We need to have more transparency and debate around the future of tax increment financing (TIF) districts in Memphis and Shelby County. This broader discussion is needed because recent data from Illinois confirms that TIFs — which commit long-term tax revenues to development projects — have many unintended consequences and may even hinder the very development we as public officials desire.
As we move into a new budget cycle and prepare to deal with the complexities of school consolidation, we need to refrain from making impulsive decisions that will impact revenues and expenditures for decades.
TIFs leverage our future. As more and more tax revenues are pledged to specific projects, it will become very difficult to generate any additional revenues for the city and county. This reallocation of revenues will directly impact our ability to fund education and government services. A TIF is an alluring tool that in theory promotes economic development. In practice, a TIF more often subsidizes businesses and various social objectives.
The most recent example of a proposed TIF in Memphis drives home the need for a broader conversation on this funding mechanism. The Heritage Trail Community Redevelopment Plan, encompassing most of the core downtown area, includes a TIF designed to capture $45 million in revenue from properties that will generate higher taxes as their existing payment-in-lieu-of-taxes (PILOT) arrangements expire. In fairness, TIF districts should capture future taxes only from growth they directly inspire, and revenues from expiring PILOTs and inflation should be excluded.
We cannot afford uncoordinated development in Memphis and Shelby County. Future projects need to have a return on investment, and we need more transparency and accountability in decision making. A TIF district that proposes to capture PILOT revenue is not creating any incremental value. A TIF district should stand on its own, creating true incremental revenues. If we desire to subsidize public housing, we should make that direct decision and not fund it indirectly by creating a TIF district.
What we need now is a public review of all existing and proposed projects. In the private sector, capital spending is evaluated for a payback — the benefits have to exceed the cost. I do not see evidence of that return-on-investment discipline in our current public spending. We need to do better. We need to prioritize our projects based on value creation, and we need a comprehensive master plan for the city that will establish a strong core.
We also need an annual report detailing all existing TIF districts, their remaining life, and an independent analysis reviewing the actual benefits compared to the original plan. If a TIF district has outlived its use, it should be dissolved. We need to know where the TIF funds are being spent and who is responsible for the decision making. In short, we need more transparency and accountability.
In my opinion, we need to move away from the public credit card and shift toward a "pay as you go" philosophy. TIF districts are a creative way to use future revenues to pay for projects today, and it is relatively easy to position them as creating "free" money. The redevelopment agency that creates the TIF then becomes the exclusive economic development authority making spending decisions. There are no checks and balances with a TIF once it's created. Just because we can create TIF districts to pay for public debt does not mean we should.
TIF districts were created to finance public infrastructure and encourage private economic development. In my opinion, TIFs should be excluded from our future economic tool kit. We need to reduce public debt, not expand it.
As we begin 2013, our elected leaders need to plan for the future. We need to be asking hard questions. What do we want Memphis and Shelby County to look like in 20 years? What types of capital spending are needed to achieve our goals? What are the urgent priorities and what projects will maximize our return on investment?
State and federal dollars are becoming scarcer, and the county and city should be very cautious about adding additional debt. TIF districts add to the public debt and remove revenues from the general fund. In my opinion, TIF districts may have had a place in the economic tool kit, but that day has passed.
Shelby County commissioner Steve Basar is chairman of the commission's economic development committee.