The Estes Parkian is proud to reprint work we did to educate the Estes Park voters way back in 2006. As a public service we are reprinting these articles.
One approach to financing redevelopment is the creation of a tax increment financing (TIF) district. TIF is a financing technique wherein bonds are issued to fund redevelopment and the bondholders are repaid through the new (or incremental) tax revenues generated by the new construction/development. Only urban renewal authorities and downtown development authorities have the ability to create a TIF district.
For example, suppose the city of Anytown, Colorado creates a Tax – Increment – Financing (TIF) district to facilitate redevelopment of several adjacent properties, including aging and vacant industrial buildings and a former rail yard. The TIF district would be fixed size and the redevelopment will add new industrial and retail buildings to take advantage of short haul rail access, nearby highways, and downtown access, creating and economy where none existed before.
Once the properties within the TIF district are redeveloped, property values will increase, which result in increased tax revenues. These property tax revenues from the TIF district are split into two revenue streams:
The first stream (base) is equal to the “As – Is” property tax revenues without redevelopment and goes to the same city, county, school district, and other taxing entities (the base is allowed to increase with the market over time).
The second stream (increment) is the net increase in property taxes resulting solely from new development. The increment is used to fund the redevelopment
City officials claim the development is paying for itself. The reality, however, is that the tax increment would normally go to schools to educate the children living in the development; to water and sewer, fire and police, and other public costs of the development. Since the TIF siphons these funds away, taxpayers in the rest of the areas must pay for the schools, water, sewer, fire, police and other urban – services needed to support the new development. If tax rates aren’t raised, then everyone pays by getting lower service levels. Often cities will suffer some financial crisis, leading to demands that taxes be increased to pay for some needed service such as a fire district, schools, libraries, when no such crisis would have existed without the tax-increment financing.
The easy availability of TIF money creates a moral hazard for developers. With development getting tax subsidies, what developer would be willing to invest in a project without subsidies? Meanwhile retailers and other business in existing business must continue to pay taxes to subsidize their competition. In Estes Park retailers move to the new subsidized developments, thus hastening the blighting of the existing malls and buildings in the historic down town area hastening the blighting of this historic area and creating new opportunities for TIF- financed redevelopment the only one to profit being the developers.
TIF also creates a moral hazard for city officials and planners. If redevelopment requires huge subsidies, then it may in fact be more expensive than so called sprawl. Since the creation of EPURA the downtown business district has sprawled east and now west and yet the original historic downtown business district is empting out contributing to an accelerated blight. More or less a never ending cycle.