Hey, I have to hit the pause button here and talk about a topic that has bothered me for years: tax increment finance district or “TIF” funds and property taxes. I am inspired to talk about it by an honest and sincere comment from a guy who wrote yesterday on an item of mine that mentioned TIFs.
And, I know. I have the same reaction when I see terms like TIF, PID and SUP. I tend to think, “If I could make $100,000 by understanding all that stuff — no, if I could make $1,000 by understanding it – I would. But right now I need to water my wife’s plants before she gets back from her trip.”
So let me offer a reason why it’s worth your while and my while to grasp the TIF thing at least in broad strokes. Your tires and my axles. I mean, look around. We’ve got construction going on in this city everywhere you turn. That ought to be making City Hall rich from new tax money, but they can’t fix the damn potholes.
My wife is in Mexico right now. I can guarantee you she’s riding on better streets than she will on the way back to East Dallas from Love Field. How in the world can that be the case?
Just put yourself in a mental helicopter and go up to about 600 feet on this. You see all the cranes below you, which you could think of kind of like the property tax equivalent of oil wells. They’re pumping. That’s money coming out of the ground.
But you see all the Third World streets, which you can take as a marker for other worse decaying infrastructure under the ground. By the time the city loses control of the stuff you can see, the stuff you can’t see is long gone.
That means there’s a money leak. The money coming out of the new construction isn’t getting into maintaining the infrastructure the way it’s supposed to. In fact, it’s worse than that.
Our City Council just approved a budget in which they will spend $84 million on streets next year in the full knowledge that the streets will continue to erode and get even worse at that spending level. The council has promised to borrow another $27 million in the near future, if you, the voter, tell them they can, which they will spend, they promise, on street repairs. But the council also knows that, at that spending level, nothing will improve.
Borrowing that money and spending it on streets will keep the streets in their current Third World condition but prevent them, supposedly, from deteriorating to whatever is the next-level world. By the way, I looked up the term, “Fourth World,” just for grins, and it doesn’t really exist, except as an extension of Third World.
Oh, wait, are you still in the chopper? OK, look down again on those construction cranes. Money coming in, right? Tons of it. Now think about the fact we’re having a discussion of whether our streets should be Third World or Fourth World. My own technical accounting term that I use for this kind type of fiduciary anomaly is wackadoodle.
Sorry, it’s goofy, I know, but it works for me. Something here is just … wackadoodle.
Now, what if I told you I knew of a $1.15 billion money leak in the system? I found one. Would you believe me? Actually, you can see it for yourself in the city’s annual TIF district report. In that report, you will find more than a billion dollars in property tax revenue that would have gone straight into the city’s general fund if TIFs had never been created in this city.
And here is where my commenter’s objection comes to bear. I will explain what he said. He thinks I’m wrong. City Hall says I’m wrong. You can bet the developers in the TIF districts think I’m wrong. In fact when I add up the people who think I’m wrong about this, I look at them all and I can’t help thinking, “Wow, what a great-looking bunch of people.”
But I think I’m right. And you shall be the judge.
Here is why they all think I’m wrong. The whole philosophy of TIFs is based on the but-for doctrine: but for the existence of these TIFs, the thinking goes, none of this new development would have gotten done and none of the new tax revenue would have existed anyway.
A TIF works like this. If you are a developer in a TIF, you tell the city you are planning to put up a $25 million project. You paid $3 million for the property. At the current Dallas property tax rate – we’ll assume you’re paying full freight on your taxes and your property's appraised value equals what you paid for it – you’re already paying a little over 23 grand to the city in annual property taxes on that property before you develop it.
At its full market value of $25 million when you’re done, your tax bill will go up to about $196,000 a year. So your project will increase the taxes on that land by $172,150 a year.
That will take a while to happen. Your property isn’t worth $25 million until you get it all built out, going and blowing, which will take a few years, during which time you’ll be paying something closer to the 23 grand a year amount. But you’ll get there.
It’s the same for you, by the way, even if you’re not a big developer. If you draw the proper permits and convert your garage into a retirement home for retired newspaper columnists, you’re going to have to pay more in taxes (to say nothing of having to install a new window unit).
And why do we have to pay more taxes when we develop our property? Just because the city’s greedy? All right, I think the city’s greedy. But let’s grow up a little, too.
