by Joel Smith & r & & r & Last month, Spokane County Treasurer Skip Chilberg threatened to sue over a proposal to help pay for the development of Kendall Yards with public funds. Since then, a wonky revenue mechanism called "tax increment financing" has been the talk of the town, appearing as the subject in grave newspaper editorials and in heated letters to the editor from normally reasonable citizens.
So why does super-rich Marshall Chesrown want the public to pay for sidewalks at his development?
It doesn't exactly work that way.
Tax increment financing (called "TIF") is a tool that helps cities and counties revitalize under-developed areas by allowing them to pay for public improvements around private developments today, using the tax money those developments will generate in the future.
It's often used as a lure.
Say you're a city with a couple blocks of undeveloped blight in your downtown core. The area reeks of crime and urban decay. You wish somebody would turn it into condos, cafes and expensive shoe boutiques, but developers aren't exactly beating down your door. So you sweeten the deal. You trace a line around the area, telling any developer who's interested that you'll front the money (in the form of bonds) for the sidewalks and streetlights and sewer lines within the district, if only they'll come and refashion it as an urban wonderland. Once the angst-ridden poets and Californians come flocking to the new cafes and condos (respectively), you rake in all the beefed-up property taxes until you've paid off the debt you rang up for construction.
In Washington, TIF works by trapping every tax dollar over what the abandoned lot used to bring, keeping 75 cents of it to pay back the debt and sending the other 25 cents on to whoever normally gets the tax money (the city and county, in the case of Kendall Yards). Once the debt is repaid, the TIF scheme dissolves and things go back to normal (beefed-up normal, hopefully).
Because it banks on the future success of a project that could tank, TIF is inherently risky. However, there are a couple of ways to limit a city or county's financial risk. One is some form of binding guarantee from the developer that makes them financially responsible if their development doesn't unfold as planned. The other is to make the developer pay for the public improvements, with the promise that the municipality will reimburse them with TIF money.
The deal is made even more complex by the peculiar nature of the TIF system in Washington state, which is more tightly restricted than in surrounding states -- with more specific ways of scraping up the tax revenue, fewer sources of income to draw from and a requirement that all the taxing entities involved come to an agreement as to the process.
There are also philosophical aversions -- in a city that's been burned by public-private partnerships before -- as Treasurer Skip Chilberg points out. "It comes down to what you think the purpose of government is," he says. "If you view it as priority of needs, then supporting development would be pretty low on the list."
Still, even Chilberg, who gave up his threats to sue late last month when he was satisfied that the TIF process was legal, doesn't deny TIF will work. "If you view government's role as spending tax money to support development, then certainly TIF can accomplish that."