Critics of downtown incentive programs like the Renaissance Zone and tax increment financing claim government is picking winners and losers by using public money to favor downtown development at the expense of the rest of the city.
“Picking winners and losers” is a catchy phrase, but it’s also misleading. Downtown is not the only area where government incentivizes development. Projects outside of downtown, particularly on the edges of the city, also benefit from public money. And downtown incentive programs provide a solid return for taxpayers without adversely affecting other areas of the city.
New development on the edge of town requires new public infrastructure — streets, curbs, sidewalks, lights, water mains and storm water systems. Developers pay part of the infrastructure cost up front, but they don’t cover the entire construction cost, not to mention ongoing service and maintenance. The balance is passed on from the developer to the city, which finances the costs and eventually imposes assessments on the lot owners. This public financing lowers the cost for the developer and shifts part of the burden to taxpayers.
With new development also comes the expansion of city services — more fire stations, police cars, schools and snowplows. The increased property tax from a new development is usually not sufficient to cover the increased government costs over time, meaning all taxpayers subsidize the expansion of our city’s footprint. Just take a look at your next water bill. You’re subsidizing new infrastructure and maintenance throughout the city.
Developments in downtown take advantage of the existing public infrastructure and there is no additional burden in terms of maintenance costs and the expansion of city services. And even though downtown incentive programs temporarily exempt or redirect property taxes, taxpayers have not been adversely affected.
The Renaissance Zone program offers a five-year property tax and state income tax exemption for property owners and tenants that make significant investments in their properties. As a result, $62 million has been invested in downtown and the taxable value of the entire Renaissance Zone has doubled. On average, the tax revenue the city forgoes during the exemption period for a project is recovered in less than 2.5 years after the property re-enters the property tax rolls. By this year or next, total taxes generated from all projects will completely offset total taxes exempted since the program began in 2001.
Even the now defunct TIF district was not as harmful as critics claim. Property owners in the TIF district still paid property taxes, but most of the taxes generated from downtown projects (the so-called “increment”) were dedicated to improvements in the downtown core. Taxpayers outside of downtown did not have to pay for those improvements. Critics claim TIF diverted money from other city needs, most notably school funding. Given the number of new and expanded schools in recent years, it’s difficult to see how a single TIF district adversely impacted our schools or other government functions.
Downtown is by far the most efficient generator of property taxes, providing much more tax revenue than it costs in terms of public infrastructure and services. And downtown properties have been contributing to the tax base for decades, and in some cases, more than a century. New developments contribute much less to the tax base per square foot and, given their lower density, do not provide enough revenue to offset the public costs of infrastructure and services.
The debate about government’s role in development projects is one worth having. But let’s be honest about the public costs of both downtown development and growth on the edges of town. Let’s stop pretending that government only incentivizes downtown development, or that incentives for downtown are detrimental to the rest of the city.