Category Archives: Public Policy and Governance

TIFS as Crony Capitalism?

I’m on the mailing list of the libertarian Cato Institute (and the Republican and Democratic parties, among other strange bedfellows). I am fond of Cato–not because I agree with them on very many issues, but because–unlike the Republican Party–they are intellectually consistent. So I was very interested to receive a (snail mail–no link) report titled “Crony Capitalism and Social Engineering: the Case against Tax-Increment Financing.”

For those of you unfamiliar with TIFs, the concept is fairly simple. In order to induce development of projects that would not otherwise be economically viable (sometimes called the “but for” test, as in “but for the economic assistance, the project wouldn’t be built), the municipality caps the property taxes at the rate being paid prior to the new development, and plows the added taxes into the development for a period of time, in order to bridge the gap.

The Executive Summary makes several points:

1) By diverting the “extra” tax dollars generated to the project, those dollars are lost to the schools, libraries, fire departments and other urban services. In a sense, those services are also subsidizing the development. (To which proponents of TIF financing would respond, yes, but if the project would not otherwise get built, and if the abatement ends after a reasonable period of time–after which those urban services do receive the extra income–everyone benefits.)

2) Studies have shown that cities are not really applying the “but for” test. Many of these projects would have been built without the extra help. (Whoops!)

3) The new developments impose added costs on schools, fire departments, etc., so other taxpayers are either subsidizing the added burden imposed by the development until such time as the abatement ends, or getting reduced services during that time.

4) No matter how well-intended these programs, officials will often give in to the temptation to use TIFs as a vehicle for crony capitalism, providing subsidies for developers who in turn provide campaign funds to those same officials.

The Cato report has other problems with TIF financing, primarily because it is often used to support denser in-city developments over suburban low-density ones. In my opinion, that’s an argument FOR rather than an argument AGAINST–as the techies might say, that’s a feature, not a bug. But it is hard to argue with their other criticisms.

This is what makes policymaking so difficult. If  TIFs are used as originally intended–and used selectively–they can be a very useful tool.  When I was in city hall, in the early days of their use, I was a proponent. But at that time, TIFs were being used by urban governments to level the playing field–to compete with the lower costs of suburban development. Over the years, the tool has been adopted by smaller bedroom communities like Carmel and Greenwood–and developers have learned to play “let’s make a deal,” in essence turning TIFs into bargaining chips. One result has been that the “but for” test is history. And when the “but for” test was gone, so was the original justification for the program.

Unfortunately, selective use of TIFs has gone the way of the “but for” test. Here in Indianapolis, if news stories are to be believed, the Ballard Administration is proposing to turn the whole urban core into TIFs. (Okay, maybe I’m exaggerating a bit. But not much.)

It’s just further evidence that the Cato report is correct when it notes that TIFs have “become a way for city governments to capture taxes that would otherwise go to rival tax entities such as school or library districts.”

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Greg Ballard’s Curious Approach to Fiscal Discipline

There has been a good deal of discussion on local blogs about our Mayor’s ham-handed approach to the just-concluded Gay Pride celebration.

The Indianapolis fire department has participated in the Parade previously, and this year, IMPD announced that it, too, would participate–and show that our local police serve all parts of the Indianapolis community. The day before the Parade, Ballard unexpectedly reversed course, and told IFD it could not use a city fire truck, and IMPD that it could not officially march at all.  (Several members of the police department did march, in uniform, but in their “individual” capacity, and the department’s Hummer was nowhere in evidence.)

Yesterday, Mayor Ballard was interviewed by Amos Brown, who asked an entirely appropriate–and foreseeable–question: why had the Mayor prevented the police from driving an official vehicle in the parade? The obviously bogus response was that the decision was made in order to save tax dollars. It had nothing to do with the fact that this was a gay event, or that Micah Clark and the Indiana Family Institute pitched a fit about the symbolism of treating the gay community like all other taxpaying citizens. Nope–just being fiscally responsible.

