New Report Shows Problems with Widely Used Local Economic Development Tool

Tax Increment Finance

Georgia PIRG Education Fund

“Localities too often use tax-increment financing as an all-purpose subsidy for developers rather than its original purpose as targeted tool to revitalize neighborhoods with circumstances that otherwise discourage investment,” said Jessica Wilson of Georgia PIRG, the Georgia Public Interest Research Group.

Forty nine states have legalized tax-increment financing deals or “TIFs” in 49 states, with Arizona having eliminated its TIF law in 2006, according to the report. These deals divert future growth in the tax base from a prescribed area toward special development projects over many years, sometimes hurting school departments and other public structures that must then be financed from a narrower tax base.

 “We applaud Georgia PIRGs efforts to offer common sense recommendations regarding TIFs,” said Raymond Christman of the Livable Communities Coalition.  “The LCC has long been an advocate for the use of TADs, or TIFs, as a tool for achieving smart growth and sustainable development, but we recognize that their oversight must be carried out in an open and transparent fashion if they are to continue to earn the public’s trust.”

 “If done badly, tax-increment financing can steer development away from the places that most need it,” added Jessica Wilson. “It can also leave municipalities with unexpected shortfalls or create slush funds with little public oversight.”

 The new report, Tax-Increment Financing: The Need for Increased Transparency and Accountability in Local Economic Development Subsidies recommends stronger guidelines to ensure TIF becomes more targeted, transparent, accountable, and democratically governed. For instance, TIF deals should be:

  • Used only as part of advancing part of a specific development strategy in limited areas.
  • As temporary as possible, with unspent funds promptly returned to the general budget if left unspent after a certain number of years.
  • Capped by the state as a percent of a municipality’s land that can be placed under TIF agreements.
  • Conducted through a fully open and democratic process, with information about TIF projects placed online like other best practices for spending transparency.
  • Accompanied by clear, measure benchmarks for the responsibility of developers.