Saturday, March 03, 2007

How About a MicroTIF?

Developers and politicians often scratch each others backs. One method in vogue is the TIF, or Tax Incremental Financing. The jist of it is that project developers get tax breaks thanks to their pals in government, and the pols get some wink wink nod nod campaign contributions. It is a win win for everybody, or so they claim, because the public gets the jobs from the development project and the additional tax revenue that will come later. In reality the taxpayer is simply taking on the risk while the developer gets the profits. It is a scam basically.

It is a scam unless all developers get tax breaks. Yes, even the person that wants to remodel his kitchen. If large developments benefit the public, then small developments will also benefit the public. There will be more work for carpenters, electricians, plumbers, architects, etc... just like with the large developments. With increased development, property values will rise, and after the tax grace period expires, property tax collections will rise.

Tax breaks should not only be available for the wealthy and politically connected. They should be available to all individuals who wish to develop their properties. Racine could use the development. We can call them MicroTIFs.

14 comments:

Conscious Thought said...

I think that is a great idea. Cities bend over way too much in my opinion to these developers, these developers have minimal initial personal investment and insanely huge potential returns.

Wade said...

Denis,
Maybe if you were a former Democratic party lobbyist, and your real estate agent was a fomer Democratic party board member and party lobbyist, and the Mayor and Governor were Democrats, you could have a micro-TIF. You could also recieve $750,000 for any environmental concerns. I am sure you could get some spin off benefits as well, maybe the construction company that you have an interest in could do the work on your development. But what would you name your development?

Denis Navratil said...

Wow, CTW and I agree on something! And Wade, I will call my apartments the Becker-Doyle Lofts, of course.

And Wade, if you are personally close to any alderman in Racine, you may offer the MicroTIF idea to him/her. He/she may feel free to propose it to the city council.

Wade said...

Why Denis...Whom ever do you mean?

Wade said...

Just Kidding

Conscious Thought said...

interesting.

Conscious Thought said...

Denis, just read your good government post. You must be coming down with a virus or something, we've agreed once, and you actually think a government entity is good. That can't be, yea, your definitely not your usual self. Go get checked out...

I'm curious about your project though, interested in elaborating on it?

Denis Navratil said...

CTW, I am converting an empty space, above my retail business, into two apartments.

Anonymous said...

Its an interesting concept that you propose, Denis. However, a TIF is a gamble. Some are successful and some aren't (and a few of those unsuccessful ones are located within the city).

A TIF should not be used for residential development (although the law allows up to 35% of a TIF development certainly could be residential). Renaissance Park is a great example of a successful TIF and it has created jobs which help broaden the tax base.

Caledonia needs to get water out to the Interstate for economic development reasons. That part of their TIF I can support. What disappoints me is that they are supporting a developer to do a residential development that is the first phase of the TIF. Like Caledonia has a shortage of spec homes, lots and real estate in general that they have to support a developer with his residential project.

So, low and behold, another developer is at their doorstep asking for a TIF to demolish the old dorm that once was the Western Publishing Creative Center.

GO FIGURE!

Denis Navratil said...

Thanks for your thoughts anon. I agree that TIF's are a gamble. Any development is a gamble. But TIF's, as they are presently administered, make development less of a gamble for the developer. If TIF's are only available to the politically well connected, then they are basically not fair. Additionally, the power to distribute or withhold TIF's will increase the likelyhood of corruption. Anon you noted that some TIF's have worked and others are failing. What would you consider the characteristics of a good TIF and what constitutes a bad TIF?

Jack said...

One thing you and anonymous may not know about the latest TIF being considered by Caledonia is that it is a developer funded TIF - the least risky for taxpayers - and it also will be extremely short term - less than five years.

That said, I agree with anonymous that these TIFs should not be available for residential development unless in conjunction with the 65% commercial for mixed-used TID as prescribed by law.

Denis, the problem with your concept, even though I'm guessing it is tongue-in-cheek, is that TIF money takes needed revenue from new development out of the general fund, thus leaving the municipality with very little option but to raise taxes if the level of services required substantially increases. Most TIDs last about 20 years - that means an increase in taxes for that period unless there is a balance of new commercial development created without a TIF. Something I think Caledonia will struggle with since there is very little commercial tax base at present.

If everyone had a TIF for their new development, you could see a SUBSTANTIAL shortfall in tax revenue to provide even necessary services for decades leaving a city at the brink of bankruptcy, if not completely broke...but I'm sure you know that!

Denis Navratil said...

Actually Jack, my proposal is not toungue-in-cheek at all. It is possibly wrongly titled. MacroTIF might be better. An entire municipality could be a TIF district. Racine would be a great place to try something like this because they are losing population and there is little development to speak of.

You bring up some interesting points Jack. If TIF's are extended too broadly, bankruptcy becomes a possibility, you suggest. If so, presumably TIF's are harmful to a community, so there should be no TIF's.

A communitywide TIF that I am suggesting is essentially an inducement to improve property by postponing the tax inrease. If a community like Racine is losing population and seeing little development anyway, why not try to stimulate development in this manner? What have we to lose?

Anyone wish to take a stab at this question: If a small number of TIF's is a good thing for a community, why would a communitywide TIF be bad?

jack said...

A community-wide TIF is illegal. By law, only 12% of a municipality's total equalized value of property can be TIFed.

IOW, if Racine's total value for tax levy purposes is $100 million (I have no idea, just an easy number to work with) the city would be restricted to $12 million max in TIF funding.

A TIF could be rather loosely equated to a second mortage on your home...unlikely the lender will allow you to borrow the entire value of your home, depending on your equity. Same with TIFs.

Not only would this TIF be illegal, it is almost certain the other taxing entities would not approve. For a TID to be created, the county, Unified, Gateway also get a vote.

If you want to try and tell Unified you're not going to give them ANY additional revenue from new development for the next 20 years...I'LL BUY TICKETS TO THAT! LOL

Denis Navratil said...

To say that a communitywide TIF is illegal strikes me as being a bit dramatic. It is illegal, yes, just like school vouchers are illegal in Racine. But I am proposing a change in the law, something that could presumably be made legal if adopted by our elected leadership.

You seem to know a lot about TIF's. Does the state detirmine the rules or could Racine decide to do its own thing? My guess is that the state controls this one. I would be interested in talking to you about this. I promise not to reveal your identity. Otherwise, we can continue the dialogue here, if you like.

Regarding other taxing bodies, such as Unified, I could see where they would object, only because of a poor understanding of economics. Presently, RUSD gets immediate tax benefit from the minimal development in Racine. In the long run, they could be better off a Communitywide TIF resulted in a building boom and higher property values. Twenty years is much too long. I think five would be good though.