Please note: This article is published as an archive copy from Philadelphia City Paper. My City Paper is not affiliated with Philadelphia City Paper. Philadelphia City Paper was an alternative weekly newspaper in Philadelphia, Pennsylvania. The last edition was published on October 8, 2015.

November 11–18, 1999

city beat

A Tiff Over TIF

Tax increment financing: Development lure or costly drain on the school system?

by Jen Darr

New York developer Tony Goldman couldn’t downplay his delight back in June, at a forum on Philadelphia’s revitalization future held at the Union League. He was gushing about Philadelphia’s cheap real estate.

"Buy now!" he urged the audience, capping off his proclamation with the prediction that the value of Philadelphia real estate would double in three to five years.

Goldman, who played a part in revitalizing South Beach Miami and SoHo, has purchased or entered agreements of sale for more than 25 properties just east of Broad over the past year. During his talk he speculated that Philly, particularly the seedy area east of Broad, would soon be ranked among the nation’s "hip" urban centers.

One thing the bubbly Manhattanite didn’t discuss during his brief pep talk was that, in addition to boasting cheap real estate, Philadelphia’s city officials have been offering more and more sweetheart deals to big-name developers, in the form of controversial tax increment financing (better known as TIF), to get them to set up shop here.

Goldman’s $8 million TIF package wasn’t a done deal in June. There’s a good chance it, and two other TIF packages at New Market and 16th and Vine, will be approved soon, which would bump the city’s total TIF packages up to 19.

Proponents say tax increment financing, which enables developers to pay off city-issued bonds with future tax revenues, is a creative revitalization tool for cities trying to win back lost population.

According to Bob Fina, senior vice president of the Philadelphia Industrial Development Corp. (PIDC), the city’s industrial development arm, this type of financing poses the least amount of risk to the public. "We’re only putting in money that’s generated from the project," Fina explains.

Simply put, when a project is TIF-ed, the city and the School District of Philadelphia can keep taxes which are generated from predevelopment property values, determined when a TIF district begins. The developer pays back the TIF loan, plus interest, with taxes collected from the gradual increase in property value.

Philadelphia began offering tax increment financing in ’95 (though Pennsylvania has had legislation since 1990) with the hope that luring developers into blighted areas — which would not have seen development without such incentives, proponents argue — would stimulate growth in areas just outside the TIF district.

After a TIF period ends, which is generally about 20 years, the school district and city begin receiving the total property tax revenue.

And though the school district and city must forgo tax revenues they would have collected if development occurred without TIF, proponents argue that without an incentive, many developers just wouldn’t come in.

In other words, proponents are trying to win the chicken/egg argument.

Opponents say that there is no way to determine whether a developer would have come in, and argue that there are no studies or proof that TIF stimulates revitalization in the long run. In the short-term, they contend, TIF gobbles up tax dollars that would otherwise fund public school systems.

(It’s not all chicken/egg, however. Fina praises the PNC Operations Center TIF district near the airport as a success story. Without a TIF, PNC would have moved to Camden, taking 1,100 jobs away from the city. Since the TIF district was created, says Fina, the company has begun phase two of its project and six new developments have sprung up in the area.)

 



"You have the developer saying real estate is a great buy in Center City, and here I am being asked to help him build because it’s a depressed area," says a school board member. 



Though the use of TIF has boomed in the last two decades, the tool has been around for almost half a century. The first state to enact TIF legislation was California, in 1952, according to the National Conference of State Legislators, a nonprofit policy research organization.

TIF was created for "truly blighted areas to undertake what wouldn’t have happened without state and federal subsidies," says TIF expert Richard Dye, of the University of Illinois at Chicago’s Institute of Government and Public Affairs. However, over the last few decades, "it has become something different."

State and federal governments have moved away from capriciously handing out subsidies. At the same time, cities are trying to reverse population loss with economic stimulus plans.

Increasingly, says Dye, TIF is becoming the "only game in town" in the 46 states that use them.

Dye believes the municipalities are opting more and more to use TIF because they are in a "state of desperation."

"The real concern," he points out, "is the money it takes away from schools."

 

On Monday, the Philadelphia School Board approved all three TIF plans: an $8 million TIF for Goldman’s "13th Street Passages" district, an irregularly shaped 2-acre area bounded east-west by Juniper and 13th Streets and north-south by Drury and Walnut Streets; an $8.9 million TIF note for actor Will Smith’s W Hotel/New Market Pavilion district, a 1.3-acre site located between Front and Second Streets and between Pine and Lombard; and a $5.5 million TIF note for the "Gateway" district, a 28,000-square-foot parcel located on the southeast corner of 16th and Vine Streets, where Realen Gateway Development Associates aims to build a Hampton Inn and Suites. (Because property taxes and use and occupancy taxes, which directly benefit the school district, are affected in TIF deals, the school board must approve every TIF plan.)

According to the PIDC, these three districts would create about 1,000 construction jobs and roughly 500 permanent jobs.

The 13th Street package did not receive a unanimous vote, however. Board members Jacques Lurie and Thomas Mills were the lone dissenters.

"You have the developer saying real estate is a great buy in Center City, and here I am sitting at the board table being asked to help him build because it’s a depressed area," says Lurie. "In June he was out telling people to buy up properties. I am very disappointed in my colleagues that they would approve it," he says.

The board does have the option not to pass a TIF, which would send the city and the developer back to square one. But, as Lurie explains, Mayor Ed Rendell, a big TIF fan, and other city officials have applied enough political pressure to get ordinances passed, such as the 13th Street plan, which he says clearly don’t fit the definition of blight.

"They bring us the TIF at the 11th hour and say, ‘We have to get this done. If we don’t get this done immediately, it’ll be on your head that this hotel won’t be built.’"

Lurie says that just a few days ago, the PIDC took a "positive step forward" by acknowledging some board members’ complaints that they weren’t being included early enough in the process. Lurie says Fina promised to notify them earlier.

Lurie says that every time a TIF comes before the board, he complains. And each time, he adds, city officials concede a little. That’s made approving TIF deals a little more palatable, but not entirely.

He points to other states that have redrafted TIF legislation to protect school districts from being affected by economic development tools such as TIF. There is no such movement here, nor have local nonprofits conducted any studies to assess the impact of TIF, partly because Philadelphia’s TIF districts are too new.

Councilman Michael Nutter, however, did express concern at Monday’s Council briefing about tax increment financing’s effect on school funding, and asked Fina to provide him with more information before Council holds hearings on the plans on Nov. 17. Nutter also said he was interested in looking into other options, including additional grants to the school district.

Regardless of Nutter’s concern, Council will most likely pass the ordinances before its term ends in December.

Lurie says he will continue pushing for broader participation in the process. Under the current system, he says, the city sees its return at a much faster rate than the school district.

"Whenever you want to do development in the city, the folks that lose are school kids."


For more information
To read more about tax increment financing visit:
www.ncsl.org/programs/econ/TIF.htm, www.mcs.com/~civicfed/TIF/TIF.HTM, or www.mcs.com/~civicfed/TIF/TIFConf.HTM.

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