Exploring Management Practice Variation in Tax Increment Financing Districts

Tax Increment Finance Requirements in Texas

Texas TIFs may be created by cities or counties. Texas TIFs differ from most other states in three ways. First, property owners may directly petition a city for designation as a TIF zone as long as the owner’s property constitutes at least 50% of the TIF’s appraised value. Second, each included taxing unit may negotiate with the city to establish the portion of value it will allocate to the TIF. Third, Texas law requires that the zone’s predevelopment condition “‘substantially impair the city’s growth, retard the provision of housing, or constitute an economic or social liability to the public health, safety, morals or welfare” and that “redevelopment will not be likely to occur solely through private investment in the reasonably foreseeable future” (Texas Tax Increment Financing Act, Title 3, Subtitle B, Chap. 311).

Whereas many states strictly regulate TIFs administered by their cities, Texas operates under a more flexible approach with significant local discretion. Texas establishes minimum threshold requirements that cities must fulfill to establish and operate a TIF. To establish a TIF District, Texas state law (Chap. 311) requires the following:

Texas cities have considerable latitude in establishing and operating their TIFs; their size and duration may be established by the city or may be delegated to the TIF board in its authorizing ordinance. TIF board composition is determined by the affected taxing entities (each appoints 1 member) and the entity that creates the TIF (appoints up to 10 members) with total size varying from 5 to 15 members in most cases; appointees must be eligible to vote and own property in the district (Texas Tax Increment Financing Act, Title 3, Subtitle B, Chap. 311).

In Texas, cities or counties can initiate TIF districts. This may occur via property owner petition of at least 50% of the affected property or by direct city council ordinance (Council of Development Finance Agencies, 2003). Laws vary between states, but in establishing a TIF district, in most cases, a local jurisdiction selects an area where development is needed and freezes the property value of the district for the duration of the TIF (Sullivan, Johnson, & Soden, 2002). This initial valuation is the TIF base value, and it provides a reference point against which to judge TIF performance in future years. The city, or its TIF authority, works with private developers to redevelop the target district, usually relying on construction of new structures. Redevelopment increases property values and consequently adds tax revenue from new construction in excess of the base value into the TIF fund. The revenue may pay for improvements up-front or repay local bonds (Council of Development Finance Agencies, 2003).

Texas’ TIF process requires the following 10 general steps for implementation:

Texas’s TIF law is more flexible than most other states. These requirements provide the baseline for evaluating TIF management practices within the state; effort beyond the minimum reflects enhanced management effort.

Texas was chosen for analysis for several reasons. The Lone Star State uses TIFs extensively but has greater flexibility in its administration between the state and local levels than do most other states (Arvidson, Hissong, & Cole, 2001). The state provides a clear framework for TIF adoption and administration, but the discretion allowed in implementation results in considerable variation in local TIF administration. This range of variation provides the basis for the study. DFW was chosen as the region of analysis because of the high number of TIFs in close proximity to one another, experiencing similar economic and developmental change at roughly the same time. The DFW Metroplex is a large regional economy with 28 different administrations in the five core counties attempting to achieve economic development via TIF. We selected TIFs in a concentrated geographic area to minimize the effect of economic differences from place to place that might bear on the TIFs’ observed performance. If the economy is performing similarly well in all areas, then TIF performance might be attributed to the macroeconomy rather than local project attributes. If, however, performance variation is observed across places with similar economic conditions, that performance is more likely a result of project-specific attributes. Our objective is to explore the degree of variability in management practices and their relationship to performance while minimizing the effects of external economic conditions on the observed outcomes. Although counties are eligible to initiate TIFs, the TIFs in the study area are all municipally initiated, further reducing potential variance.

Risk Assessment and Performance Measurement Research

Both performance measurement and risk assessment are integral to successful design and execution of economic development projects. Projects are often politically driven (Wolman, 1996) and may not be planned and/or measured to the degree needed for optimal results. This section examines prior research in economic development literature as it relates to both risk assessment and performance measurement and provides an overview of the main areas of inquiry as they relate both to economic development generally and TIF in particular.

There have been repeated calls for stronger links between academic research and agency practices regarding public performance assessment (Coplin, Merget, & Bourdeaux, 2002). Behn (2003) believed that performance assessment is still in developmental stages, and Ammons (2002) called for a more comprehensive use of performance indicators at all agency levels. At the same time, researchers in economic development have also noted that “there is a marked paucity of systematic empirical research on the distributional outcomes of local economic development policy” (Wolman, 1996, p. 148). The disparity in local tax incentive effectiveness found among recent studies (Byrne, 2006; Carroll, 2008; Weber, Bhatta, & Merriman, 2003) suggests that we have much yet to learn about economic development performance and its causes. Oden and Mueller (1999) suggested a more systematic approach involving the public before any tax incentives are awarded to private companies. Bartik (1991) called for more study to determine the effectiveness of recent economic development programs.

