----- Original Message -----
Sent: Wednesday, September 17, 2008 4:08 PM
Subject: Re: [howard-citizen] TIFs & Downtown
This is a good question that gets at the issue of
equity--who are the potential beneficiaries and losers once a TIF District is
created. I have some exposure to this issue from having worked in the
Maryland Dept. of Planning over a recent 5 year period. Although the
dept's major responsibility was in the area of encouraging local
jurisdictions to limit sprawl in their development plans (i.e., discourage large
lot zoning in rural areas), the emphasis shifted under the Ehrlich
Administration from preserving open spaces to actively encouraging infill
development in older urbanized areas. As the staff economist, I was
directed to research the effectiveness of some economic development tools used
by counties in the state, including TIF.
Most jurisdictions across the nation have mandated
that areas eligible for designation as TIF Districts must be characterized by
urban blight, where it is not likely that the private sector would choose to
invest without some kind of government subsidy. The reason is that the
tool is much more likely to be effective in increasing the general tax base
of the jurisdiction over the long haul under those conditions. If the
development is likely to happen anyway (without the TIF), opponents can argue
that the entire county is losing out on potential tax revenues from new
development since the TIF restricts the use of these revenues to paying off
the bond holders whose money was used to finance the supporting public
infrastructure. School and other taxing districts (e.g., library, park)
with jurisdiction in the TIF Area are more likely to oppose the use of TIFs in
these circumstances because the effect would be to freeze their revenues for
perhaps 20 years until the bondholders are paid off. This is less of a
problem, though, to the extent that the TIF area comprises a smaller proportion
of the overall jurisdiction and tax base.
The equity issue would arise if the general
public is forced to subsize any increase in the cost of providing public
services within a TIF District without having access to any additional revenues
resulting from increased property values within the district for several
years. This situation would occur if a TIF District generates expensive
added public operating costs that exceed the base year's revenue available
for general purpose spending. This problem can be avoided,
however, if the TIF is used to promote commercial, retail, or upscale condo
apartment residential development that won't impose heavy demands for public
services. The use of TIFs may therefore not be the best way to win
the support of the general population in the county for promoting the goal of
In addition, the creation of a Downtown
Columbia TIF District may enable the county to support a denser scale
of development than would otherwise be feasible, given current financial
constraints. Any resulting secondary or ripple impacts on the
physical infrastructure located outside of the TIF that necessitated
offsite improvements would not be financed by the direct beneficiaries
of the development but rather the general taxpayer in the county. The
general taxpayer would also have to pay higher property taxes
than if the TIF was not used and the development of downtown
Columbia occurred anyway (because the total tax base would increase by a
smaller amount at least over the initial 20 years or so with the TIF), even
assuming the same scale of development under both scenarios.
Perhaps you have gained some appreciation of why
the TIF issue can be highly controversial. For this reason, Baltimore
City avoided the use of this tool until quite recently because of concerns
that the designated districts would "steal" development away from needier
and more deserving sections of the city. The reason is that the
chances of a TIF becoming self-financing are directly related to the general
financial prospects of an area, which limits their potential where redevelopment
may be most needed. If not administered with a fair hand, TIFs can
increase geographic factionalism within a political jurisdiction. When
their are strict limits on the scope of permitted development (APFO and housing
caps) in the overall area as is the case with Howard County, the
designation of an area (such as DT Columbia) which is not generally perceived as
being a "basket case" as a TIF Zone could be highly
----- Original Message -----
Sent: Tuesday, September 16, 2008 11:43
Subject: Re: [howard-citizen] TIFs &
A very good question has been asked - see red text
below. As I understand it, under TIFs cost of intrastructure would be
shifted from the developer to the county which would fund it out of future
increased revenues. How does this compare with current developers'
responsibilities under APFO, etc? Would this really mainly be promoting
private development/density at public cost? Perhaps it has some use for
public buildings, parks though.
This is a quick summary of my personal understanding
(possibly imperfect) of a presentation today by members of the County Office
of Finance and Office of Law. They explained Tax Incremental Financing
(TIFs). This is a private/public partnership to fund specific projects
to enable them to be done if they are consistent with the General Plan.
There are no TIFs yet in Howard County, but GGP's revitalization of
Downtown is an obvious candidate; the speakers declined to speculate on
Here is how a TIF works. The county issues bonds to
fund needed infrastructure or other costs to enable a private development
project which otherwise could not go forward for lack of sufficient capital.
In Baltimore City TIFs have been used for townhome and condo housing
to promote downtown gentrification and revitalization. Another example
is Arundel Mills Mall, which does not fall into those categories but which
is no doubt perceived as bringing in business and increased revenues.
Construction of public buildings or playgrounds are other possible
uses of TIFs.
The developer/owner builds the structures with
its own funds.
Bridget: This I dont
understand. If developer builds with own funds, why do we need bonds? Or is
it only the infrastructure that he would normally be required to
provide (as Rouse has for 40 years) is paid for by the bonds? Does the state
delegation need to pass a law to enable this to happen? Please answer
The increased revenue (property tax, taxes on
commerce) is used by the county to pay off the bonds for the infrastructure.
During an initial period of 3-7 years or so, the developer may pay a
special tax if increased revenues do not yet cover cost of servicing
interest on the bonds.
The current downturn in the stock market
and general economy are likely to delay TIFs because investors who buy
bonds, are currently skeptical. The bonds are sold on the open market
but are not backed by the full faith and credit of the county and could
affect the rating of other bonds.
In establishing a TIF under
state law, the county has to very carefully determine if the project will
result in enough increased revenues to pay off the principal of the
bonds; those revenues are dedicated to paying off the bonds.
If not, taxes might have to be raised for the general public. (I
wonder if the county will consider downstream costs such as highway
improvements.) TIFs run with the land; if the property is sold, the
new owner takes on responsibility for any TIF special tax; this includes
residents of those homes. In case of bankruptcy, the county has a lien
and could sell the land, as the first in line. However, the county
would first pursue other alternatives such as restructuring the debt or
finding another buyer.
For big projects, the TIFs would be in
tranches (new TIF for each phase).
foregoing is my personal layperson's understanding; it should be verified
before relying on it. It would be appreciated if others could provide
similar quick summaries when they attend interesting
Bridget Mugane, President