Thursday, January 26, 2017

Smart Growth; "Tax-Increment Financing"; The IDB, and Possible Adverse Consequences

Thornwood Development at Neshoba and Germantown Road is an Example of Mixed-Use Smart Growth

Citizens might wonder why a single appointment to the Industrial Development Board (first discussed in the January 22 blog post) is so important that I am shining a light on this issue for the third time in a week. Today I attempt to explain that in the simplest possible way. To do that I first need to briefly review "Smart Growth". 

Smart Growth, adopted in 2007, allows for special zoning classifications in certain areas, ensuring denser development in our land-locked community.  We are following the recommendations of Smart Growth America.  

The organization describes Smart Growth:


We have adopted Smart Growth, we have embraced Smart Growth, and we have touted Smart Growth. I would love to have a nickel for every utterance of the term "Smart Growth" that has come out of our leaders' mouths. 

Yet I have not heard one single mention of the significant reservations about the Tax-Increment Financing administered by IDBs which are listed in a paper in the Smart Growth America website. Why not?  Are our city leaders even aware of these reservations?  Or are they cherry picking what they like about Smart Growth America, and ignoring articles that the organization deems worthy enough to include on the website?

Recently, the possible use of TIFs in Germantown has been in the news: 

Germantown Seeks to Bolster Development with TIFs 


Again, TIFs are the responsibility of the IDB, which is comrised of citizens appointed by the Mayor. Elected officials cannot have much oversight over the IDB because of the need for the bonds to be designated as "revenue" bonds, and not backed by the full faith and credit of the City.

Let's look at a few things that the paper on the Smart Growth America website has to say about TIFs:   

Tax-Increment Financing- The Need for Transparency and Accountability in Local Economic Development Studies


Please note that TIFs are meant to spur redevelopment of areas in difficult economic straits.  


Even the use of TIFs to fuel development in previously undeveloped areas is deemed inappropriate in the paper. 

Note added 1-28: TIFs in Memphis have been used to encourage redevelopment in marginal areas of town, such as around Graceland, Highland Row near U of M, and the Greenlaw area of downtown.  These are all in areas of needed redevelopment. Memphis has not used TIFs in areas of prime real estate such as near Laurelwoood.  

Exactly which portion of Germantown are in economic straits? I cannot quickly think of any. I am not saying that there are no such places. All I am saying that the IDB should limit its use of TIFs to areas which truly need a boost to start development or to help enable redevelopment. But again, it is not just I saying that. IDB should at least roughly follow the recommendation of the academic paper endorsed by Smart Growth America, and limit TIFs to economically challenged areas.

What are the consequences of not limiting TIFs to economically challenged areas? 

Among the possible adverse consequences attributed to TIFs are the following (listed in the paper):

1. Failure to achieve public goals.  By definition, TIFs take money away from schools and parks (unless the property tax is raised to make up the difference). 

2. The process of TIFs, which often take place without public awareness and input, create the opportunity for favoritism and corruption. 

3. TIFs can create "slush funds" for public officials.  

These and other adverse consequences are fully discussed in the "Executive Summary" of the above link.   

Here is the newly approved IDB TIF Policy:

I see no reference in this new policy to the types of areas that are appropriate for TIFs.  Such distinctions should be part of the TIF policy. Since they are not, we may be likely to experience the adverse consequences.

As I discussed in my January 22 post, the public's best opportunity for oversight is the BMA's approval or disapproval of the Mayor's nominees. It is essential that IDB members be individuals who will use TIFs in the manner intended.

1 comment:

  1. I'm not sure when the gag order to forbid using names during Citizens To Be Heard was put in place, but as far as I can tell the use of initials is still permitted. So let me pay homage to the City's latest attempt to stifle dissent by saying: When MP nominated DK for the IDB it was an example of cronyism in its purest form.

    Initially the nomination was put in as part of the Consent Agenda so that it would be approved without public discussion. When that was exposed and moved to the regular agenda, public discussion centered on two topics:

    1) Why was DK allowed to file late, in fact more than a month late? MP says it was because the deadline was not a real deadline just a reminder for citizens to be aware that applications were being taken. Last I checked, deadlines are instituted for a purpose. If he had missed his filing date by even 1 day, MP would not be mayor today. The real reason was that they needed to wait until DK had lost his alderman post and was able to apply as a private citizen.

    2) Why was his lack of background in land planning, architecture or engineering not a disqualifier? MP said it was precisely this lack of knowledge that made DK the most attractive candidate, because the last IDB member, GM, resigned due to conflict of interest. Three things bear noting here: 1) MP was the one who appointed him, with full knowledge of his background. 2) No other recent IDB member has resigned because of conflict of interest. The reason GM resigned was not his knowledge of these crucial fields, but because his firm was financially tied to the city's most important construction projects. 3) GM was appointed to the IDB immediately after he lost his alderman's post. DK was nominated immediately after he lost his alderman's post. Has the IDB become the consolation prize for MP's cronies who lost their jobs?

    There is a qualified candidate who has the financial background that ties directly into the IDB's work. She is a far more knowledgeable and independent candidate for this position. In the spirit of full transparency, and awarding the job to the most appropriate person, I hope the Board will reject cronyism and appoint the most deserving candidate to the IDB.

    Herschel Freeman