TIF has been popular at the state and local level since the 1970s. Almost all states currently authorize some form of TIF program (Man, 1999). Even so, research to evaluate their performance has neglected the effects of management practices on TIF effectiveness. Two key practices of interest are formal risk assessment (preimplementation) and performance measurement (postimplementation). The challenge in exploring the impact of management practices on TIF performance is data availability. No standard variables exist to assess management practices that occur within an administration; hence, studies seeking to measure and explain TIF performance have failed to adequately incorporate these constructs.

Toward an Administrative Theory of Tax Increment Finance Performance

A few studies have considered TIF performance specific to the Texas setting. Most have focused on external characteristics such as political support and the presence of partnerships prior to implementation. For example, Arvidson et al. (2001) surveyed cities to examine political support, citizen participation and performance. They found little political opposition to TIF creation but discovered that women and minorities are underrepresented on TIF Boards. The majority of the 14 cities in their sample were able to increase their tax base and attract new businesses. Ewoh (2007) examined the use of public–private partnerships and the use of TIFs (or TIRZs [tax increment reinvestment zones]) in Houston. He found programs to be successful in places where effective partnerships are in place prior to project implementation.

Yuasa and Thomas (2006) found varied equity across Houston, Texas, TIFs and found that project zones’ development focus (inner city vs. commercial development) affects performance, with more improvement in inner-city redevelopment zones. Sullivan et al. (2002) enumerated Texas TIF best practices based on projects in El Paso. Included was a list of financial considerations consisting of property assessment growth rates, net present value of the property, financial viability, financial efficiency, and likely spillover effects prior to district and project implementation. Their study considers risk indirectly in the form of potential hazards if TIFs are not carefully planned, but it does not offer a formal risk assessment or postimplementation performance measurement.

To date, no studies of TIF performance have considered the role of internal management characteristics, such as preimplementation risk assessment and postimplementation performance measurement, as meaningful explanatory constructs. Ewoh (2007) suggested that constant program monitoring can support local economic development; he does not consider risk assessment in his analysis. This study examines these key management constructs across TIFs in the DFW Metroplex to improve our understanding of the predictors of TIF effectiveness. This study departs from past efforts by selecting an environment within which state law permits variation in local processes and procedures and by then directly measuring local TIF management efforts and cataloging variation across cities within the selected local economic context. No studies have considered management practices to examine their role in program effectiveness. By so doing, this study makes a viable contribution to understanding risk assessment and performance measurement in relation to economic development projects more broadly.

Much of the criticism surrounding TIFs, as other economic development incentive programs, is that they serve political principals’ need to “do something” (Wolman, 1996) and that they support economic development that would have occurred absent government involvement. As Buss (2001) indicates, “economic growth and location decisions are separate fields;” he continues, “Consequently, correlations attributed to variables in models probably represent relationships outside the model” (pp. 94-95). In other words, growth is often attributed to government action, and policies are adopted with the belief that they matter, when it is actually quite difficult to attribute outcomes to specific policies and not external factors.

Another criticism that looms large for local officials is the potential information asymmetry inherent in the process; self interested firms or developers seeking to enhance the value of their investments seek public support. Government officials may lack knowledge about expected job creation (Nunn, 1994). Developers and property owners have information and expectations about the market to which government officials may not be privy, thereby shaping the decision process (Feiock, 2002). To the extent governments engage in rational decision making (e.g., risk assessment) prior to TIF adoption, they minimize the harmful effects of information asymmetry that may be at play. So our approach does not negate the potential for politically-motivated decisions, nor does it downplay the potential for information asymmetry in the process. However, movement toward rational decision processes should reveal the extent to which a project is feasible and likely to generate positive outcomes. In that such rationality can help compensate for information deficiencies and lead to improved decisions, it is important to ascertain the extent to which cities use such strategies in their TIF management processes.

This study examines TIF districts in DFW to determine the level of current city attention to risk assessment and performance measurement in the management process. In theory, cities’ rational analysis of the economic environment, district and project design, selection, and monitoring increases to the degree that the TIF management considers risk analysis and performance measurement. TIF revenue and property valuation projections should increase as the level of management scrutiny increases. Consequently, projects that undergo greater risk assessment and aggressive performance measurement should experience improved performance.

