Tax Increment Financing

A Quick Overview Prepared by Weld County Treasurer John Lefebvre

Tax Increment Financing

 TIF is a tool of local general governments to finance (re)development of blighted property for the purpose of economic revitalization Prepared by Weld County Treasurer John Lefebvre

Background

 Problem  Urban flight left blighted areas in the inner city unable to compete with the urban edge communities  Slums are economically depressed (blighted) areas in inner cities that need revitalization Prepared by Weld County Treasurer John Lefebvre

Slums = Market Failure

 Cheap and available supply of fuel and the auto lead to urban flight in the 1940s and 1950s  Owners allow their properties to fall into disrepair  Values spiral downward  Tax base erodes  Businesses flee Prepared by Weld County Treasurer John Lefebvre

Results

 Government revenues fall  Social costs climb without offsetting revenue  High unemployment  Increased crime  Increased substance abuse Prepared by Weld County Treasurer John Lefebvre

Competing With The Urban Edge

 Solution  State governments established Urban Renewal Authorities (URA) in the 1950s  Power given:  Declare blighted areas  Eminent domain  TIFs Prepared by Weld County Treasurer John Lefebvre

History

 Began in CA in 1952  CO established parallel legislation in 1958  Heavily used since the 1970s nationwide Prepared by Weld County Treasurer John Lefebvre

How They Work

 Declare blighted  Freeze the tax base  Split the revenue stream  Original underlying authority revenue remains frozen at the time of blight declaration for up to 25 years  Increment accrues to the URA Prepared by Weld County Treasurer John Lefebvre

2 1.5

Tax Amount

1 0.5

0 0.1

1 1 0.2

1 2

Typical TIF

0.3

1 0.4

1 3

Years

4 0.5

1 5 0.6

1 6 Prepared by Weld County Treasurer John Lefebvre

URA / Blight / TIF Solution

 Urban Renewal Authorities   Eminent domain   Holdouts Small parcels TIFs       Finance redevelopment Stop sprawl Retain tax base Level economic playing field with urban edge developments Finance infrastructure improvements without a general tax increase Development pays its own way Prepared by Weld County Treasurer John Lefebvre

TIFs = Financing Options

 Finance infrastructure  Estimate future value  Bond for difference  Dollars today for dollars tomorrow  Improved community Prepared by Weld County Treasurer John Lefebvre

General TIF Problems

 Result in market distortion  Traditional tax base shifts from underlying authorities to the city  Job quality  No accountability Prepared by Weld County Treasurer John Lefebvre

New URA / TIF Problems

 Eminent domain is abused  Taking land from one private party to benefit another private party  High jacks the tax base  TIFs misapplied  Used on the urban edge rather than competing with it Prepared by Weld County Treasurer John Lefebvre

What is Blight?

 Lack of infrastructure  Incorrectly configured infrastructure  Site or other improvement deterioration  Faulty lot layout  Unsanitary or unsafe conditions  Unusual topography  Defective or unusual conditions impairing economic growth Prepared by Weld County Treasurer John Lefebvre

Colorado Community Revitalization Association

 TIF:  Prevents leakage of sales tax dollars to outside communities  Retains revenue for government services  Contains costs for providing government services by reusing in-fill locations;  In-fill development carries a significantly lower public cost compared to edge, or sprawl, development Prepared by Weld County Treasurer John Lefebvre

Colorado Community Revitalization Association

 Revitalizing in-fill locations:  Reduces pressure on urban edges  Preserves open space & agricultural land  Retains Colorado’s character and quality of life Prepared by Weld County Treasurer John Lefebvre

Subjectivity = Blight Anything

Prepared by Weld County Treasurer John Lefebvre

TIFs on the Urban Edge

 Meant for development to pay its own way without a general tax increase  Yet overuse leads to a general tax increase  Meant to limit sprawl  Subsidizes sprawl  Leads to newly blighted areas from overbuilding Prepared by Weld County Treasurer John Lefebvre

Winners

 Developers get subsidized  City gets new infrastructure  Citizens have:  higher property values  New jobs  No new general taxes  Local shopping

Losers

 All other county residents  County government  Competing communities  Truly blighted areas in cities  All state residents  State legislature has to find the money to backfill schools Prepared by Weld County Treasurer John Lefebvre

Irony

 Meant for development to pay its own way without a general tax increase  Yet overuse leads to a general tax increase  Meant to limit sprawl  Subsidizes sprawl  Leads to newly blighted areas from overbuilding Prepared by Weld County Treasurer John Lefebvre

Questions

Prepared by Weld County Treasurer John Lefebvre