Every single thing we do to develop the city adds people and cars and toilets and fires, storm-water runoff, burglaries and that most dreadful of all drains on the resources, willpower, peace of mind and retirement plans of the citizenry – children.
We pay more in taxes when we develop property because development costs the city more in services. That’s the grown-up part here. There is nothing free about community. Maintaining a community costs dollars and cents. You still up in that chopper? Yeah, look down at those streets again. That’s money that has to be spent some day, is it not? The main place that money is supposed to come from is growth in the tax base.
But the developers in a TIF district don’t have to pay most of the new or incremental taxes on their projects for 20 years or some other sunset period, depending on the TIF. That break, they will tell you, is the incentive that causes them to do the development in the first place. Without that huge tax break, they claim, they wouldn't develop squat.
By the way, I can hear them squealing already about what a damn lie I just told you a second ago. They’re going to tell you they do, too, pay those taxes, all of them.
Yes, but the TIF district gives a lot of that increment money – most of it in fact – right back to them. Paying taxes and then getting the money back is the same thing as not paying taxes. Anybody who tells you different is just a fool shell-game con artist.
An amazing number of people in this city, however — my commenter yesterday, for example — will tell you that TIF money does not come out of the city’s general fund because it never went into the general fund. To me, that’s like telling your landlord you certainly did pay your rent last month; you paid it to your bookie.
But back to but-for. Remember? That’s where this all started. The argument for TIF districts is that none of this new development would happen but for the existence of the TIFs. So is there any test of whether that’s true?
Maybe. First, we need to weigh the proposition that TIF district development goes into bad areas where there would be no development otherwise. Many Dallas TIFs are cheek-by-jowl with terrific areas, even hot areas where tons of development is happening without these incentives. At least in those cases, the bad-area version of but-for seems absurd on its face.
Then you have gentrification. In areas like West Dallas, developers are sharp-elbowing each other out of the way to get into a lot of worn-out industrial land outside existing TIFs. At the very least, we can say this: the idea that TIFs cause any unique new development that wouldn’t have happened without them is completely untested and often very counter-intuitive.
Now let’s look back at the city’s own annual report on TIFs. It says that taxable value in the city’s 18 active TIF districts grew by 9.9 percent last year. Hey, that doesn’t sound bad, does it? Almost a 10 percent annual boost in what we might call asset value.
But, wait. The same report says taxable value citywide grew by 8.69 percent. People were developing all over Dallas last year in areas that were not in TIF districts, without the big give-back on taxes. They were developing and paying their taxes.
The big boost in development, then, for giving these guys all their increment money back in the TIFs, is really only the difference between 8.69 percent growth citywide and 9.9 percent growth in the TIFs. So the difference is just how much more value we think we got added to the tax base by giving away all of that municipal income.
Lastly, I have another kind of but-for thing for you to consider. You need to bring the chopper back down and just kind of sit there quietly for a couple of minutes. OK, now close your eyes, please. I want you to mentally calculate the circumference of a circle with a diameter of 2.6.
Hah! Just kidding! Who could do that? No, here’s what I really want you to do. Imagine that you are Mr. CEO-Somebody-from-Somewhere, riding into Dallas in your chauffeured town car, thinking about moving one of your kumquat-cola bottling plants here from southern Pakistan.
As you ride into the city you think about how you’re afraid to visit the Pakistan plants any more. Then you think this: “Wow, man, look these brand-new streets in Dallas. This whole city looks like a rich people’s town! Here comes a brand-new cop car. Nice!
“My driver just told me he’s changing routes because the city’s digital traffic control system is telling his GPS receiver that there’s a traffic jam dead ahead.
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“Now this is a town that’s taking care of business. I want to be here, and I don’t mind paying some taxes to do it.”
So what about that but-for? What about the but-for of doing a great job keeping up the city? But for having such shabby infrastructure, maybe we would attract way more new development than any TIF district ever could attract, but our new development would pay its way in taxes and then some.
The TIF thing is a ton of money that goes straight into people’s pockets, and from there on out all we get is a bunch of hysterical, eye-bugging, spitting, self-serving blah-blah-blah from the people who get the money, all of it totally untested in terms of cost and benefit. I’m not saying TIFs are the whole leak. But I think it’s a pretty good window on the kind of leaks we’re dealing with.
Our situation now is utterly and completely wackadoodle. There have to be big, big leaks. This one is a $1.15 billion leak. That’s a start.