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Tax increment financing (TIF) is a subject sure to bring yawns and glazed-over looks to everyone but the most passionate urban planning nerds. This is probably the way its biggest advocates like it.
TIF is a means for real estate developers to divert millions of dollars out of public schools, public works, fire and police departments, and other public services.
In its most basic form, TIF is a subsidy for real estate development. Money that large developments otherwise would be paying in local property taxes is instead diverted to pay for the project itself. The city and other taxing jurisdictions incur losses over time through forgone tax revenue.
This scheme was originally used to redevelop blighted or polluted areas, making projects in those areas economically viable. For an example, see last year's award of TIF to redevelop part of the Minneapolis Upper Harbor Terminal along the Mississippi River. Over time, though, TIF has become a more regular feature of the real estate world, coming into play even on projects where no blight or pollution existed.
Minneapolis recently awarded the developers of the luxury 200 Central project over $16 million in the form of a tax increment financing bond ("Apartment tower gets second chance," March 30). According to the city's plan, that represents over $32 million in lost revenue over the years that will instead fund this project, including over $5.4 million that will not go to Minneapolis Public Schools. In exchange, the city won concessions on moderately affordable units in the building.
There are many other projects in the pipeline for additional TIF, representing tens of millions of dollars in lost revenue. These plans are available for anyone to view on the Community Planning and Economic Development section of the city's website. In the end the City Council must approve each of these plans. Perhaps due to the complexity of the issue (and perhaps because it rarely pays to fight City Hall), there's nothing by way of real opposition or dissenting voices when these plans arise.
All that's required to win TIF for a new project is to claim that the project would otherwise not go forward. It is unclear what real evidence needs to be presented. There's certainly nothing in any of the publicly available plans. Millions of dollars can be diverted from the taxpayers simply by using the magic words, "We won't build it otherwise."
In 200 Central's case, it almost defies belief that a desirable address with gorgeous riverfront views would sit vacant another decade unless we divert taxes through TIF. Perhaps developers wouldn't get exactly what they wanted — that is, the glimmering high-rise shown in pictures — but compromise is part of all business. If the owners can't or won't build, the lot would certainly fetch a pretty penny on the open market.
What's disconcerting is that no one seems to be calling developers' bluff in these situations.
With Minneapolis Public Schools worried about solvency ("Minneapolis Public Schools projects 'impending fiscal crisis' within 5 years," Nov. 30), it is disconcerting that the City Council so easily hands millions of dollars to real estate developers without more due diligence.
Minneapolis saw plenty of economic development for over a century before anyone ever heard of tax increment financing. There are recent examples where TIF was put to good use. But we seem to be headed toward a situation where this tool is used for any project anywhere regardless of real need. We owe it to our public schools to hold these plans to a higher level of scrutiny.
Michael L Hogan, of Minneapolis, is an attorney.
