ASK ELi: How Much TIF Is There?

Image: The new commercial and apartment building at Trowbridge Plaza, built with TIF support.

NOTE: Since this article was published, another $1.5 million TIF was approved; read more.

Today’s question for “Ask ELi to Investigate,” which arrived to us on May 6 from a reader, is: "Could someone please calculate how much revenue is lost to East Lansing each year due to prior TIF financing, and how this is different from welfare?"

First, some background: If you improve a property, the value goes up, and then so does the assessed value, and then so do the real estate taxes.

TIF, or “tax increment financing,” is an economic tool designed to encourage development that might otherwise not happen. TIF “captures” all or part of the “new” taxes (the “tax increment”) created through redevelopment (improvement) of a property, and then reimburses someone for expenses related to the redevelopment.

Under TIF, specific costs of a development can be reimbursed to the developer or to the city providing infrastructure for the development. TIF is supposed to be used when a project is for the “public good.”

How has TIF been used in East Lansing? In East Lansing, TIF has sometimes been used to reimburse developers’ costs, and it has sometimes been used to reimburse the City for costs related to a development (e.g., the costs of doing water main and sewer system improvements required to support a new development). An approved TIF plan specifies for how many years the tax capture will occur, specifies how much money will be captured, and specifies who will get that money.

TIF comes in many varieties, and each TIF plan is unique. For reasons we explain below, East Lansing has tended to favor using “Brownfield” TIF, which is supposed to be used when there are environmental problems with a property to be redeveloped. Brownfield TIF is used, for example, when a new multi-use structure is being built on the site of an old gas station.

Why do cities like to use Brownfield TIF?

One reason Cities like to engage in Brownfield TIF use is that it effectively redirects dollars that would otherwise go to other entities back to a City’s benefit. So, for example, when East Lansing sets up a Brownfield TIF, it ends up pulling back to itself or an East Lansing developer tax dollars that would otherwise go to the State Education Fund (which funds K-12 education throughout the state), Ingham County, CATA, Lansing Community College, the East Lansing Public Schools Building & Site Fund, and the Intermediate School Districts (which funds special ed and vocational ed).

City Planning staff accurately see TIF as a way to take money away from these entities and put it back to the benefit of either the City or developers who build in East Lansing, depending on which entity is being reimbursed from TIF.

You can click here to see all of the TIF plan captures in East Lansing right now. The total comes currently to $19,821,124.

Answering the first question: Our reader asked, “How much revenue is lost to East Lansing each year due to prior TIF financing?”

Phrasing the question this way is offensive to those who support heavy use of TIF, because they believe projects that are TIF-supported would not get built without TIF. In other words, they think that the tax increment revenue isn’t “lost” because they believe that the TIF-funded projects wouldn’t get built without TIF. (Without the projects happening, there is no tax increase from which to draw the TIF.)

Critics of certain TIF approvals say that these projects would likely be built without TIF and that therefore the taxes “captured” from the value-increase in the property are essentially lost to the general fund of the City as well as to the other entities whose taxes are taken away in TIF “tax capture.”

Now that we’ve explained that, here’s the answer:

For the fiscal year 2015, a total of $832,425 per year is being diverted to TIF reimbursements in the City of East Lansing.

As shown in a document produced by City staff, this includes $687,468 diverted from the City of East Lansing General Fund for TIF reimbursements, $66,779 diverted from the Solid Waste account, and $78,178 diverted from the Library Tax. (The library essentially loses these funds, because the Downtown Development Authority [DDA] is not allowed to give those funds back to the Library, because the Library is not in the DDA’s area.)

Why would anyone support diverting taxes like this?

Supporters of TIF say that if (or some say “because”) these increases in taxable value would not have happened without TIF support, then the City benefits overall, because of new development and because an increase in taxable value may directly benefit the City’s tax rolls as well as eventually producing additional property tax revenue. (When that property tax revenue will kick in depends on the length of the TIF plans; many in the City of East Lansing extend out 20-30 years.)

The same document noted above shows that in fiscal year 2015, the City is obtaining $77,973 in non-TIF-captured tax revenues from projects that were built with TIF. If you accept TIF supporters’ claim that, without TIF, these projects would not be built, then we have benefitted both from whatever the developments contribute to the City plus $77,973 in additional revenue that we would not otherwise have.

But if you accept TIF critics’ claims that these projects would have been built without TIF, $832,425 will go this year to development-specific reimbursement that might have gone elsewhere including to public works, the library, City services, etc.

TIF critics also point out that these TIF-funded new developments require additional city services (fire, police, etc.) that did not exist before, and that this means that the rest of the City’s property-taxpayers are having to subsidize these developments with their tax payments.

Answering our reader’s second question: Our reader also asked, “How this is different from welfare?"

We presume the reader is referring to the idea that TIF functions as “corporate welfare,” because it helps developers get projects built. Wikipedia says that the term “corporate welfare” is “often used to describe a government’s bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations, and implies that corporations are much less needy of such treatment than the poor.”

Critics of TIF for projects like Gateway, including East Lansing Council member Ruth Beier, say that TIF for projects like DTN’s Gateway represent corporate welfare. She points out that, for example, the TIF essentially takes money that would otherwise go to the Library (if this project were built without TIF) and gives it to the developer DTN to pay for private parking for student renters, ultimately benefitting DTN’s profits.

Critics also point to the 3-2 City Council vote last October to give River Caddis, the developer of Trowbridge Plaza, as much as an additional $1.2 million in TIF when Kevin McGraw of River Caddis told Council the project wasn’t meeting their profit expectations. As happened with DTN’s Gateway, Mayor Nathan Triplett, Mayor Pro Tem Diane Goddeeris, and Council member Susan Woods voted to give the developer what he wanted, while Council members Ruth Beier and Kathy Boyle voted against. (Read more.)

Defenders of TIF for projects like Gateway, including Mayor Triplett, say that TIF for projects like Gateway and Trowbridge Plaza represent bringing multiple good effects to the City that would not otherwise exist, including some tax revenue as well as new buildings. Triplett objected in Council this week to Beier calling TIF “corporate welfare.”

What else do we know? TIF plans rely on the idea that a property value will go up in a relatively predictable fashion, creating the “increment” that allows the TIF reimbursement. The economic crash that occurred in 2007-2008 has caused properties funded by TIF to not increase in value the way originally expected. This has meant that the TIF plans are not playing out as planned. See this document for what’s actually happened with TIF plans in East Lansing.

So what’s the short answer to our reader’s question? Again, the question was, "Could someone please calculate how much revenue is lost to East Lansing each year due to prior TIF financing, and how this is different from welfare?"

The short answer is that, for the fiscal year 2015, a total of $832,425 per year is being diverted to TIF reimbursements in the City of East Lansing, and TIF supported developments are contributing $77,973 in additional revenue above their original base tax values. We do not have a figure on what these projects are costing the City taxpayers in terms of services provided (fire, police, infrastructure upkeep).

Whether this is “corporate welfare” depends on what your definition of “corporate welfare” is and how you see various East Lansing TIF-supported projects.