(Guest Post by Michael McShane)
I’m sure that the city of Cerritos, California is a lovely place filled with charming and good hearted people. But just like William Higinbotham’s creation of the video game cannot hide the scorn of creating the Federation of American Scientists, neither can Cerritos hide its shame in trying to continue one of the most counterproductive and harmful trends in American municipal governance: Tax Increment Financing (TIF).
TIF is a tool that municipalities use to try and spur economic development within their borders. Essentially, it freezes the amount of property tax that a property owner owes on a parcel of land or building at what they owed before they improved it, allowing them to keep what would otherwise be owed in taxes as the value of their property increases. So let’s say I buy an empty lot somewhere and decide to build an IKEA on it. If I can get a TIF deal, I’ll keep paying taxes on it as if the parcel of land is still an empty lot, even though the value of the property has gone way up.
Here’s the problem: It doesn’t work. At most, it appears that TIF diverts economic activity from one part of a community to another. It doesn’t create new economic activity. Oh, and here’s another problem, it diverts much needed tax dollars away from city, county, and state services and uses them to line developers’ pockets. Property taxes fund schools, libraries, mental health facilities, and a variety of other necessary functions of government.
But I think the worst part is how TIF, (and other forms of tax abatement, sweetheart deals cuts by civic leaders to developers, and/or outright public funding of stadiums and other facilities) promotes one of the JPGB’s mortal enemies, Petty Little Dictators. Rather than allowing people to decide where they think is best to build a new IKEA, movie theater, or office building, mayors and city councils, via tax subsidies, distort people’s behaviors to try and create their ideal little cities. It also allows them to reward their friends and supporters with lower taxes while everyone else pays more to make up for it.
And what if you’re a business owner that doesn’t have the connections to get hooked up with TIF? Ask the sports bars around Busch stadium in St. Louis that existed before the city used tens of millions of dollars in TIF subsidies to build “Ballpark Village,” a conglomeration of food and drink options right outside of the stadium. Some saw their business fall by 50%. Great local businesses that saw through the city’s ups and downs for decades, dutifully paying their taxes all along, saw their customers go to their government-subsidized competition.
So what does Cerritos have to do with all of this? Well, California (of all places) decided to ban TIF a few years ago in response to the tremendous financial problems of the state. TIF was particularly costly to California because the state would pay back schools and libraries what local taxing jurisdiction had diverted from them. So, they wisely got rid of it. Cerritos and several other cities are suing to try and bring TIF back.
The Higgy is given for “individuals whose arrogant delusions of shaping the world to meet their own will outweigh the positive qualities they possess.” Cerritos’s desire to use tax incentives to pick winners and losers embodies this perfectly. That’s why I think it deserves the Higgy.