Taxes don’t belong in developers’ pockets

Tax increment financing (TIF) has been used in other states for years but only recently in Washington. Voters rejected a constitutional amendment to allow it in the early ‘80s, and the Supreme Court declared one version unconstitutional in 1995. The Legislature then made minor revisions which haven’t been challenged.

Tax increment financing involves a government issuance of tax-exempt bonds to pay for infrastructure to benefit a desired development. Those bonds are then paid off by shifting tax receipts gained from rising property values in the designated area. Those tax receipts are diverted before they get to the city or county general fund. They are not available for such purposes as public safety and other governmental services.

Any developer outside the TIF area is required to pay for the infrastructure as part of the development. Thus, a selected developer for the designated project in the TIF area is receiving a direct and substantial subsidy. In the case of the Kendall Yards proposal along the north bank of the Spokane River, that subsidy is estimated at between $10 million and $20 million, not to mention additional millions from property tax exemptions for condo development in the downtown area.

I’ve asserted that TIF is giving public money to rich people. Who else benefits from the tax shift?

Not the residents in the designated TIF area, the West Central Neighborhood. If all goes as planned, the development will raise the value of their homes, increasing the taxes they or their landlords pay. They will still be in the same houses, driving on the same streets, only paying more taxes with those additional taxes paying for streets, parking, etc. for Kendall Yards.

As the cost of government rises each year, the tax lost to the TIF project will be made up by all the other city and county taxpayers. Tax increment financing is a governmental expenditure, even though it’s outside the budgeting process.

The basic justification for TIF is that the proposed project would not otherwise go forward without the subsidy. I can’t understand why Kendall Yards needs a government gift.

The developer has made it very clear he has no intention of building affordable housing. Is his request based on a desire to sell expensive condos for less? Is the request based on the cost for environmental cleanup? The developer presumably was aware of the environmental issues and took them into account when he decided how much to pay for the property. If he didn’t, it is not the taxpayers’ responsibility now to pick up the tab. It certainly is not the taxpayers’ job to ensure the developer makes an additional $10 million to $20 million. It’s a safe assumption the developer knew the costs going in, and the project will proceed without the gift unless market conditions don’t warrant the development.

I also wonder why the TIF district includes nearly all the West Central Neighborhood. Is it because the developer will seek tax exemptions for the condos in his development for 10 years, thus not generating enough taxes from the new development to pay off the bonds?

Spokane County Commissioner Mark Richard is quoted as saying there is “no risk” to the taxpayer, particularly because the developer has offered a letter of credit. I’m skeptical. A more complete answer would be that there is no risk to the taxpayer and particularly no risk to the developer. The bonds will be sold, the infrastructure will be built, and the taxpayers will pay for it. The taxpayer will then have a choice of whether to find additional taxes for public safety and other services, or to cut those services.

I believe in public-private partnerships. I was chairman of one of the best, the Washington State Housing Finance Commission. We all know that partnerships don’t work, whether public-private or all-private, if benefits are not distributed. But the benefits from this proposed “partnership” accrue only to the developer at the expense of neighborhood residents and other taxpayers, with a potential benefit to tax coffers when the bonds are paid off and the tax exemptions expire.

I also believe there are serious ethical and legal questions. Taxpayers living in the city should be asking why the county is asked to issue the TIF bonds and not the city. Could it be because the City Code would require a vote of the taxpayers? I believe the proposal is a clear circumvention of city law, and feel it is my public duty to speak out.