Issue Summary (Updated January 2009)
Tax Increment Finance

The Issue:

TIF is a redevelopment financing method that allows the additional (incremental) taxes from a new development to pay off publicly issued debt associated with the development’s construction. In Pennsylvania, local governments were permitted to use TIF with the passage of Act 113 in 1990. Many of the major developments in the last fifteen years in the City of Pittsburgh and Allegheny County have been built with the aid of a TIF package.

What We Know:

Tax Increment Finance, or TIF, may encapsulate the old adage of “good intentions that have gone awry”.

The process is rather straightforward: a development is planned in an area that is certified as blighted; a redevelopment authority steers the process, providing studies on the conditions of the site and the necessity of the TIF—this is the important “but for” criterion, meaning that without the TIF, the project would not be built. The taxing bodies that levy real estate taxes on the property decide whether or not to participate in the TIF. If they do, some portion of the incremental taxes goes to a special fund instead of to the taxing bodies until bonds sold by a redevelopment authority are paid off.

Some projects built with the aid of a TIF have been quite successful, while others have not. The City opened a “Pandora’s Box” when it decided to craft a TIF deal to aid in the construction of a new downtown department store (Lazarus). There were other monies involved in the deal, but the fact was that the decision to use a TIF for retail has encouraged other communities to follow suit. Since then, such projects as Pittsburgh Mills, the Waterfront, and Victory Center have come to fruition, with more in the pipeline.

Two troublesome trends that we have documented are, (1) following a Supreme Court decision in 2002, prevailing wage must be paid on all projects using a TIF, thus inflating costs, and (2) TIF has been used in rural and suburban “green field” areas for retail developments instead of on urban “brown field” areas that need the infusion of private sector dollars for real value added activity.

Recommendations:

End the use of TIF in areas that do not need them, i.e. areas that don’t meet a reasonable definition of blight, and for types of activity that do not create the high-paying jobs that the region claims it wants to attract. This especially applies to retail and entertainment venues that do not boost the economic growth of the region and only serve as subsidized competition for established venues.

The blight criteria should be tightened to prevent questionable projects from receiving a TIF designation (this will happen when the eminent domain code provisions are enforced statewide).

Make sure that developers are cognizant of the fact that the TIF borrowing is paying for the unnecessary additional labor cost. Elected and appointed officials should also be aware that projects they approve may be asking for the TIF in order to pay this inflated cost.