“It becomes a gift for one, as opposed to a gift for all.” – the esteemed Jon Leleu, Ladies and Gentlemen

To TIF, or not to TIF, that is the question. For many, many years, almost every state in the US, save Arizona, has had TIF enabling laws on its books. While they all say different things, the goal is the same – to invest in infrastructure and other improvements in blighted areas, to increase and promote neighborhood stability, development, and redevelopment.

So, what is TIF and what does it do? Tax increment financing, or TIF, originated in California in 1952. At the time, it didn’t really take off and over the course of almost 20 years, only 6 other states enacted TIF legislation – Minnesota, Nevada, Ohio, Oregon Washington, and Wyoming. Due to TIF initially being a way of providing matching dollars for federal “urban renewal programs,” and those funds drying up in the 1970’s, cities began looking at TIF funding without federal dollars as an alternative. By the time we were through the 1990’s, the federal role was all but eliminated. In the modern era, TIF dollars typically are pulled from the real property tax base. In certain states, funds are generated from sales tax, personal property, PILOT, or some other revenue stream. Sales tax is a tough sell however, as it is difficult to predict, inferring greater risk.

As with any type of redevelopment incentive, the jury is still out in the court of public opinion. Generally, the decision all comes down to 2 policy arguments. Those who are in favor of economic development incentives will tell you that but for the incentive, development would not occur in certain areas. On the opposite side, you have those that contend it’s a public subsidy for development, where development might have already occurred due to favorable pricing created by a depressed market.  Who’s right?  Both.  We can all point to projects which would not exist without the TIF, as well as projects which would likely have come out of the ground regardless of the public spiff.

Let’s drill down the support and positive side of TIF. To do this, you need look no further than the City of Las Vegas’ Economic and Urban Development Department. Through the years, they have used TIF incentives in their Redevelopment Areas, attracting multiple new businesses to otherwise under-developed and blighted areas. Their process is one of the most transparent and smooth, with a high level of oversight and due diligence mixed in. Projects like the World Market Center Las Vegas have benefited from TIF incentives and have been able to expand operations and announce new development, in part due to TIF incentives over the years. This program can be pointed to as a shining example of the way TIF incentives can benefit a community and city, when done properly.

On the flip side, rampant misuse of TIF incentives in other municipalities have shed light on the issue of what happens when there is little to no transparency and understanding of where the funds are coming from and going to, by the public. In Chicago for instance, taxpayers are incredibly wary of TIF incentives as they are used so frequently, without restriction to blighted areas, and very little public discussion on what they will be used for, until it’s printed in the paper. Many feel like it’s a valuable tool, but only if used with a higher sense of scrutiny, because public dollars are being re-rerouted away from general purpose funds. Projects like revamping skyscrapers, large developer incentives, the renovation of Navy Pier, to the tune of $55 million, and more recently the renovation of a theater in the Uptown neighborhood, have made the public question whether or not TIF incentives are being abused, if their taxes will increase, and whether the subsidies are necessary.

When considering whether a project should receive TIF incentives, municipalities should ensure a very transparent, public process. The public must be able to understand the need for the project and the reason behind the incentive. A mistrust amongst the tax base could lead to trouble for municipalities that rely heavily on this incentive for growth, especially if there’s a chance that property taxes, or other taxes will be raised as a result.

Back in Las Vegas however, as the World Market Center Las Vegas embarks on development and soon-to-be construction of the only downtown convention center, it is clear that TIF incentives bring a lot to the table, and to the benefit of the entire valley.

Jonathan Leleu, Director
Kerrie Kramer, Government Affairs Analyst
Fennemore Craig
jleleu@fclaw.com | kkramer@fclaw.com  | T: 702.692.8037