Tuesday, December 11, 2007

Avoiding The Slippery Slope Of Tax Increment Financing

Mike Ritz is fast becoming the Oliver Wendell Holmes of the Shelby County Board of Commissioners.

Like the U.S. Supreme Court justice, Commissioner Ritz these days often delivers a decidedly minority opinion. Sometimes, even his friends appear concerned that he doesn’t pick his battles carefully enough and that he runs the risk of being marginalized as a curmudgeon.

Whether that comes true, like Justice Holmes, he's often the great dissenter, but over time there are some issues where his minority opinion will eventually become policy. The most recent case in point involves his futile attempt to place a moratorium on the passage of Tax Increment Financing (TIF) proposals by the county legislative body.

Who Am I? Where Am I?

In a dramatic demonstration of legislative amnesia, his fellow commissioners decisively rebuffed him on an issue that seemed on its face to be imminently logical (not to mention good business, especially considering that there are more than 10 TIF proposals are now being prepared. His position: To defer any TIF approvals until there are clear guidelines for evaluating requests for the public incentive for development.

If the commissioners needed a wake-up call, it would seem that the lessons of the PILOT (Payment-in-lieu-of-taxes) program would be a valuable cautionary tale.

After all, that program started with the best of intentions, but before the Board of Commissioners (following City Council leadership) put the brakes on it, more than $60million a year in taxes were being waived.

No Big Picture

Toward the end, the PILOT’s were essentially handed out essentially to all comers who filled out the paperwork for the runaway program. Now, those tax freezes for new business and expansions have standards and priorities for the first time, doing more to align the public incentives with public priorities and also to "size" the public incentive to the promised economic benefit.

But in the beginning, just as it is now with the TIF’s, decisions on the incentives will be like shooting in the dark in the absence of the big picture. If the PILOT program teaches the commissioners anything, it is the need to step back, set clear expectations and priorities on the front end for local government and to target incentives to accomplish those priorities.

Where’s URS Corporation and NexGen Advisors when we really need them?

Bring 'Em Back

Remember them. They were the consultants who produced the 97-page report about the PILOT program that led to its much-needed overhaul. They called for the “but for” rule that has now been enacted. Here’s what it means: The private investment isn’t expected to happen “but for” the public incentive.

This puts the emphasis back where it belongs – back on making sure that the best rationale is used for deciding where the public’s scare tax dollars are invested. Without a “but for” test, the consultants said: “This, for all practical purposes, means that the city/county or other approving bodies may very well have been giving away tax revenue unnecessarily as opposed to gaining taxes…”

That, in a sentence, is why Commissioner Ritz’s admonitions about the TIF program will in time be proven true.