We select these two components because they reflect identifiable management practices that may or may not be part of the cities’ strategic approach to TIF-oriented development. A significant body of research has examined the effects of capacity on performance (Gargan, 1981; Hall, 2008; Honadle, 1981), revealing the importance of both administrative and financial capacity on performance outcomes. To this end, there are numerous city characteristics that may shape the use of the identified practices or their quality, such as budget size, number of staff, staff training and expertise, and so on. Our analysis does not discount the importance of these factors, but they are not directly considered here. From an evaluation standpoint, these are inputs affecting the quality of management practices; our interest is not on the cause of the observed practices but on their use and intensity. To clarify, a city with few staff resources may contract out the feasibility study, a city with little discretionary revenue may leave the task to internal staff, a large city may have capable professional analysts on hand, or a city may emphasize this aspect of planning and disregard other considerations. The strategies that are used and their quality may or may not be a proxy for city resources. Our concern is not with the process through which the strategies came to be but with their observed use in practice.

Causality is difficult to establish with most economic development programs; TIF is no different in this regard. Performance variation may result from utilization of these practices but may also result from external factors such as general economic climate, project type (e.g., industrial vs. central business district, etc.; Byrne, 2006), city desperation for growth, or selection of projects in areas destined for growth without government intervention. Although we are unable to control for all potential influences on performance, our design attempts to limit their effects. Selecting projects in a single metropolitan area limits the effects of economic fluctuation—all cities experience relatively similar economic trends. Inclusion of all active or completed projects in the area provides the full spectrum of available project types and locations.

Our study contributes to the growing TIF performance literature by exposing a key source of potential bias in existing studies. Even the best-modeled studies (e.g., Byrne, 2006) fail to account for management strategies in TIF governance. The general movement toward government performance management and accountability suggests these characteristics are important explanatory factors (Poister & Streib 1999). Byrne (2006) includes various independent variables that may influence growth in TIF districts. These include neighborhood characteristics (percentage White, median income, vacancy rate, median age of structures, population density), spatial characteristics (area, distance from downtown, proximity to city boundaries), and TIF age and classification (mall, mixed use, industrial, housing, other). Although well specified, management characteristics in this and other studies are assumed to be constant.

Texas requirements to establish TIF districts and to evaluate proposals for existing districts serve as a floor; many cities go well beyond the minimal requirements. We theorize that cities vary considerably in the use of two key management practices—risk assessment and performance measurement—and that greater use of these practices enhances their TIF projects’ performance. As our study later reveals, cities in the DFW area vary considerably in how much attention they give to risk assessment and performance measurement. Our purpose here is to establish and classify differences in the intensity with which cities administering TIFs approach risk assessment and performance measurement. Our qualitative archival analysis explores city records, including TIF reports and ordinances, to determine the extent of variation in program planning and administration within a single large metropolitan area.

Method of Analysis

A qualitative review of government documents from pre- and postimplementation practices was conducted to (a) determine if there is variance among local municipalities, (b) determine how they vary, and (c) analyze the influences of the local practices on performance. The primary method of data collection is archival public record analysis of TIF districts in cities located in Collin, Dallas, Ellis, Rockwall, and Tarrant counties. These are the five central counties in the DFW–Arlington, Texas Core–Based Statistical Area (No. 19100), as of November 2008. According to the North Central Texas Council of Governments (2009), there are 111 designated municipalities in these counties. Of these, 28 have active TIF districts, with a total of 70 active TIFs. Most cities have one or two districts, but large municipalities, including Fort Worth and Dallas, have 11 and 18, respectively.

Local ordinances vary considerably from city to city, and we reviewed them for content pertinent to performance management and risk assessment. Selected TIF managers (selected for convenience) were consulted informally as the conceptual design was being developed to better understand the process of TIF formation and the type of consistent archival documentation that would be available to inform the analysis. Annual reports are required by the state and provide the primary source for performance measurement information. These reports provide the original base property valuation, the annual updated valuations, and the amount of revenue in the tax increment for the latest fiscal year. The greatest variation in detail in the annual reports concerns the amount and depth of description for each individual project within each TIF district. TIF feasibility studies are required by the state and provide the richest source of data for district risk assessment practices. They provide initial property valuations, value projections over the TIF’s life span, and projected revenue amounts each fiscal year. Studies vary considerably in the amount of detail provided with respect to risk assessment and performance measurement.

Our choice of revenue and valuation as measures of TIF performance is consistent with existing studies and offers the most consistent information available for direct comparison of TIF performance. A number of studies use property valuation growth rates as the measure of TIF performance (Byrne, 2006; Carroll, 2008; Man & Rosentraub, 1998). Again considering an evaluation framework, TIF valuation and revenue are the two most direct measures of TIF performance, and both are mandatory in annual reports (Texas Tax Increment Financing Act, Title 3, Subtitle B, Chap. 311, § 311.016). Valuation is the most direct outcome, with revenue being derived from increased value but subject to tax rates in force. Indirect measures such as employment, business start-ups, personal income, and unemployment are meaningful long-term economic development goals but are subject to greater external influence and are more difficult to attribute to the project, much less its management practices.

