Lessons in Tax Increment Financing

Will Jason writes on the subject of tax increment financing (TIF), specifically as deployed as an economic development tool in the state of Vermont.

TIF functions by earmarking property tax revenues from increased real estate values in a defined district. Cities can use the revenue for development, whether public infrastructure or direct subsidies for private projects. However, as research has shown, TIF comes with hidden costs, from the loss of funds for schools and other local public services to a lack of accountability that can often lead to the questionable expenditure of tax dollars.

Jason credits active state oversight for insulating Vermont from some of the common risks associated with TIF, but also writes that Vermont still lacks a clear answer for a very fundamental question: "Does it truly stimulate new economic activity?"

Bruce Seifer, who helped lead the economic development office in Burlington for three decades, is quoted in the article, making the case for the benefits of the TIF program in the city of Burlington.

A study by University of Illinois at Chicago Professor David Merriman published in fall 2018 suggests that TIF programs do not achieve their stated goals of economic development.

The state of Vermont followed suit with its own study:

Last year, at the direction of the legislature, Vermont’s Legislative Joint Fiscal Office published a study that examined the performance of the state’s 10 active TIF districts. Comparing projected TIF revenues against revenues under a hypothetical scenario with no TIF, the study projects that from 2017 to 2030 TIF will cost the state about $68 million in school revenue (Vermont has an unusual statewide funding system for schools), and cost municipal general funds a total of $43 million, although it didn’t account for non-property tax revenues. It concluded that the economic benefits of TIF are uncertain.

Still, Vermont and its communities remain bullish on TIF, and Jason describes the state's approach to the program as effectively safeguarded against risk.