Avon’s funding plan has flaws
Vail CO, Colorado
According to a recent news release, the Town of Avon will be funding its public improvement projects for the redevelopment of Avon’s Town Center with tax increment financing revenue.
When a public improvement project is carried out, there is an increase in the real estate value of the designated tax-increment financing district and the increased tax revenues are the “tax increment.” Tax-increment financing dedicates that increment to pay off debt used to pay for the project. In other words, the incremental difference is used to pay for the development rather than other town-wide public projects, such as trails, parks and open space. Under current Colorado law, school districts are not harmed by tax-increment fianancing as they are in some other states. In other states, tax increment financing can hurt public schools by capturing the incremental tax revenues from increased property values that might otherwise have gone to the school district.
Every state but Arizona has enacted legislation allowing tax increment financing. Government entities prefer this type of tax because it does not require a general tax increase. In the case of Colorado, it does not require a vote of the people like other tax increases under Colorado law.
The original intent behind this tax was to level the playing field between economically distressed and more affluent neighborhoods by providing tax incentives to rebuild in blighted neighborhoods. However the definition of “blight” has become so lax that tax increment financing can used as an incentive for developers in almost any area of most municipalities.
As tax increment financing districts grow exponentially throughout the country, groups such as the Neighborhood Capital Budget Group in Chicago are looking at them more closely (www.ncbg.org/tifs/tifs.htm). Chicago, which has used this type of tax for several decades, has about a third of its property tax revenue tied up tax increment financing districts. The City of Denver, according to the Front Range Economic Strategy Center, used approximately 7 percent of its 2003 general fund revenues to subsidize tax increment financing shortfalls. General fund revenues are typically used to pay for standard municipal services such as police and transit systems.
Tax-increment financing districts are usually implemented in the hope of spurring on more economic development. Sometimes this is successful, however, recent studies in Texas and California have shown that sometimes economic development does not always grow city-wide but may only move from one part of a city to another. This can have a negative impact on small business in other areas outside of the tax district.
One of the other potential downsides of tax-increment financing districts is they change the character of a neighborhood and drive up property values to the point that existing residents and businesses can’t afford to stay in that area.
Tax-increment financing is a way for governments to borrow money to pay for improvements now based on the hope of future revenue, rather than letting growth naturally pay for itself. In other words, it works like a credit card for the government.
As with credit card debt, there is potential danger in tax increment financing, and municipalities as well as the taxpayer should be wary of it.
Debbie Buckley is an Avon resident.