TIF valuation and revenue performance are important to various stakeholders. Cities and private investors are partners in the project’s success. When valuation goals are not met, everyone loses. When valuation goals are met, the redevelopment has occurred and real investment is in place; the blight has been reduced or removed. However, when valuation goals are met but revenue goals are not, stakeholders may be affected differently. Insufficient revenue means debt service payments will be difficult to meet; the financing structure will determine whether that harms the government and its citizens or business investors. Insufficient revenue may indicate that the investment has failed to attract economic activity and growth.

Texas’s Tax Increment Zone Financing Registry summarizes each TIF every 4 years, so although it was helpful in building the data set, we relied on data provided directly from each city (voluntarily or through Freedom of Information Act requests) for this analysis. Although the primary unit of analysis is the TIF, management practices are measured at the city level. City data were compiled and categorized according to the level of detail in planning, execution, and monitoring of TIF districts and projects. The rubrics used to classify city management practices are displayed in Table 1 (risk assessment) and Table 2 (performance measurement). Management practices were benchmarked against minimum state requirements to classify variation in city management practices in TIF administration. Cities receiving a rating of state minimum for risk assessment met the basic state requirements identified above (Texas State Law Chap. 311). Cities were classified as advanced and intensive as risk assessment efforts increased.

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Table 1.

Classification Rubric for Risk Management

Minimal	Advanced	Intensive
Meets state requirements for district valuation, financing, and project planning	Description of justification for the tax increment financing (TIF)	Value projections per development
	Individual project analysis	Employment impact projections
	Breakdown of existing properties and valuations	Market feasibility analysis
	Limitations of financial assumptions	Checklist of public policy benefits
	Financial comparison with absence of TIF adoption	List of project objectives within each TIF
	List of planned public improvements	Detail of multisource financing
	List of nonproject cost (no breakdown)General estimate of community benefits	Schedules considering different economic climates
		Minimum investment/return ratios
		Scoring of project proposals
		Standardized project evaluations

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Table 2.

Classification Rubric for Performance Measurement

Minimal	Advanced	Intensive
Meets annual state requirements for financial performance, including total valuation, revenue, and expenditures	List of improvement by project and project phase	List of objectives met/not met by projectPlanned annual activities
	Breakdown of revenue per funding entity	Board meeting reportsListings of new initiatives
	Visual depiction of progress, such as maps, graphs, and photos	Graphs and charts of regional growth patternsClear comparison of public versus private initiatives and cost responsibilities for stakeholdersLists of success indicators per projectClear relation of project to relevant city ordinance

As with risk assessment, public records (primarily TIF annual reports) provided the information for rating performance assessment. Texas’ minimum annual reporting requirements are as follows:

The seventh requirement is the most subjective and provided the majority of the information that documents variation in city practice. Cities’ performance measurement was rated state minimum, advanced, or intensive. As before, cities rated minimum provide only the minimum effort required by law. Advanced cities provided more information than was required by the state and offered better visual depictions and clearer breakdowns of project costs and progress. Intensive cities provided systematic measures in their annual reports that provided an extensive explanation of project accomplishments and future plans.

To provide descriptive comparison, each project’s actual performance (for the most recent available year) was assessed categorically according to the initial estimated performance for that year at the TIF’s inception. Two dependent variables are used: tax revenues and property valuation. Performance was assessed as underperforming (>15% lower than estimate), meeting expectations (estimate ±15%), or exceeding expectations (>15% higher than estimate).

Findings

Content analysis revealed that cities vary considerably in the quality of their management practices. Table 3 provides each city’s risk assessment ranking, along with the specific details provided in their public records for TIF design and execution. These records include ordinances, financing plans, annual reports, and any general announcements that the city chose to include as part of the TIF’s documentation. The proportion of cities rated minimum, advanced, and intensive for risk assessment was 21%, 32%, and 46%, respectively. This indicates that approximately half of the cities in the DFW area do apply a systematic focus to risk assessment, and about four-fifths consider risk assessment beyond the minimal state requirements. A focused approach to risk assessment is already a managerial concern for most DFW TIF districts.

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Table 3.

