This article was first published in the Pioneer Press on April 6, 2016. The published version of this article and reader comments are available on the Pioneer Press’s website. View on TwinCities.com (Pioneer Press)
St. Paul is yet again setting itself up for more public subsidy lost to private development. As we struggle every year at budget time just to retain and fund our limited public services, more taxpayers are questioning the wisdom of these tax-free development deals.
A spokeswoman for the mayor recently made the comment that tax increment financing (TIF) is a great tool to have in the city’s tool belt: “The appropriate time to raise issues of TIF use is after (not before) we have a proposal before us.” A majority of the City Council apparently agrees.
Let’s talk reality. That tool in the belt has become defective from over-use and abuse. Indeed, our public officials have become addicted to using this tool. Because our city takes an official position to consider TIF subsidies for most every development proposal, every development proposal ends up requiring TIF. All sophisticated developers build into their proposals a TIF subsidy, not only because it’s free money, but also because they have to compete with already subsidized developments or new ones in the future.
As a result, we have capped our potential tax base. These developments then require ever-increasing public services that add increasing burdens to other taxpayers. Those costs fall unfairly on homeowners and small businesses who cannot pass them on to others.
It has been pointed out that downtown has received $152 million in TIF so why shouldn’t this benefit be spread evenly all over the city? I would respond that in fact this is a burden and that it is already being spread throughout the city.
Our core downtown has the notorious “dead zone” to show for all that $152 million in TIF subsidy. I have been a commercial real estate broker in downtown for over 40 years. Every new office/retail development built during that time has sold for less, often far less, than it cost to build. If we ever have an honest overall analysis, those $100-plus million in TIF grants will be seen to have failed to generate a dime in net positive tax dollars. If I am wrong, I challenge the city to show us the figures that refute that. We can’t even sustain downtown’s former levels of maintenance.
A misleading claim for TIF is that it is only a loan to a developer. In reality it’s not a loan at all. It is a grant with no requirement that the development ever cause an increase in tax revenues from surrounding properties. The city gives away the money on a hope and a prayer. In reality, our tax base never recovers lost taxes that would have been paid on any development if no TIF had been granted. There will always be development because that’s what developers do. TIF only skews the economics of development. Why not collect those taxes and pay for the cost of servicing these properties?
Minneapolis figured this out years ago. In the last five years, Minneapolis has spent $24 million on TIF. St. Paul in the same five years has spent $114 million. Since then, Minneapolis has had 10 times more development.
We continue to increase our property tax rates, including assessments, while at the same time we have decreased park, library, fire, police, and public works operating budgets. Add on all the losses to our schools and county services and you begin to see the real cost of TIF. Its real benefit is only to the developers. When will we start to see any real benefit to all these subsidies? It is time that the city reports honestly and completely on the real costs of TIF and other tax giveaways.https://5b554853664a14aff05870024d85d7b1.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
John Mannillo of St. Paul is a commercial real estate broker and preservation developer. He lives in Highland Park