OPPORTUNITY COST VS. CURRENT ASSESSED
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
For full report click here.