City Risk Assessment Detail

City	Details	Rating
Allen	Assumption of new franchise fees (not quantified) Consultant analysis as part of TIF justification Breakdown of costs by capital construction, professional service, and construction financing Revenue and cost % incurred by other government entities Quantification of non-TIF tax increases around district “Pay as you go” financing Projections by type of tax (property, sales) Summary of case for individual TIFs Detailed list of public improvements Slum deterioration as justification Use of public–private investment/industrial development corporation Use of ED sales tax	Intensive
Arlington	Summary of case for individual TIFs Consultant analysis as part of TIF justification Detailed analysis of land use improvements Extensive feasibility studies, including market conditions and absorption potentials Detailed list of existing property appraisals Cash flows per type of tax Project cost projections Debt schedule Use of public–private investment/community development corporation Cost sharing with other government entities List of strengths and weaknesses of existing undeveloped property Three scenarios for cost–revenue projections: aggressive, modest, mid-90s maintenance	Intensive
Benbrook	Cost sharing with other government entities Cash flow projections Consultant analysis as part of TIF justification Project cost projections Revenue comparisons with and without TIF	Advanced
Burleson	Cost sharing with other government entities Projections by type of tax (property, sales) Detailed list of public improvements Detailed list of existing property appraisals List of existing properties and valuations within district Sales tax increase to support development Projection of reimbursements to TIF Cash flows per type of tax	Advanced
Carrollton	Consideration of any ED incentive reviewed directly by City Council Percentage of incentive refund measured by project value Job creation projections Separate criteria for Transit-Oriented District projects considered by committee, including value cost rebates to city ownership transfer location Structured evaluation analysis for all ED projects	Advanced
Colleyville	Use of bonds and certificates of obligation Flow of funds charts Revenue projections schedule Debt schedule Detailed analysis of bond maturity and obligations Assumption of constant tax rates Summary of costs per project Disclaimer that assumptions are “subject to change” based on national and regional economic change Discussion of implications of financing infrastructure via TIF Current market conditions, including square footage rental rates absorption trends List of general criteria for all ED project evaluations, including Employment Impact jobs created type of jobs total annual payroll Fiscal Impact total real and personal property value added anticipated sales tax generation other revenues (franchise, occupancy, utilities) city infrastructure construction required projected annual operating budget Community Impact expected effect on local housing market expected environmental impact compatibility of project with city’s plan Competitive Impact the effect the project would have on existing businesses a list of the type of products or services already sold in the city a list of direct competitors	Intensive
Dallas	Multiregional development agreements (COG, DART, etc.) Evaluation template for proposed TIF Districts that considers Financial Benefits total new taxes other taxing units participation comprehensive pro forma project review minimum dollar amount ($15 million) of new private investment Policy Benefits affordable housing urban design guidelines preferential hiring for local residents enhances public investments more than $10 million in past 5 years or expected next 5 years enhances core assets of city provides direct benefits to distressed areas adds park or green spaces complies with fair share guidelines for private investment Specific Development Objective for Each TIF planned private developments planned public improvements Development value projections private public Other Total revenue projections “Pay as you go” financing Multisource financing (loans, bonds, direct subsidy) Support for job creation (State Thomas district only) Market feasibility study List of valuations per project List of comparable developments based on property appraisals Projected property tax appraisals Estimated annual taxes by support entity (city, county, etc.) List of existing properties and valuations within District	Intensive
Farmer’s Branch		Minimum
Frisco	Specific partnership with private companies Cost sharing with other government entities List (not detailed) nonproject costs Detailed list of public improvements Use of public–private investment/industrial development corporation Use of public–private investment/community development corporation Projected property tax appraisals Longest duration—40 years Consultant analysis as part of TIF justification Flow of funds charts Limit use of public–private investment/industrial development corporation Use of public–private investment/community development corporation Limitations of assumptions (detailed)	Advanced
Fort Worth	Consultant analysis as part of TIF justification Market feasibility study, including absorption rates Multicity comparisons Employment projections Subdivision of district quadrants Detailed limitation of assumptions Detailed nonproject cost lists Cost sharing with other government entities “Pay as you go” financing Standardized Checklist for Proposed Projects Standardized General Guidelines Standardized Criteria for TIF District Creation Standardized Criteria for TIF Project requests Standardized funding allocations by percentage	Intensive
Garland	Voter-approved bond issue for financing Cost sharing with other government entities Projections by type of tax (property, sales) Detailed list of public improvements Detailed list of existing property appraisals List of existing properties and valuations within District Sales tax increase to support development	Intensive
Grand Prairie	Cost sharing with other government entities Projections by type of tax (property, sales) Detailed list of public improvements Detailed list of existing property appraisals List of existing properties and valuations within District Sales tax increase to support development Projection of reimbursements and date to TIF fund Cash flows per type of tax Project cost projections Debt schedule Detailed comparison of property valuations with and without TIF 100% incremental property values back to TIF Flow of funds charts List of proposed public improvements by priority grouping	Intensive
