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HOUSE BILL 1434: REFORMING TAX INCREMENT FINANCING DISTRICTS

February 12, 2016AdminNews and Events

HOUSE BILL 1434:

REFORMING TAX INCREMENT

FINANCING DISTRICTS

 By David Stokes

 Testimony before the Missouri House of Representatives Ways and Means Committee

To the Honorable Members of this Committee:

 Ladies and gentlemen, thank you for the opportunity to testify today. My name is David Stokes. I am the incoming executive director of the Great Rivers Habitat Alliance, a nonprofit conservation organization dedicated to preserving Missouri floodplains and wetlands for recreation, agriculture, and hunting.  The ideas presented here are my own. This testimony is intended to state my opinion about the proposal in this bill regarding limitations on the allowed expenditures within Tax Increment Financing (TIF) districts based on research that I have conducted and reviewed over the past decade.

Missouri needs TIF reform. We need TIF reform for economic and environmental reasons. Our state just witnessed the severe floods of late December, and I believe that subsidized development in the floodplains over the past three decades has contributed to increasing the severity, frequency, and danger of flooding.

House Bill 1434 is a fair and beneficial compromise on the subject of TIF. The combination of a very large number of local governments and the inclusion of sales taxation in Missouri TIF law has been a dangerous mixture. By one measure, Missouri local governments use TIF more than all but two other states.[1]  Missouri’s many cities have readily engaged TIF in order to increase the sales taxes they collect. This leaves other taxing districts, such as school districts — which depend more on property taxation — holding the empty bag. Originally intended as a remedy for “blight,” TIF has been aggressively used throughout Missouri’s wealthier areas. HB 1434 addresses this concern, in part, by limiting the use of TIF in projects where a city goes forward without county TIF commission approval. The Bill will limit the use of TIF in such projects by looking at cost factors that directly address the condition of the property: demolition, clearing, and grading to determine the extent to which TIF may be authorized.

In general, TIF has not been beneficial to Missouri. An East-West Gateway Council of Governments study in Saint Louis concluded that TIFs and Transportation Development Districts (TDDs) have created jobs at the rate of one retail job for every $370,000 in taxpayer subsidies.[2] That is not a road to successful, long-term economic growth.

That is not the only study that has found that TIF fails at job creation and economic development. A study of the use of TIF in Iowa concluded that, “On net (…) there is no evidence of economy-wide benefits (trade, all non-farm jobs) fiscal benefits, or population gains.”[3]  Another study from Illinois found that economic growth was stronger in cities that did NOT use TIF than in cities that did use TIF.[4]

House Bill 1434 limits the expenditure of TIF funds to the amount required to return the property to “greenfield” status for certain projects where local governments are in disagreement about the value of subsidies. . The bill would continue to allow cities to override a county commission’s rejection of a TIF upon a supermajority vote of the city council. However, in those cases, the TIF funds would be limited to the demolition of buildings and the re-grading of land. These are very reasonable changes. This bill would continue to allow TIF to be implemented in blighted redevelopment areas where the infrastructure is substantially degraded. It would not eliminate any one project. It would not favor union companies or non-union companies. However, it would place reasonable limits on the expansion of TIF in the greater Saint Louis area, and that would benefit Missouri.

More reforms are needed, including eliminating TIF usage and other subsidies in the floodplain. Over the past decade, the Missouri General Assembly has taken several key steps to preserve the state’s instrumental flood plains from subsidized development. In 2003, Saint Charles County was given a special exemption that disallowed the use of TIF in the flood plain within that county.[5] In 2007, many other parts of Missouri were added to the preservation list as part of the Hunting Heritage Protection Areas Act, which limited the use of TIF within the 100-year flood plain in Missouri, with some exclusions.[6]

But TIF alone is not the issue in this instance. There is, more generally, a concern with subsidizing development in our flood plains. As a state famously defined by its rivers, Missouri should preserve its water resources and heritage. One of the best ways to do that is to ensure that we are not subsidizing developments within the floodplain. Those subsidies lead to an absurd circle where taxpayers subsidize development within areas where there is a predictable chance the development will have to be subsidized again after it is be damaged by a future flood.

Approximately 9 percent of Missouri is within a flood plain.[7] That is a significant total, and Missouri has more flood plains than other states. Nobody knows what the proper amount of development within the flood plains is. After seeing the recent, major flooding in Missouri, I think many would argue it should be zero. Whatever it is, by definition, when you subsidize something you get more of it than normal market forces would produce. While there are certain examples, such as public safety, where subsidies are reasonably desired in order to increase the level or amount, I do not believe flood plain development is one of those items.

Missouri should preserve our river areas and flood plains for recreation, hunting, environmental benefits, fish, wildlife, and plant preservation, and other important reasons. One effective way to help do that is to limit subsidies within those areas.

David Stokes is the incoming executive director of Great Rivers Habitat Alliance.

*NOTES:

[1] That measure is TIF bond sales by state, 2005 to 2010. Reported by O’Toole, Randal. “Crony Capitalism and Social Engineering: The Case Against TIF.” Cato Institute Policy Study No. 676, May 2011, page 12.

[2] East-West Gateway Council of Governments. “An Assessment of the Effectiveness and Fiscal Impact of the Use of Local Development Incentives in the St. Louis Region.” Final Report, January 2011, page 18.

[3] Swenson, David, and Liesl Easthington. “Do Tax Increment Finance Districts in Iowa Spur Regional Economic and Demographic Growth?” Department of Economics, Iowa State University, April 2002, page 11.

[4] Dye, Richard, and David Merriman. “The Effects of Tax Increment Financing on Economic Development.” Journal of Urban Economics, Volume 47, Issue 2, March 2000: pages 306-328.

[5] RSMo 99.847.

[6] RSMo 252.243 The primary exclusion was that TIF could still be used within the flood plain in any urban area, defined as having more than 50,000 people and categorized by the US Census as an “urbanized” area. There were additional exclusions as well.

[7] Shipley, Sarah “A Flood Of Development: Unprecedented Growth In The Flood Plain Brings Riches And Risks” St. Louis Post-Dispatch, July 28, 2003. Missouri has 6,400 square miles of flood plain out of a total of 67,900 square miles.

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