In the last fiscal year, roughly 14% of the City of Missoula’s tax base went to Urban Renewal Districts to be used as Tax Increment Financing, according to Mayor John Engen. That’s up from around 4% three years ago.
Engen had a cordial debate on Monday with former state legislator and former Missoula City Council member Adam Hertz, a local realtor who has often criticized TIF and advocated for reforming the program. The discussion on the pros and cons of TIF was sponsored by City Club Missoula.
Engen spent his time extolling the benefits of the TIF program in Missoula, and Hertz pointed out ways he believes TIF has been misused and needs changing.
The day’s discussion was preceded by an explanation of Tax Increment Financing and how it is intended to work by University of Montana law professor Pippa Browde. She said state and local governments all over the U.S. commonly use TIF as a tax policy tool to help subsidize costs. She noted that those governments borrow against future expected tax revenue that will be generated by redevelopment.
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In Missoula’s six Urban Renewal Districts, the property taxes from new construction after the districts were formed are used as Tax Increment Financing (TIF) funds for public infrastructure projects. Those projects are approved by the Missoula Redevelopment Agency’s board of commissioners. Engen and MRA staff have long said subsidizing private investment in those districts with TIF encourages more private investment than would otherwise occur, thereby increasing the tax base. Hertz has argued that some of the private investment would have occurred anyway, and the tax revenue that’s diverted from the general fund means that property taxes have to be raised to keep money flowing to local schools, police, firefighters and other service providers.
Engen noted that TIF has been in place since the 1970s in Missoula, and the first Urban Renewal District was downtown Missoula. He said $20 million worth of TIF investment was leveraged to attract what he and his staff believe to be around $200 million of additional investment.
“When that (Urban Renewal District) expired, all that value and investment went into the general fund,” he said. “(TIF) is a powerful tool for business development and investment.”
Engen noted that many miles of new sidewalks, 94 acres of new park improvements, affordable housing and sewer and water infrastructure in the city has been paid for by TIF. He said the Currents Aquatic Center, the civic baseball stadium, the Mobash skatepark, the Dragon Hollow playground and Caras Park were all paid for in part by TIF. Other projects include the pedestrian underbridge at Madison Street, the Clark Fork Commons affordable housing project, and the Solstice affordable housing complex.
Hertz said he’s not out to “abolish” TIF, but he’s seeking reform and the elimination of what he sees as abuse and the “skirting” of laws or “finding loopholes” and not efficiently using the program.
He took issue with the mayor’s assertion that projects funded by TIF wouldn’t have been as large or wouldn’t have happened at all “but for” the addition of TIF.
“Certainly a big argument is the ‘but for’ argument,” Hertz said. “I like to call that the ‘capture’ versus ‘creation’ argument. It’s certainly possible some of these projects may not exist without subsidy.”
But, he continued, there’s at least two examples of large projects that he believes would have happened anyway without the addition of taxpayer dollars. One was the Southgate Mall expansion and the other is the two large new Stockman Bank buildings downtown and on Brooks Street.
“Southgate Mall had announced their intent to do a very large project,” Hertz noted. “They had been excluded from Urban Renewal District III because there were no findings of blight, but the Missoula Redevelopment Agency saw an opportunity to capture new increment that would ordinarily go to taxing jurisdictions.”
He said the MRA then redrew the boundary of the district to capture the expanded tax base from Southgate Mall and used the money for a new public road from Brooks to Reserve. He said he also believes that Stockman Bank was going to build new buildings downtown and on Brooks Street regardless of whether any city assistance was offered for public infrastructure around the buildings. He called the Stockman Bank TIF assistance a “corporate handout,” although he said he banks with Stockman and doesn’t blame the company.
“I don’t think Stockman Bank had any intention to not be in downtown Missoula and central Missoula,” Hertz said. “They got TIF assistance for both buildings. It’s a handout any developer would take. The problem is I don’t believe TIF was necessary to make those things happen. It’s a big subsidy that takes money from schools and government in order to subsidize a development that would have existed anyway. They got what I consider a corporate handout.”
Hertz disagreed with Engen’s premise that TIF creates more tax base in the long run that would otherwise occur.
“It’s a very poor argument to say any or most or all increment is because of the existence of the (urban renewal) districts,” Hertz said. “Every developer is going to, of course, approach the MRA and say ‘we can’t make the project work without subsidy.' In many cases that subsidy is padding the profit and not making the project come to fruition. That’s a difficult thing to prove without transparency from developers.”
Hertz said a housing development on the Northside by local builder Dave Edgell called the Scott Street Village would have happened without $518,230 in TIF funding.
Engen disagreed, saying if Edgell were in the discussion he would say the TIF was used for public infrastructure and was necessary to get the project done. Last fall, Edgell told the Missoulian the project "wouldn’t have happened" without TIF support.
In his closing remarks, Engen said there’s a “lot of noise” around TIF.
“It’s not nearly as black and white as folks suggest,” Engen said. “People throw around terms like ‘corporate welfare,’ but the more you look underneath the rhetoric and understand the details of what investment has been made and what the impacts of the investment are, and as these districts sunset, we will see a tremendous boom to the tax base.”
He said the city will see infrastructure in place that might have long-languished or never been completed.
“Which adds to the quality of life, community values and to commercial and property values,” he said. “And back to that notion of tax base. This is a tool we use to redevelop and enhance the community, and I believe it comes at a reasonable cost to the tax base and other taxing jurisdictions who also take advantage and benefit from that investment over the long-term. I would hate to see that tool go away. It’s worked very well here.”
Hertz concluded by saying that it’s important for any tax incentive to not become a “race to the bottom.” He said he’d like the state legislature to put a cap on how much of a city’s tax base can be tied up in TIF.
“It’s important for any tool like this, don’t let it devolve into crony capitalism or major social engineering,” he said. “Make sure they’re truly incentives and not handouts.”