Grapevine	Cost sharing with other government entities All entertainment related Consultant analysis as part of TIF justification Summary of case for individual TIFs Types of financial risk by interest rate, credit, concentration of credit, and custodial credit	Advanced
Irving	Emergency clause in ordinance (without delay to improve infrastructure) Cost sharing with other government entities List of project accomplishments and benefits (not detailed - marketing) Use of historic valuations Inclusion of regional, state economic indices Local rental, retail analysis	Advanced
Keller	Extremely detailed description of certificate financing—most emphasis on debt of all cities Paid from sewer surplus and general property taxes Remedies of bondholders Financial ratings Risk management directly addressed in health and liability insurance pool Cost sharing with other government entities Consultant analysis as part of TIF justification Nonproject cost analysis Project cost projections Detailed list of public improvements Disclaimer relating to tax and economic performance projections Projection of reimbursements and date to TIF fund Consultant suggestion of third-party financing Current market conditions Future demand forecasts by industry, cost, and absorption trends Emergency clause in ordinance (without delay to improve infrastructure) “Hold Harmless” clause for ISD Income and population projections	Intensive
Lavon		Minimum
Mansfield	Disclaimer on nonproject costs “included but not limited to . . .” Cost sharing with other government entities Subdivision of TIF into smaller units and % of tax and valuation adjusted Detailed comparison of property valuations with and without TIF Projections by type of tax (property, sales) Detailed list of public improvements Detailed list of existing property appraisals List of existing properties and valuations within District Sales tax increase to support development Projection of reimbursements and date to TIF fund Cash flows per type of tax Project cost projections Debt schedule Land use value projections	Intensive
Melissa	Certificate of obligation and ad valorem tax in separate ordinance for ED Detailed list of estimated nonproject costs Use of public-private investment/industrial development corporation Use of public-private investment/community development corporation Separate Capital Project Fund Comparison of TIF project costs versus debt projections Economic impact measured by type of project (detailed) Estimate of direct and indirect jobs gained Estimate of cumulative employment Estimate of cumulative direct and indirect taxes Limitations of assumptions (detailed)	Intensive
Mesquite	Projections of general fund revenue after TIF contributions Cost projections along “premium, “modest,” and “no TIF” scenarios Detailed listing of nonproject costs—along scenario lines Reimbursement schedules—with projection scenarios Detailed design plans for residential neighborhood development Cost sharing with other government entities Projections by type of tax (property, sales) Disclaimer of cash flows assumptions based on case summaries for individual TIFs Projections of taxable new construction Detailed list of public improvements Assumption of participation of all six taxing districts Detailed list of assumptions regarding costs, duration, valuation, and tax rate changes	Intensive
Midlothian	Extensive feasibility studies, including market conditions and absorption potentials Consultant analysis as part of TIF justification Use of public–private investment/industrial development corporation Projection of employment impacts Extensive feasibility studies, including market conditions and absorption potentials Extensive list of definitions Assumption of local point of sale for construction materials Use of “current-dollar” approach in projections Extensive preliminary civil engineering report Cost sharing with other government entities Detailed interlocal agreements with water district 100% incremental property values back to TIF Bonds issued by industrial development corporation Separate education facilities fund for reimbursement of school district Extensive schedules of base development and incentive costs	Intensive
North Richland Hills	Timetable for implementation of new District Justification of existing TIF expansion includes: property value increase number of jobs created increase in tax rolls higher occupancy rate “source of great community pride?” Phases of public improvement project completion Assumption of 1% growth in property valuation Project-funding timetable	Intensive
Plano	Detailed projections of revenue and expenditures Descriptions of earmarked projects Descriptions of uncommitted projects Detailed “optimistic” versus “modest” scenarios	Intensive
Richardson	Disclaimer on costs if “TIF incentives, anticipated capital programs, and stable markets transpire” List of potential redevelopment areas in city 20% of residential development is affordable housing with rent caps TIF cash flow based entirely on property value increases after base year County will invest % of revenue gained into public improvements City retention of business personal property tax Projection of increased sales taxes % of cash flow redirected back to TIF varies by district (100% and 80%) Separate evaluation of residential plans in line with market average Projection of private investor returns in residential investments Comparison of TIF plans with comparable TIF projects in DFW Projection of leveraged return on investment by taxing entity General estimate of community benefits	Advanced
Richland Hills		Minimum
Rockwall		Minimum
Rowlett		Minimum
Southlake	Disclaimer on nonproject costs “included but not limited to . . .” Detailed phases of development Total appraised value of project 100% financing from property tax increases Entity tax and revenue sharing Assumption of annual property value growth of 3% Detailed list of appraised properties already in zone Use of bonds and certificates of obligation Flow of funds charts Revenue projections schedule Debt schedule	Advanced
Waxahachie	“Pay as you go” financing 100% incremental property values back to TIF Project timelines Historical values Anticipated market conditions Cost of projected infrastructure improvements	Advanced

