New Report Shows Problems with Widely Used Local Economic Development Tool

Recommends Reforms for Tax-Increment Financing in Maryland

Baltimore, MD – A new research report released today outlines problems with the growing trend among cities to borrow against future growth and divert tax revenues as a way to attract economic development.

“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 Carly Mercer of Maryland PIRG, the Maryland Public Interest Research Group.

Forty nine states have legalized tax-increment financing deals or “TIFs,” 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 Maryland PIRG for drawing attention to the fact that TIF has strayed from its original purpose of helping neighborhoods that need reinvestment most and in many cases is actually harming them instead,” said Greg LeRoy, Executive Director at Good Jobs First, which has conducted their own research on TIFs.

“If done badly, tax-increment financing can steer development away from the places that most need it,” added Mercer. “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” makes a number of recommendations for 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.

“It’s not hard to understand why municipal officials like a sudden infusion of cash and developers like the subsidies,  but localities need to ensure that these tools are closely targeted with long-term needs in mind,” said Mercer.