Abstract
Tax increment financing (TIF) is one of the most extensively practiced economic development tools used by state and local governments. First authorized in 1952 in California, the financing instrument is currently available in almost every state. At this point we have a sizable body of cases and data to evaluate TIF projects and their impacts. The 2001 edited volume Tax Increment Financing and Economic Development: Uses, Structures, and Impact (Johnson & Man, 2001) was a much-needed academic and practitioner “primer” on this topic. Editors Craig Johnson and Kenneth Kriz’s recent second edition (2019) offers an updated assessment of TIF 18 years later. The authors demonstrate how the management and evaluation of TIF projects changed during this time, partly to reform abuses of TIF in the past. This updated volume is a work that is exceedingly useful both in its coverage of the basics—how TIF works, state variation in TIF—and its strong normative and ethical discussion of the implementation of TIF. Moreover, it pushes past description to build theories about the political adoption and economic impacts of TIF.
The editors candidly present this book as a practitioner’s guide. Authors draw case studies from an array of high-profile TIF projects supplying examples of both successful ventures and those that yielded suboptimal results. The book is rooted in a straightforward, applied policy approach, but due to its focus on the big normative questions of policy—equity, transparency, accountability to the citizens—it is elevated beyond a mere “nuts and bolts” assessment. The clarity and decisiveness of insight regarding how TIF should and should not be used to pursue economic growth is the major contribution of this volume.
There are three general sections. The first four chapters provide a lesson in “TIF 101.” Johnson and Kriz supply a basic description of how TIF districts generate net revenue and additional development for sponsoring jurisdictions. Assessed property values in a designated TIF district are frozen at pre-TIF levels for taxing jurisdictions, while a TIF authority collects additional revenues from the increment of increased assessed values due to development projects. The revenues from the increment pay back the debt incurred to develop the district. Upon expiration of the TIF district, the property tax base should increase in value and taxing jurisdictions realize greater revenues. The editors discuss distinct phases of the TIF planning and management cycle and introduce the critical “but for” requirement as a litmus test for implementing TIF. The diversion of revenues from taxing jurisdictions during the TIF cycle is justified only if the tool targets truly blighted areas and if development would not occur but for the TIF. Without meeting this test, the TIF is little more than an unnecessary giveaway to private developers on the backs of taxpayers (p. 25). Chapters that follow detail state variation in the laws pertaining to eligibility and evaluation requirements for TIF, noting that only about a third of states require an evaluation of the “but for” condition in the development plan authorizing a TIF district (chapter 3, p. 43). There is a useful discussion of how TIF affects overlapping jurisdictions, such as school and utility districts. Since 2001, slightly more states require input mechanisms at the planning and adoptions stages for overlapping jurisdictions that would be affected by the deferral of TIF revenues (chapter 3, p. 45). Researchers also found that debt issuance to finance TIFs has continued even with the fiscal stress of the Great Recession, though some states, notably California, have reformed the structure of debt financing. California ended the approval of TIF redevelopment districts, shifting to use of enhanced infrastructure finance districts (EIFDs). These require approval of each overlapping jurisdiction to capture its portion of increment returns and prohibit school districts from participation (Luby et al., chapter 4, p. 78). California’s significant overhaul of its TIF financing structure, unique among states, is a major development since the 2001 edition.
The second section offers a variety of case studies in TIF projects implemented in recent decades. Meyers’s examination (chapter 5) of the 2016 approval of $535 million in TIF funding to apparel manufacturer Under Armor in Baltimore suggests that more voices, including both business and community groups, obtained input in the adoption process of this project, an improvement over TIF ventures of the past. Craft and Weber’s discussion of Chicago’s expansion of TIF funding revealed that city leaders prioritized financing infrastructure upgrades and mixed-use developments in areas of “pre-established market demand” (chapter 7, p. 141) rather than in truly blighted areas. At least one case study focuses on rural economic development in Nebraska, offering a cautionary tale of how TIF projects may fail to adequately account for the loss of revenues to overlapping jurisdictions and may not give the public adequate time to review proposals (Maher, Park, & Park, chapter 9). On the other hand, California’s overhaul of TIF redevelopment districts to create EIFDs is a specific attempt to correct for costs exacted on overlapping jurisdictions and transparency deficits in the past, and its success is a work in progress (Horiuchi & Chapman, chapter 8).
The last section of the book stretches to apply theoretical frames to the complicated issue of TIF. Kriz scans the literature on TIF adoption to build a theory of how jurisdictions decide to engage in TIF, considering opportunity costs of adoption and the “information asymmetry” associated with making determinations of the “but for” requirement. He suggests that leaders may signal fiscal distress to commercial developers, which could result in jurisdictions offering higher-than-necessary TIF subsidies, but they may also communicate in ways that allow them to offer more efficient subsidies (Kriz, chapter 12). This framework borrows from economic game theory thinking, but its predictions are instructive and applicable for governments considering how to maximize TIF for the public good. One of the most provocative chapters addresses TIF and education funding, contending that even without generating an increment of increased value, if a TIF causes property values to decline less than they would have without the TIF (the counterfactual situation), school districts could be better off or at least not worse off (Nguyen-Hoang, chapter 13). In states requiring excess increments to be returned to overlapping districts, school districts may experience revenue increases during the life of the TIF. These counterfactual-based models offer prescriptions for better policy decision making, in addition to enhancing the theoretical rigor of the study of TIFs.
There are some minor areas of improvement for the book. It offered little coverage of TIF use in the Southeast, except for light coverage on the application of “Super TIF” in Mississippi (Paull, chapter 11). While not used as frequently as in the Midwest and other regions, in recent decades Southern towns, such as North Augusta, SC, have developed an appetite for the tool. Also, inclusion of more successful examples of rural and small town TIF would aid planners and public finance officers. One additional suggestion is dedicated coverage on the marketing of TIF and securing of buy-in to the public in effected jurisdictions. The case studies addressed this somewhat, but examination of this process using a “best practices” approach could be helpful. Overall, this volume provides useful updates on major advancement in TIF utilization since 2001 and offers decisive guidance on the normative implications of using TIF. Practitioners, academicians, and students of planning and public administration should acquire this valuable resource to evaluate the promise and pitfalls of tax increment financing.