Note. TIF = tax increment financing; ED = economic development; COG = Council of Government; DART = Dallas Area Rapid Transit; ISD = independent school district; DFW = Dallas/Fort Worth.

Table 4 lists each city’s rating for performance measurement effort. As with Table 3, there is a wide range of local response in meeting the state’s legal requirements. Proportions for performance measurement ratings minimum, advanced, and intensive cities are 48%, 30%, and 22%, respectively. In contrast to consideration of risk assessment, only about one fifth of cities reveal significant effort in performance measurement, and approximately half meet only the minimal requirements. Many cities in DFW do not use performance measurement to the same degree as risk assessment, but cities vary considerably.

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Table 4.

City Performance Measurement Detail

City	Details	Rating
Allen	Description of each project’s progression	Advanced
Arlington	Extensive annual report for five tax increment finances (TIFs) with detailed breakdown of costs and revenues Color photos, explanations of annual developments Four separate tracking forecasts—high, mod, low, maintenance from mid-90s	Intensive
Benbrook		Minimum
Burleson		Minimum
Carrollton		Minimum
Colleyville		Minimum
Dallas	Annual reports on each of 18 TIFs include Mission statement District accomplishments Charts of projects using TIF funding Charts of projects not using TIF funding Charts of initiatives Maps Value and increment summaries Objectives, programs, and success indicators by project in TIF Year-end summary of meetings, including resolutions and relevant ordinances Pending items Budget and spending status Next fiscal year’s work program General financials with year-to-year change Those with more activity (such as Downtown Connection) list separate objective and actions	Intensive
Farmer’s Branch		Minimum
Frisco	Appraised value vs. actual captured value based on 2% annual increase % of property developed at time of TIF amendment List of improvements and means of funding and indebtedness by project phase Projected time line for setup of TIF (1997) Amount paid into TIF by public entity Amount reimbursed by entity Amount of principal and interest on outstanding bonded indebtedness Total base value and current captured appraised value of zone Total amounts due on captured appraised values by entity Total amount of tax increments received	Advanced
Fort Worth	Internal audits summarize activity Draft of annual reports have one-page summaries for 11 TIFs with photos, history, and activity	Advanced
Garland	Tiered levels of property appraisement according to type of development	Advanced
Grand Prairie		Minimum
Grapevine	Third-party annual audits, with breakdown of values by tax entity	Advanced
Irving	List of TIF District accomplishments on website PowerPoint of growth graphs and grid maps of area under TIF Detailed description of performance projections for each project Detailed analysis of revenues, expenditures, and progress of each project in annual report List of annual property value changes by percentage Only city with separate website just for TIF	Intensive
Keller	Appraised value vs. actual captured value based on 2% initial annual increase, then held constant Estimated tax revenues by % of participation by each taxing entity Assessed value assumed to be constant on some projects Summary of annual meetings by TIF Board and City Council List of public improvements completed in past year List of public improvements completed in past year in TIF zone but not receiving TIF financing List of private development projects completed under construction pending permit approval List of budgeted costs per public project expended remaining balance funding transfers interest and fees Status of indebtedness by project Captured and appraised value by entity, including participation percentages	Intensive
Lavon		Minimum
Mansfield	Board actions, meeting minutes, and potential projects listed in annual report	Advanced
Melissa		Minimum
Mesquite		Minimum
Midlothian	Extensive third-party audit of Midlothian Development Authority, including TIF reports Detailed depreciation and expenditure tables	Intensive
North Richland Hills		Minimum
Plano		Minimum
Richardson		Minimum
Richland Hills		-no information available-
Rockwall	Projects described by phase of development	Advanced
Rowlett		Minimum
Southlake	Captured valuation projections based on 3% annual increase in value Added description of accounting practices for 2006 and 2007 annual reports	Advanced
Waxahachie		Minimum

Table 5 provides detail on performance indicators for project advancement and project financing. Most cities used clear indicators during project execution and completion, but fewer provided clear details of non-TIF project financing. Table 5 provided a means to assist in determining the rating (advanced or intensive) for performance measurement. Table 5 shows cities that use performance indicators and benchmarks, indicating a stronger approach to performance measurement and also reveals which cities highlight means of financing TIF projects outside of the tax increment, indicating a stronger approach to risk assessment. Other details are included to demonstrate examples of specific approaches by the respective cities to plan and execute their projects. Cities that had clear performance indicators were given more detailed ratings in performance measurement, risk assessment, or both, according to their focus.

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Table 5.

Change Indicators Reported

City	Project advancement or completion	Non-TIF project financing highlighted	Other details
Allen	X		List of increased retail business Mixed-use office, residential, hotel, entertainment
Arlington	X	X
Benbrook	X
Burleson	X
Carrollton
Colleyville	X
Dallas	X		Actions taken toward each goal and objective in every annual report Projected work programs for coming year Goals are most detailed of all cities—all TIFs have about 6-12
Farmer’s Branch
Frisco	X		Public infrastructure for sports and educational facilities
Fort Worth	X	X
Garland	X		Targeted (specific company) retail development
Grand Prairie	X		List of increased retail business and new employment
Grapevine	X	X	Targeted retail and entertainment development
Irving			Accomplishments listed on website: financial interlocal agreements land use study site selection
Keller	X
Lavon	TIF in development	—
Mansfield	X
Melissa	X		Retail/residential/downtown development
Mesquite	X		List of public developments for residential areas
Midlothian	X	X
North Richland Hills	X		Phases of infrastructure completion Occupancy rates Employment increasesProperty improvements
Plano	X
Richardson	X		Sewer and storm water improvements Increased retail business Traffic improvements Residential development Park development
Richland Hills	X		Retail development
Rockwall	X
Rowlett		X
Southlake
Waxahachie	X

Note. TIF = tax increment financing.

