Monday, October 30, 2006

Urban Renewal Districts and Tax-Increment Financing

This post is all about Urban Renewal Districts (URs) and Tax-Increment Financing (TIF).

Apparently, there are some people in the community (such as Paul Edgar, a contributor to the blog who believe that urban renewal districts come at too high a cost, because they divert tax funding from essential services (such as police, fire, schools and homeless shelters) in order to fund "non-essentials" such as new transportation projects, like the Portland Streetcar.

This is my response to Paul Edgar and this argument:


What you point out about Urban Renewal districts requiring a temporary subsidy from the rest of the city during their lifetime, in order to cover other costs associated with their growth, may be a valid externality caused by Tax Increment Financing, but it's not a reason to discard TIF financing for transportation projects.


Because it can be shown that a majority of the increase in value, due to increased development, that happens in these districts is directly CAUSED by the transportation project in question. If that project causes the increase in the tax base, why shouldn't it be funded in part by a portion of the increase? This is a simple user fee -- those properties closest to the project, which receive the most direct tangible benefit, themselves will pay the most to make the project happen.

Cities like London are using this principle on a larger scale as they discuss options for expanding their underground system. As you might imagine, a new subway line can cause billions in increased value (new development) in areas that it travels through. Why not tap this to partially pay for the line?

Finally, I haven't seen you prove that your actual individual tax obligation has gone up as a result of Urban Renewal Districts. I don't think it has. Your tax obligation is a function of the value of your own property, as well as your annual income level. These are both set. If you happen to live in an Urban Renewal District, you may have a different (but valid) complaint, that a new transportation project has added too much benefit to your neighborhood, and your property taxes have risen beyond your means as a result.

Otherwise, your tax burden has remained the same. The only thing that has changed are the decisions made at City Hall as to where they allocate the resources of government. These decisions are always a shell game anyways -- take money from the West Hills to pay for upkeep on streets in Southeast, or take money from Southeast to pay for increased police patrols in Northeast. That's why we have a municipal government, to provide services to all according to their need, and to tax all according to their ability to pay.


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