Property Tax Programs Have Mostly Failed Struggling Neighborhoods

Property tax programs and policies enacted to promote economic development in struggling neighborhoods have largely failed those targeted areas according to a new study from University of Illinois at Chicago professor David Merriman. The economist reviewed tax policies originally implemented in the 1950s called tax increment financing, or TIF. “While it has the potential to draw investment into neglected places, it has not accomplished the goal of promoting economic development in most cases,” Merriman concluded.

TIF programs earmark increases in future property tax revenues for specific, economic-development-related purposes. The programs tend to rely on real estate appreciating, however, instead of forcing appreciation and then benefiting from ongoing momentum in that area. Merriman cited several specific pitfalls associated with TIF, including:

  • The programs may capture revenue that would have been generated through “normal” appreciation and, as a result, may actually pull funds away from programs that would have otherwise received them
  • TIF is relatively easily exploited to remove revenues from school district budgets
  • Cities have used TIF programs to essentially render their financial decisions less transparent by removing them from the “normal” budget process.

Merriman did not conclude his report by recommending that TIF programs be eliminated. Instead, he proposed state-level monitoring of these programs. Furthermore, he suggested states “give counties, school districts, and other overlying local governments the option to opt out of TIF, reducing the incentive for cities to use TIF to capture revenues.”

“Tax increment financing…success requires rigorous analysis, transparency, and oversight to ensure that the expenditure of taxpayer dollars truly benefits the public,” Merriman concluded.

Do you think these programs are ultimately good or bad for local economies?