The Obama administration will soon present to the nation its ideas about how to end the current recession.
Reports in the press indicate that these ideas might consist of a so-called “grand bargain" of cuts in federal programs, “revenue enhancements” involving the closing of tax loopholes, an infrastructure bank, a reduction in payroll taxes and increased patent protection for technological innovations.
Details will emerge in the weeks ahead, but on the off chance that further ideas will be welcome in shaping a unified approach to the problem, we submit the following for consideration.
These ideas come from more than a half-century of consulting work in the field of city and regional planning and finance.
The core of our advice is to take full advantage of the basic idea of tax-increment financing. It can be used as a means of leveraging the inadequate sums of money that Congress is expected to make available for infrastructure and other improvements.
The broader use of the device should enable the latent financial power of local government to be joined with that of the federal government to create a far more effective jobs program.
TIF is an idea that is well-known to state and local governments, but its full potential has yet to be realized.
In its typical manifestation, tax-increment districts may be set up in areas that are blighted or suited for economic development.
The way the program works is that property values in the tax-increment district are certified for the year the district is formed. All the property taxes collected from the district in that year — county, local school, vocational school and municipal taxes — are collected and distributed in future years as usual, but the taxes collected on any increase in value flow to the TIF district to pay the principal and interest on long-term borrowing.
The long-term borrowing is required to finance the improvements needed to produce the increment. The basic idea is that the debt incurred to create the incremental value should be paid off before the various local taxing jurisdictions benefit.
Thus, the emphasis of TIF is not only on projects of local significance (e.g., local arterial and collector streets, bike paths, parking facilities, sanitary and storm sewers, water and sewage treatment plants, sidewalks, street and traffic signs and lights, etc.) but also on the direct and specific promotion of private investments such as residential developments, industrial parks and shopping centers.
The national infrastructure bank, on the one hand, appears to emphasize large-scale projects of regional and national significance such as high-speed trains, electrical grid improvements and development of alternative sources of energy.
Boundaries for beneficiaries are very general, irrelevant or nonexistent. TIF, on the other hand, ties capital improvements to a specific district that is the primary beneficiary of the improvement.
TIF is based on the growth within the district, the growth of new development or the property tax increment. What we're proposing is the extension of this idea from its original form dealing with the allocation of property taxes to TIF districts that use property taxes, sales taxes and income taxes.
TIF districts have been criticized on the grounds that the increase of pupils and other costs that may be caused by the growth in the district will be denied the taxes needed to pay the increased cost of rising school enrollments and other governmental costs.
The answer to this is that all jurisdictions will get what they levy so there should be no concern about shortfalls in local budgets. The levies should be distributed to the areas outside the district until the debt of the district is paid off and the district is dissolved.
State legislation enabling TIF varies around the nation, but most states probably confine its use to property taxes.
A broader use to include sales and income taxes should bring to bear both short- and long-term sources of revenue commensurate with the size of the problem.
Sid Sullivan of Columbia has been a candidate for public office and is now retired. Max Anderson of Columbia is retired; he was a planning consultant in Madison, Wis., for local governments in the Midwest.