I asked a friend of mine who is a police officer whether IMPD officially participated in other community celebrations, and he rattled off a list: St. Patrick’s Day, Veterans Day, Black Expo and several others. I guess those constituencies must be more deserving of the tax expenditures involved.

And that brings up an interesting question: just how many dollars are we talking about?

What is the cost of vehicle depreciation and gasoline during a trip down Massachusetts Avenue? Ten dollars? Five?

Yesterday, the media reported that the Ballard administration stands to lose a three-million-dollar Federal grant, because it hasn’t complied with the grant’s staffing requirements. This makes Ballard the poster child for “Penny wise, pound foolish.”

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Appropriate Snark

I see where the Superintendent of Schools of a small district in Michigan reacted to draconian cuts to education in that state with a nice piece of snark: He wrote a letter to the editor proposing to turn his schools into prisons, since spending on prisons was protected from the deep cuts imposed on other state functions.

He had a point.

The Governor of Michigan–one of the current crop of crazed right-wing “true believers”–insists that the state needs to cut spending, which it undoubtedly does. But where does he propose to make those cuts?  He proposes to reduce K-12 spending by nearly a billion dollars (yes, that’s not a typo–a billion dollars), to significantly reduce spending for universities and community colleges, and to make further cuts in Michigan’s already meager welfare payments. Along with his obedient legislature, he also raised taxes on pensions for seniors.

At the same time, he got the legislature to lower business taxes by $1.8 billion. This isn’t even “class war”–it’s insanity.

I understand there is a recall movement underway. For the sake of the people living in Michigan, I hope it succeeds.

Why Evidence Matters

Steve Benen has an important post up today at Political Animal, discussing the GOP’s recently-unveiled and badly misnamed “Jobs bill.”

As Benen points out, “the jobs agenda, such as it is, is practically a conservative cliche: the GOP wants massive tax cuts for the wealthy, deregulation, more coastal oil drilling, and huge cuts to public investment. Republicans are confident this will work wonders, just as they were equally confident about the identical agenda in the last decade, and the decade before that, and the decade before that.

Indeed, the most glaring problem with the GOP jobs agenda is that it won’t work, but nearly as painful is the realization that it’s already been tried, over and over again, to no avail. They either haven’t heard the famous axiom about trying failure repeatedly and expecting a different result, or they don’t care.

The agenda is the agenda: tax cuts for the wealthy, deregulation, cut public investments. Good times and bad, deficit or surplus, war or peace, it just doesn’t matter.”

The entire post is well worth reading.

Way back when I became politically active, I bought into the theory that tax cuts for the wealthy would spur investment, and that investment would create jobs. It made a lot of sense; unfortunately, the evidence is pretty overwhelming that it doesn’t work that way.

The ability to change ones opinion when faced with new evidence is how humans learn and thrive. When people “double down” on beliefs even when faced with facts debunking those beliefs, we call that a delusion.

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Car Talk

When the federal government decided to bail out Chrysler and GM, I’ll admit I was torn. I am inherently skeptical of “too big to fail,” and I’m convinced that we have way too much corporate welfare. I’m a believer in free enterprise, defined as a genuinely level playing field, where private businesses all play by the same rules, and sink or swim on their own merits. But I also recognized that we were in the midst of a recession that might well have become a depression. The economy was so fragile–and the probable loss of American jobs that would accompany bankruptcy was so massive–that we really didn’t have a choice. I figured the taxpayers would lose a lot of money, but on balance, that would be cheaper than a depression.

I was wrong.

Yesterday, Chrysler repaid the nearly $5.9 billion lent to it by the administration, including fees and interest payments — and it did so six years ahead of schedule. Not only has Chrysler paid us back, but together, GM and Chrysler have added 115,000 new jobs since emerging from reorganization.

It was a gutsy call, and it paid off. But I’m sure the “Party of No” will explain it away, or credit the Bush Administration, just as they’ve tried to do with respect to another gutsy call–taking out Bin Ladin.