The more I learn about ‘Urban Renewal Authorities’ and a proposed $79.7 million in tax subsidies to address the ‘blight’ on Hot Springs Boulevard, the more I realize how little I understand about the whole issue.
And it seems I’m not alone in my lack of knowledge. Pretty much everyone I’ve talked to, over the past month — board members of special districts, elected County officials, elected Town Council members, Town staff, School Board members, local business owners, friends, neighbors — has unanswered questions about the proposed project, and the process.
And unanswered questions about the potential benefits, and threats, to our community.
When I began writing this article series, I thought I would be addressing the question, ‘Are Tax Breaks Making Colorado Broke?’ in the sense of ‘Are Tax Breaks Making the Governments of Colorado Go Broke?’ I found a limited amount of information — reports and studies — suggesting that huge tax incentives offered to multi-million-dollar corporations are producing questionable results, and may, in fact, be reducing the amount of tax revenues available to governments, instead of increasing them. But practically every state in the Union has been using TIF schemes — Tax Increment Financing — for the past several decades, with little hard evidence that anyone — other than the developer — is benefitting.
Apparently, the state that invented TIF incentives was none other than the great state of California. TIF gained political acceptability in the early 1950s in California because it required “no new taxes.” The idea was to make ‘blighted’ urban sites available for private redevelopment, at prices comparable to ‘green field’ sites in the rapidly growing suburbs.
From 1949 through 1974, federal government grants provided cities with money for housing and urban redevelopment projects — but the grants were contingent on local governments raising matching funds. From a fascinating article by USC professor George Lefcoe (which you can view here):
California led the way in utilizing TIF [to generate matching funds]. By leveraging TIF revenues with much larger federal grants, huge increases in assessed property values could be anticipated in core downtown areas, where high density office and commercial projects would displace low density, low income dilapidated housing.
Ah, yes. The government-sponsored disappearance of affordable housing was only just beginning, driven by a lust for higher tax revenues than what ‘poor people’ were paying.
Here in Colorado, the law directing the redevelopment of urban slums has been CRS 31-25, the ‘Urban Renewal Authority’ Law, and we refer to the created local government entities as ‘URAs’.
In California, the agencies were called ‘RDAs.’ ‘Re-Development Agencies’. That’s what they were called, in the past tense.
From professor Lefcoe’s essay:
The conventional rationale for TIF is that schools, counties and special districts would not lose any property tax revenue. They continue to receive property taxes based on the assessed values of properties within their domains in the year before redevelopment. In time, a pot of gold awaits the other taxing entities at the end of the redevelopment rainbow when all agency debts are repaid. At that point, the other taxing entities start to receive the tax increment bonanza that redevelopment made possible.
These rationales are seriously flawed. First, they disregard the ex-ante risk-reward imbalance that cities sponsoring redevelopment impose on other taxing entities. Second, they presume that but for redevelopment there would have been no growth within designated redevelopment project areas. Third, redevelopment projects seldom create new demand. They simply shift demand from other areas into redevelopment project areas…
… ‘Cannibalization’ is a marketing term that refers to competing products or firms draining market share from each other. New development increases the supply of space but does little to increase long-term aggregate demand for space, goods and services. The mantra “build it and they will come” rarely works except to shift already existing demand from one location to another.
Inter-municipal competition based on tax breaks or infrastructure subsidies to attract new firms is short sighted. Competing cities could easily be tempted to out-spend each other to attract retail outlets that yield disappointing sales and property tax results, engaging in a “race-to-the bottom” until their tax bases are drained dry…
By 2010, there were so many RDAs in California that state and local government entities were actually seeing less tax revenue, instead of more. Particularly harmed by the popularity of RDAs were local school districts — and in 2011, the California legislature dissolved the state’s RDAs and redistributed the funds to the various taxing entities. (You can read a brief history of the dissolution process in this 10-page HUD white paper.)
This is basically a story of government taxation, and the overall failure of TIF financing to provide California governments with improved income streams and sound economic growth. In the end, the California legislature saw no way to make RDAs and TIF financing work to the benefit of the ordinary people or their governments. Only the developers were getting rich. Things finally got so bad, they canceled the program altogether.
But there’s another side to ‘Urban Renewal Authorities’ and TIF financing which has to do with the common folk — the small business owners, the self-employed workers, the existing property owners, the working families, the retirees.
Third, redevelopment projects seldom create new demand. They simply shift demand from other areas into redevelopment project areas…
Typically, the TIF projects in California did not create a demand for more businesses, nor did they create more jobs than would have been created without using any TIF scheme. TIF projects merely re-directed business from tax-paying neighborhoods into the shiny new government-subsidized buildings within the TIF district — where no taxes were being collected to benefit the larger community.
And there’s another piece to the puzzle. Here in Colorado, governments cannot easily create long-term debt for the taxpayers without voter approval — although it can be done using financial end-runs like Certificates of Participation, and our current Archuleta County commissioners seem to be experts at it. But such schemes often turn into financial disasters for the taxpayers, in the long run.
By creating a URA with TIF financing, a municipal government is essentially loaning tax money to a private developer, for up to 25 years. The developer is not bound by the need to get taxpayer approval for the debts he incurs. He can borrow as much as the banks will loan him. But the taxpayers — not the developer — eventually pay for those debts.
What’s that old expression? Robbing Peter to pay Paul?