With the state and city economies in shambles, the environmentalists at the Sightline Institute have a proposal they say would promote density around light rail stations (AKA transit-oriented development): Tax increment financing, a scheme that allows local governments to sell bonds to make large infrastructure investments. The idea is that the city of Seattle, for example, would finance bonds for infrastructure improvements around light-rail stations, which would spur dense new development, creating higher property values; the city would pay back that debt by skimming off the higher property taxes that would result from that new development, which would have ordinarily been distributed among all the taxing districts that collect property taxes (such as King County). Currently, the state constitution prohibits TIFs because it requires that all property taxes go to education, not infrastructure.
On Crosscut last week, Sightline researcher Roger Valdez wrote that TIFs “would create immediate jobs and build huge opportunities to increase the state’s competitiveness for much-needed jobs for the future.”
TIFs are controversial among many progressives because they constitute a government giveaway to developers. In 2004, for example, a coalition of lefty community activists wrote an open letter saying TIFs “merely relieve developers of the responsibility of sharing in the costs of providing infrastructure within these areas, shifting the entire burden onto the shoulders of local residents and small businesses.” And they argue, with some justification, that TIFs reward developers for doing what they would have done anyway: A 2008 study of TIFs in Minnesota found that most of the development that occurred in TIF districts would have occurred without the creation of a TIF. Finally, some critics argue that TIFs generate tax revenues for cities at the expense of other jurisdictions, such as the county, school districts, and fire districts.
Environmentalists haven’t typically taken one side or the other on TIFs; however, Valdez argues that given the bleakness of the current economic situation, cities and other jurisdictions need all the tax-generating tools they can get. “It’s very difficult for cities to do this kind of thing, because there’s no way for them to do the financing for it so that have to come up with things like incentive zoning,” in which developers fund public goods like affordable housing in exchange for the “incentive” of greater height and density, Valdez says. Although he acknowledges some opponents’ concerns—”local government doesn’t like to have their taxing authority abridged in any way”—Valdez says that “if you constrain it to inside the urban growth boundary and you focus it on density, everyone wins, because everyone’s going to get the added value.”
TIFs face a number of serious hurdles beyond opposition from lefty opponents. First, the state legislature would have to change the law that prohibits the use of property taxes for anything but education by a two-thirds majority—unlikely in today’s polarized political climate. Then, a simple majority of voters in the state would have to approve the amendment. But because the amendment would primarily help cities, it would need strong support in Seattle to overcome opposition in the rest of the state, and a campaign calling TIFs a developer giveaway could torpedo a campaign for the amendment.
