ANALYSIS: Here Come the TIFs
WITH DISASTERS COME NEW REASONS TO TAX
Last October’s floods, in addition to creating havoc for some individuals and businesses, have unleashed a torrent of ill-advised governmental proposals and initiatives – additional farm subsidies, new taxes, and a host of complicated federal-state matching funds.
Add TIFs to that list.
H.4995 authorizes counties to create a tax increment financing system, or TIF, to redevelop public and private infrastructure damaged by the October flooding. Specifically, the bill gives local governing bodies all powers consistent with the state constitution to redevelop in areas where public and private infrastructure were damaged in the flooding, and to pay for it as authorized by section 14, article X of the constitution.
A TIF is a common way to pay for redevelopment projects, and it works by issuing bonds to cover the cost of the redevelopment and paying for them by (a) reassessing property tax rates in the redeveloped area, (b) raising the tax rates by the amount the redevelopment is projected to increase them by, and (c) allocating the increase toward debt payment for the redevelopment bonds.
There are numerous problems with TIFs – chief among them their vulnerability to corruption and cronyism. Further, the TIF is premised on the assumption that when development is completed, property values will rise and generate additional tax revenue. In colloquial terms, it’s called counting your chickens before they hatch.
Related legislation, H.4994, authorizes counties and municipalities that suffered public or private infrastructure damage in the October flooding to create special tax districts in which the tax rates would vary from the rest of the county or municipality. The difference would be used to repair the damaged infrastructure.
The special tax districts could be created one of two ways: (1) by special election, if 15 percent of voters in the proposed district petition the local governing body for it, or (2) by ordinance, if 75 percent or more of property owners who own at least 75 percent of the assessed value of property in the district petition for it, or if the proposed area consists of the entire unincorporated area of the county.
The special tax district could be operated as an administrative division of the local government, or by a commission of 3-5 members appointed by the local governing body.
If any general obligation bonds are to be issued to provide a service in the special tax district and the tax to pay the bond off will be collected at different rates for the special tax district and the rest of the county/municipality, the local governing body must first approve the bond and varying tax rates by ordinance. Finally, before the special tax district can be decreased in size or abolished, the local governing body must conduct a public hearing.
There are a few concerns with this legislation. For one thing, the General Assembly often gives local governments taxation powers in order to compensate for their own failure to fully fund the Local Government Fund. This can and does result in unnecessary taxation. Further, H.4994 would allow taxpayer dollars to cover private infrastructure damage as well as public.
Additionally, the provision allowing local governments to enact by ordinance if the special district is the unincorporated area of the county means that the residents and taxpayers of that county will have no say in their tax hikes. That’s in contrast to the other scenarios, in which a majority of taxpayers must either petition or vote for it. Finally, the bill does not require that the special tax districts have a sunset date, which means the higher rates could become permanent by default.