Image credit: Like the Grand Canyon
A Baltimore, Maryland, city council committee last week considered a bill that would have simply directed a group of agencies to study whether the city’s TIF districts—which stands for tax increment financing, a concept I’ll remind everyone about in a moment—were achieving their goals.
The study would have cost $30,000, a drop in the bucket in terms of Baltimore’s more than $4 billion budget, and would have provided invaluable information to the city’s lawmakers and other policy professionals.
The bill was voted down in the council’s Ways and Means Committee, out of nowhere. As Council Member Ryan Dorsey observed:
Indeed, TIFs are one of the most opaque and problematic corporate subsidy tools out there, precisely because there is often so little information regarding who they’re actually benefitting and how much cities are losing to wealthy developers in the name of boosting the economies of certain neighborhoods. Not just Baltimore, but most other places could do with much better information about their use and abuse.
TIFs date back to the 1950s, and every state except Arizona has them in one form or another. There are thousands upon thousands of TIF districts all across the country. Chances are decent you’ve heard about one in your local area.
Here’s how they work: Once an area is designated as a TIF district, all of the property taxes generated there above a certain baseline get plowed back into the district, as opposed to going into the city’s coffers as general revenue.
Sometimes that “tax increment,” hence the name, is spent on infrastructure, sometimes it’s just turned over to private developers to “compensate” them for building within the district, and sometimes it goes to pay off bonds that cities float in order to make upfront payments that support the district’s development. The latter situation is how Baltimore is financing an area named Port Covington, and I wrote here about why that deal could very much harm the city’s budget if things go even a little bit sideways.
The criticisms of TIF are legion, but here’s the short version: As with Port Covington, they can leave the city on the hook for bond payments if TIF developments don’t generate enough new property tax revenue to cover their costs. Even if the districts are generating sufficient funds, money that could be spent on general city services instead benefits just one tiny area, and whatever private interests are developing it. So when someone or something related to new development in the TIF district needs to use city services, like the fire department, for example, they benefit without having paid their fair share for it.
And since TIF funds are collected from property taxes, they also take money out of local schools, so students and teachers don’t see the benefit of a district’s economic improvements, if they’re occurring.
TIFs also tend to reinforce, rather than reduce, existing inequalities in a city. That’s the case in St. Louis, where a state audit found that already developing and gentrifying neighborhoods are getting the vast bulk of TIF benefits, while actually underdeveloped areas are starved of funds. And that makes sense, since, ultimately, TIFs rely on private developers rather than public institutions, and private developers are going to go where they can make the fastest buck, not combat entrenched urban inequality.
Finally, TIFs are often not transparent, and get treated as a separate pot of money for city leaders—because they functionally are—that turns into a kind of slush fund. Disclosures also vary wildly, so it can be hard to get information on the totality of what a state or city is foregoing in terms of TIF revenue every year.
Ultimately, while some have certainly done what they’re supposed to, most TIFs are just wasteful nonsense that officials would be better off avoiding. But what’s one good way to deal with the problems TIFs bring if you’re an elected official? Pretend they don’t exist!
That’s functionally what Baltimore’s city council did by refusing to fund a simple study into whether or not the city’s TIF districts are delivering for its residents. Baltimore is on pace to lose 9 percent of its total revenue to handouts to real estate investors and developers by 2030, and that’s not counting TIFs or another other ubiquitous development tool, payments-in-lieu-of-taxes, so the total will actually be much more than that. The city’s leaders can’t begin to dig out of that hole if they don’t even know how how deep it is.
As this great piece from the Baltimore Brew shows, Baltimore leaders actually used to be vehemently opposed to TIFs, going so far as to have the city excluded from a state law in the 1980s that authorized their use. Now they can’t even be bothered to ask for some literature about whether what they’re buying with public funds is worth having.
Baltimore isn’t alone in this, of course, and I don’t mean to pick on it, really. It just provided a very good example of the sort of shenanigans that happen all over, all the time, in order to prevent the public, and even elected officials themselves, from knowing what their jurisdiction is up to in the name of economic development. Here, for instance, is a report about Chicago not following its own laws around TIF disclosures.
But on this subject, what we don’t know definitely can hurt us, so we need to do better.
This post initially appeared on the author’s Substack, Boondoggle, on September 28, 2022.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle Newsletter, and the director of state and local policy at the American Economic Liberties Project.