Tables 6 through 9 show the proportion of districts by category, according to valuation and revenue performance. Table 6 shows a relatively equal amount of intensive TIFs underperforming or meeting property valuation projections by risk assessment category. Table 7 shows that most intensive TIFs actually underperform in terms of tax revenue but are equally likely to meet or exceed standards. Table 8 shows the strongest correlation with stronger performance management measures leading to more successful outcomes, as most minimum-rated TIFs underperformed in terms of property valuation, but tended to improve with increased intensity. Table 9 shows underperformance by both intensive and minimal TIFs in terms of performance by tax revenue. Table 10 presents each TIF by classification and whether it met, outperformed, or underperformed original projections.

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Table 6.

Number of Tax Increment Finances by Risk Assessment Strategy and Property Valuation

	Risk Assessment
Valuation performance	Intensive	Advanced	Minimum
Underperform	19	3	3
Meets	19	2	0
Outperform	12	5	1

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Table 7.

Number of Tax Increment Finances by Risk Assessment Strategy and Tax Revenue Performance

	Revenue performance
Risk assessment	Intensive	Advanced	Minimum
Underperform	25	4	2
Meets	11	2	0
Outperform	12	4	2

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Table 8.

Number of Tax Increment Finances by Performance Measurement Strategy and Property Valuation

	Performance measurement
Valuation performance	Intensive	Advanced	Minimum
Underperform	9	6	10
Meets	12	7	2
Outperform	5	8	6

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Table 9.

Number of Tax Increment Finances by Performance Measurement Strategy and Tax Revenue Performance

	Performance measurement
Revenue performance	Intensive	Advanced	Minimum
Underperform	15	6	10
Meets	4	6	3
Outperform	5	7	6

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Table 10.

Tax Increment Finance Categorization by Percentage of Total Population

	Risk assessment			Performance measurement
	Intensive	Advanced	Minimum	Intensive	Advanced	Minimum
Valuation performance
Underperform	30	5	5	14	9	17
Meets	30	3	0	18	27	3
Outperform	19	8	2	8	12	9
Revenue performance
Underperform	40	6	3	24	10	16
Meets	18	3	0	6	10	5
Outperform	19	6	3	8	11	10

Note. Values may not add up to 100% because of rounding.

Descriptive Vignettes

Each city in the study (with the exception of those meeting only minimum requirements for both measures) is somewhat unique in its approach to TIF district development and project measurement. Each of the 28 cities is cross-categorized by its evaluation on both indicators. Described below are examples of cities in each risk assessment and performance measurement classification. Consistent with the purpose of our research, these vignettes reveal considerable variation in practice. As discussed above, this addresses management practices—a potentially key determinant of TIF performance not previously considered in TIF evaluations.

Conclusion

The summaries of TIF practices reveal that cities in DFW vary considerably in terms of risk assessment and performance measurement in their TIF districts. This analysis shows that cities that carefully consider risk assessment do not necessarily also consider performance measurement and vice versa; the two different management efforts appear to vary independently. Some cities provide extensive documentation prior to and during the execution of their TIFs, whereas others meet only the minimum state requirements.

Our descriptive statistics suggest that there may be associations between these management strategies and performance, but these effects may not be consistent across revenue and valuation performance measures. What is clear at this stage is that cities vary on both management strategies and performance, and from this study, city size does not appear to be a determining factor. The qualitative nature of this analysis is not equipped to control for various external characteristics that may contribute to TIF success or failure but does shed light on potential bias inherent in existing studies that fail to account for management capacity. These results are limited to the DFW Metroplex but may have conceptual application in other regions and states, depending on the influence of state laws and local economic conditions. Naturally, these findings characterize the development of an administrative theory of TIF performance; further research should seek to validate the findings through quantitative analysis.

General economic development practices can improve by filling gaps in program design, implementation, and project-monitoring procedures to enhance their effectiveness. Following state minimum requirements may not be the most effective long-term strategy. Given the current political and economic climate favoring more rigorous analysis of public sector activities, especially in relation to economic development, cities may be able to maximize the value of their investments by emphasizing risk assessment and performance measurement. Research is needed to determine how risk assessment and performance measurement may affect other geographic areas and other types of economic development programs. As analysis matures, greater conceptual specificity can be developed to generate best practices in TIF administration.