OPPORTUNITY COST VS. CURRENT ASSESSED VALUE

If a piece of property has enough profit potential to be developed without TIF, (Tax Increment Financing) then there seems little reason that a local government should give up many years of future property tax revenues to pay for a portion of the development.

Even though the local government receives property taxes based on the assessed value at the time of redevelopment, it is not remunerated for the property tax revenues it would have received if another developer had used the same property for a non-TIF project. The opportunity cost to the local government is not considered.

Economists define opportunity cost as the value of the next best alternative use of the resource. If a piece of property would be profitable without TIF, one must presume that developers would be willing to shoulder the costs themselves, allowing the local
government to fully realize property tax revenues from the beginning. These missed revenues are, an economist would say, the
proper comparison. This is not to suggest that a TIF project would never be the best use of the property, only that base revenues
should, perhaps, reflect the opportunity cost to the local government rather than the assessed value at the time of the TIF.

Several studies report that TIF is used in areas where development would have occurred anyway, and that the resulting diversion of property tax dollars is costing taxpayers millions. Of note is a study by the Neighborhood Capital Budget Group, a coalition of nearly 200 Chicago area community organizations and local economic development groups, that concluded that the explosion of TIF in
Chicago would make the city lose out on $254.8 million in property tax revenue in 2002 from development that would have occurred without TIF.

From (TACIR) Tennessee Advisory Commission on Intergovernmental Relations

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