From the Lincoln Institute of Land Policy
Land Lines: January 2006, Volume 18, Number 1
..........Our estimates of the impact of TIF have a number of additional variables controlling for home-rule status, the combined tax rate, population, income per capita, poverty rate, nonresidential share of equalized assessed value (EAV), EAV per square mile, distance to the Chicago loop, and county of location. We found that property values in TIF-adopting municipalities grew at the same rate as or even less rapidly than in nonadopting municipalities. The study design did not get at this directly, but the offset seemed to come from smaller growth in non-TIF area of the municipality (lower G)
Our findings were a surprise to those, especially nonacademics, who naively had inferred TIF caused growth by observing growth within a TIF district (I) without any statistical controls for the other determinants of growth (in I or G). Our findings were quite threatening to those with an interest in TIF, such as local economic development officers who spend the earmarked funds or TIF consultants who are paid for documenting findings of “blight— or “but for.— Our findings were also at odds with an Indiana study that found a positive effect of TIF adoption on housing values (Man and Rosentraub 1998). ....................
Conclusion
Tax increment financing is an alluring tool. TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable. The issues we have studied are (1) whether the targeting causes the growth or merely signals that growth is coming; and (2) whether the growth in the targeted area comes at the expense of other parts of the same municipality. We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.
Policy makers should use TIF with caution. It is, after all, merely a way of financing economic development and does not change the opportunities for development or the skills of those doing the development planning. Moreover, policy makers should pay careful attention to land use when TIF is being considered. Our evidence shows that commercial TIF districts reduce commercial property value growth in the non-TIF part of the same municipality. This is not terribly surprising, given that much of commercial property is retailing and most retail trade needs to be located close to its customer base. That is, if you subsidize a store in one location there will be less demand to have a store in a nearby location. Industrial land use, in theory, is different. Industrial goods are mostly exported and sold outside the local area, so a local offset would not be expected. Our evidence is generally consistent with this prediction of no offset in industrial property growth in non-TIF areas of the same municipality.
Tax Increment Financing :
A Tool for Local Economic Development
Author(s): Dye, Richard and David Merriman
Publication Date: January, 2006; English