My Turn: A smarter approach to TIF districts and tax relief in Concord

For the Monitor
Wednesday, November 29, 2017

A Tax Increment Finance (TIF) district is a development tool authorized by the state Legislature (RSA-162K) to encourage development in an area of a community where development would present unusual challenges.

Those challenges can be caused by a blighted or contaminated site or an area in need of extensive infrastructure improvements that make development too expensive. It is important to understand that TIF districts pay the same amount of property taxes as the rest of the community. It is just as important to understand that the new taxes generated in the TIF district can stay in the TIF district to pay for the improvements that make the new development possible.

Let me try to be a bit clearer on what happens with the taxes in a TIF district. When you and I make improvements to our home or business, our property’s assessed value and the taxes we pay increase. All of our taxes are used to pay for city, school, county and state programs.

If we took out a loan to pay for the improvements we made we also make payments on the loan. In a TIF district the assessed value and taxes increase just like ours do. The taxes the district was paying before improvements or new development happened still go back to the community, county and state. But, the added value of the property and the new taxes go to pay for the improvements that made the project possible. The developer still pays for improvements to the building, but he may not be paying for improvements to the site and infrastructure.

So if you and I needed to extend a sewer line, we pay for it. In a TIF district that sewer line could be paid for by the property owner’s taxes.

So how does this affect you and me? When we pay our taxes they go into a large pool to pay for citywide services, our schools, the county and state. In a TIF district, the new taxes created by the added value can stay in the TIF district and it would not contribute to the costs incurred by the community to provide those services. Those new taxes can remain in a TIF district for 20 years or longer.

So I’ll make an assumption for the sake of an explanation. Let’s assume that the TIF district doesn’t add any new costs to the community. Why then should we be concerned that the taxes are not going to pay for costs to the community? One reason TIF districts are promoted is that we are told they bring economic development and tax base expansion to a community. But tax base expansion without contributing to the pool of those already paying taxes is a glass half empty.

Over the 20 years the TIF district will not be sharing its new tax revenues with the rest of the community, our costs will increase, even if no new costs to the community come from the TIF district.

So while we have economic development and tax base expansion because of development in the TIF district, the pool from which taxes are being collected to pay for community services has not increased. The same pool of people and businesses that were contributing to our city’s services and schools before the TIF district project are the same ones still paying. And remember those new revenues from the TIF district may not be available to pay for services for 20 years or longer.

I understand the potential value of using tax increment financing to spur economic development in areas of a community that might otherwise remain difficult to develop. I also recognize the importance of having everyone contribute to the community’s well being. I would like nothing more than to be able to use my taxes to pay for a new driveway, but that wouldn’t be fair to my neighbors.

Here is how I propose we get that glass half full: Understanding that TIF districts can and do have value to a community, I propose that at a minimum no more than 50 percent of the new taxes stay in the TIF district to pay for the improvements. The rest of the new taxes will come back to the community to pay for city services, school district programs, and for the county and state.

I believe this advances the intent the Legislature had in mind when it authorized TIF districts, and I believe it helps communities with economic development and in expanding their tax base without creating an unnecessary hardship for those not in the TIF district.

Tax relief (RSA-79E) is quite different from what occurs in a TIF districts. Tax relief allows a project in a designated area of a community to be relieved from paying any new taxes on the added value of the project after improvements are made.

Similar to a TIF district, the current value of the project would continue to pay taxes. Unlike a TIF district the added value would be exempt for a period of time based on what state legislation allows and the community determines. Typically three to seven years, but it can be less and it can be longer.

Like TIF districts, this legislation can be beneficial to a community. But also like TIF districts, it is important to carefully determine when and how tax relief should be approved. It is important to understand that just because a project meets all the criteria to receive tax relief, that a community is not obligated to provide that relief.

Last year our city council instructed the administration to collect information from an applicant that would help the city to determine if there is a financial necessity for the tax relief. Will the project be able to move forward without tax relief and will the project be able to be financially stable after the tax relief expires?

While not mandated by the state’s statute that authorized tax relief, it is an important tool in helping the city balance need of tax relief for the success of the project and the benefit to the community. It is important to remember that when tax relief is approved, it means that the sharing of the community’s costs is delayed. It means that those of us currently paying the full assessed value on our property taxes are picking up the tab for those who aren’t.

Tax relief is a tool that can provide long-term benefits to both the project and the community. However, it must never be abused to provide the project developer with a profit windfall. It should not be used to make it easier for the developer to secure a loan at a favorable rate when the project would still be financially successful with the rate the lender is offering. It should be used only when a clear benefit is demonstrated to the community and the project would not be able to move forward without the tax relief.

With ever-increasing costs to our community and the state still not meeting its obligations, the city council must carefully weigh the benefits to the developer with the costs to our community.

(Allan Herschlag is a
Concord city councilor in Ward 2.)