Mayor Gray’s recently released five-year economic plan makes many good choices for the city: laying out a vision, focusing on sector-specific approaches, and identifying key measures of success. But there is one choice that isn’t in the best interest of the District’removing Tax Increment Financing (TIF) from the city’s debt cap.
Here’s why: doing that will bring less scrutiny and accountability to how we spend our critical public dollars toward development. Keeping TIF dollars within the debt cap forces us to make choices about which projects should get priority, which is a good thing.
Under TIF, the city borrows funds that then go toward commercial development projects. Rather than having the developers of these projects pay back the city directly, the loans are repaid using sales taxes and property taxes generated by the completed project. For example, the District paid $42 million to support the parking garage at the DC USA mall in Columbia Heights. Another example is the nearly $40 million the District put toward the O Street Market development in Shaw, which will include a re-built Giant grocery store, new housing, and more.
Under this design, DC’s TIF projects are considered self-financing, with no net fiscal impact to the District. However, the borrowed funds are counted as part of the city’s debt, which is subject to a cap. Because the city also borrows money for public projects — such as renovating schools or building new libraries the debt cap requires the District to make choices over which economic development projects to subsidize.
The mayor’s economic development plan, however, proposes not counting TIF subsidies toward the debt cap, presumably so the city could support more of them.
That would be a bad move. If all TIF projects were treated as both self-financing and debt-free, the District’s economic development officials would have no incentive to scrutinize proposed TIF projects to see if they are well designed and important for the city. They could just approve them all.
It would be like eating pumpkin pie and pecan pie — and maybe some chocolate cake, too. That might be okay one day a year at Thanksgiving, but it’s an unhealthy year-round diet.
And it would be an unhealthy diet for the District, too. An unchecked expansion of TIF-subsidized projects could lead to large “tax holes” throughout the city, areas where property taxes and sales taxes would be diverted to pay off TIF loans, rather than going into the city’s coffers and being available to support city services, such as police or schools.
The mayor’s five-year development plan creates an ambitious vision for strengthening and diversifying DC’s economy, from high-tech to health care to retail. The plan is so wide-ranging that DC’s leaders will need to make lots of choices over which parts to prioritize and pursue first. They will need to make smart choices. And those smart choices should include which projects to subsidize under the TIF program. That can only occur if the money borrowed to pay off TIF subsidies is counted as part of the city’s tax-supported debt.
