you create a greater customer base that otherwise would not be spending in the community. But at what cost to everyone outside the TIF area? That is a question that must be answered by local government.
Jobs: This was the main selling point of the NC Constitution Amendment known as Amendment One. New jobs can breed new citizens and if the job creation results in higher incomes or lower unemployment, then it must generate more "cash flow" within a community. Are the jobs newly created, or simply relocated within the county or community? Are they higher paying than the surrounding areas or what the average wage is within the area? The more people working typically results in the economy progressing due to purchases of homes, vehicles and goods and services. This area of economic development is usually the selling feature for local government, but all the facts must be presented. Will this job creation result in a higher new tax base via commercial and residential development? What additional demands that new development place on local government? As you can se, the economic development "puzzle" can seem complicated, but the bottom line remains "cost justification" of using tax increment financing bonds versus other traditional means of securing lower interest bonds to achieve the same results.
Eminent Domain:
This is a serious issue and should be not taken lightly by any property owner.
Here is an article titled
"Cities Use Eminent Domain
To Clear Lots for Big-Box Stores" that
illustrates the forceful nature that redevelopment can bring to your local area.
Please look into this matter when considering any redevelopment or "job"
creation aspect of economic development. Property owners are protected from this
abuse in our Fifth Amendment of The US Constitution.
Connecticut has a case in its courts system.
Here is the question presented in this legal case: "What
protection does the Fifth Amendment's public use requirement provide for
individuals whose property is being condemned, not to eliminate slums or blight,
but for the sole purpose of "economic development" that will perhaps increase
tax revenues and improve the local economy"?
Here is National League of Cities (NLC) article titled
NLC to Intervene on Behalf of City in Eminent Domain Case
by David Parkhurst.
More topics on checks and balances will be added as this site fully develops