YOUR BUSINESS AUTHORITY

Springfield, MO

Con: TIF debacle underscores much-needed reforms

Posted online

At the April 24 Branson Board of Aldermen meeting, a 5-1 vote killed the prospects of a $116 million-plus tax subsidy for a new resort and water park. Much of the opposition stemmed from the question of whether it is fair to offer taxpayer subsidies to an enterprise that would openly compete with existing – and taxpaying – businesses. There also were questions about claims that the development would address blight and disagreement over the need for subsidies in the first place.

These issues, which are raised across Missouri when tax-increment financing is debated, demonstrate the need for legislative reform.

In theory, TIF seems like a reasonable solution for economically challenged areas. To reduce the risk to investors, cities agree to return to the developer the property tax increase due to the development itself. So, if your initial property tax bill was $100 and your new building raises the bill to $150, that additional $50 is returned to you to offset your costs. Cities also return to the developer 50 or 100 percent of the other taxes collected on the site, such as sales tax. This sounds like a good way for government to spur investment in needed areas.

Unfortunately, as practiced in Missouri and around the country, TIF often just amounts to crony capitalism. Developers with deep pockets and close relationships with politicians can game the system to get an advantage not available to others. This is because the two hurdles to getting TIF – blight and a “but-for” analysis – are so low as to be meaningless.

Everyone understands the term blight. We might imagine an old house collapsing under its own weight or a long-abandoned strip mall marred by graffiti or broken windows. But these are not the legal standards, which allow for a blight finding if a storefront is merely vacant or if a parcel of land is not developed at all. Steve Potter of the Mid-Continent Public Library once remarked that the definition for blight is so broad the Governor’s Mansion in Jefferson City could qualify.

The other standard, referred to as the but-for analysis, is intended to demonstrate that without (or “but for”) the subsidy, the development would not take place. The standard here is weak, as well. In many cases – and this is true of the Branson project – the standard is met with an affidavit from the developer stating they would not proceed without taxpayer assistance.

How rigorous can a process be when the applicant’s word is sufficient evidence to grant the applicant’s request?

Multiple academic studies have found that TIF subsidies do not create jobs or spur investment. How do we know this? Because in the aggregate, areas without TIF grow just as fast as areas with TIF. With the standards for awarding the subsidy so weak, policymakers lack meaningful tools to determine good TIF applications from bad, and sophisticated developers know they can count on politicians eager for any new development in their cities to play along.

There are a few bills in the state General Assembly – No. 859 in the Senate and No. 1236 in the House of Representatives – that would reform the way TIF is used or would establish a meaningful legal definition of blight. While those bills may not be completed this session, they are a positive sign that leaders recognize the need to better protect taxpayer dollars.

It is a credit to the Branson aldermen that they took their time considering this TIF application and accepted as much public input as they did. Unfortunately, Branson appears to be the exception across Missouri.

Until the statutes are changed, taxpayers will need to be wary of the promises made by developers asking for handouts.

Patrick Tuohey is director of municipal policy at the Show-Me Institute, a free-market think tank based in St. Louis. He can be reached at patrick.tuohey@showmeinstitute.org.

Comments

No comments on this story |
Please log in to add your comment
Most Read