Sir: Boosters of the downtown hotel and conference center project claim that tax increment financing will allow local governments to raise $20 million or so to support this project without any cost to taxpayers. The December 2015 packet to delegates on its first-page project overview states: “No City or County taxpayer dollars will be used, and there will be no ongoing subsidies from the state or local governments.”
This is a kind of monte card trick that cons by misdirection. True on its face, it is nevertheless totally misleading because it distracts from the ramifications of earmarking new revenues for debt service rather than allowing them to flow into general funds.
TIF earmarks the increment or increase in tax revenue from a development to service debt incurred to finance that development. The trouble is, every new development increases the demand for local government services. But with all the incremental tax earmarked for service of the TIF debt, there is no extra revenue to pay for the extra city and county services except by stretching budgets or taxing others at higher rates. So, although no taxpayer dollars will need to be specifically appropriated from the general fund, that pool of funds will be diminished to the extent of the TIF funding earmarks.
Developed, the downtown hotel-conference center site requires increased county and city services in the same way as any other development. Its trash needs to be collected, street snow cleared, its crime policed, utilities looked after, its traffic managed, etc. Residential developments are assessed more in aggregate for tax than the agricultural land they were built on, precisely because as housing they demand more government services. So a privately financed hotel-conference center would pay, say, $500,000 in tax more than the same land unused. That $500,000 extra revenue would go to the general funds of the different levels of government to pay for extra services coming along with the development.
However, TIF financing radically disrupts that. Instead of swelling general funds, the increased tax revenue is earmarked to service the TIF debt. It is legally pledged to the TIF bonds. Without the $500,000 extra in the general fund there is nothing from the DHCC development to pay for the extra local services needed.
In California, where it was pioneered and has been most used, TIF has wrought fiscal havoc with municipal budgets — earmarking progressively more revenue for debt service and leaving less for the general funds. The city of Chicago and Puerto Rico are already heavily TIFfed. TIF is seductive, apparently offering goodies for free — as suggested by hotel-conference center boosters in the quote above. In fact, however, it is destructive, because once one development gets TIF debt, others want it, too. It grows and spreads.
And soon the debt incurred to fund all the goodies breaks the budget.
We should shun deceptive, destructive financial gimmicks like TIF.
writes from Frederick.