By Kaye Beach

Cities are working overtime across the state of Oklahoma to spur economic growth and reduce blight. The latest, greatest, most favored financing method for economic development in our state right now is Tax Increment Financing or TIF. TIF is a redevelopment financing method empowered by the state legislature by the Oklahoma Local Development Act passed in 1992. TIF allows local government to use property tax or sales tax (or both) collected from new development to subsidize the very same new development. TIF is increasingly being used by Oklahoma cities to subsidize private development. And TIF does create debt, usually in the form of bonds.

The last official count of TIF districts statewide, done in 2011 by the State Department of Commerce, showed 48 active TIF districts. I would guess that there have been at least a dozen more created since the last count. Oklahoma City now boasts nine TIF districts all located in the core area of the city.

Here is how it works: cities, counties or their designated, statutorily empowered redevelopment agencies, decide to create a TIF. After some assessments and processes of approval have been accomplished, the geographic boundaries of the TIF district are drawn up. At that point, property value is assessed and that year's value is established as a baseline. After the project is initiated, any new tax revenue increase or "increment" above the established baseline value goes directly to the redevelopment agency to subsidize the development and not to the usual tax districts such as counties, school districts, public safety or general funds. These tax districts will continue to receive tax money, but at the baseline rate, they generally receive none of the increased revenue or tax increment for the life of the TIF District which is up to 25 years.

It will be worth your while, dear taxpayer, to take some time to understand how TIF really works. You will usually be told that TIF projects are self-funding, that they pose no burden to the taxpayers, no additional risk and they don't raise taxes. Sometimes TIF will even be referred to as "free money"! But you know the old adage, "If it sounds too good to be true, it probably is."

Tax Increment Financing should be called Tax Increment Diversion because once a TIF district is established, any increase in property taxes or sales tax is diverted away from the city, county, schools or police that normally benefit from that revenue.

TIF is meant to be used sparingly to help stimulate depressed areas that otherwise would lie fallow. TIF is absolutely not intended to be used in areas where growth would probably have occurred anyway, but this is exactly how Tax Increment Financing is being used the most. In these cases, TIF simply diverts precious funding away from essential government services.

Here is a common scenario that should make us question the effect of TIF on city finances; Tulsa residents are complaining that they are being put on hold when calling 911 for life threatening emergencies, a problem confirmed by the 911 Director who says that they are very understaffed and their budget has been cut. The Tulsa 911 center reports that it has 25% fewer workers compared to 2005 levels even while the population has grown and crime along with it.

Oklahoma cities, including Tulsa and Oklahoma City, are in economic development frenzy with numerous TIF districts and a multitude of other taxpayer funded "quality of life," social engineering and central planning projects. At the same time, essential services are suffering. Proposed solutions to any budget shortfalls include extending temporary taxes, hiking fees and new taxes. So, is there a connection between the number of TIF districts created in a city and the hard choices we are being forced to make between either ever higher taxes and fees or a diminished level of essential services? I think so.

Cities like Norman, Oklahoma City and Edmond have voted to increase their sales tax dedicated to fund public safety. How much tax revenue is being frivolously diverted to redevelopment projects, that otherwise would go to public safety? And here is a kicker, most taxpayers probably have no idea that while they are willing to dig deeper to keep important services running, the TIF districts do not contribute. Remember, any tax revenue increase within the TIF district goes, right back to the TIF district.

TIF and eminent domain are complimentary tools. Without the funds that come from TIF, cities could rarely afford to pay for property they have declared blighted and acquired through negotiated buyouts and if that fails, eminent domain.

In order to be eligible for a TIF designation, the area targeted for development must first be determined to be "unproductive, undeveloped, underdeveloped or blighted."

In Oklahoma, the statutory definition of blight is so broad that virtually any property could be declared a "blighted area." In 2007, The Castle Coalition, a national organization that fights against eminent domain abuse, rated the states based on how well their laws protected property owners. They gave Oklahoma an "F" based on our open ended blight definition which allows government authorities to effectively circumvent Oklahoma's prohibition on taking property solely for economic development. As specifically noted by the Oklahoma Supreme Court in 2006, if the property in question has been determined to lie within a "blighted area" then it is perfectly legal to use eminent domain to take that property and promptly hand it over to a private entity.

Your property, wherever you may reside in the state of Oklahoma, could easily be legally declared within a blighted area. This makes us all vulnerable to property condemnation and eminent domain, limited only by the boldness of the government. Would it be fair to predict that the government or its statutorily empowered designated Redevelopment agency will become bolder in the future? I think it is fair and this is why the blight statute in Oklahoma must be corrected by the state legislature.

There is no shortage of TIF nightmare stories to tell from other states, but what we really want to know is how they are working out in our state. Despite TIF being so highly touted by our central planning enthusiasts, there is no publicly available performance data compiled on Oklahoma's TIFs making it impossible for us to intelligently weigh their potential risks and benefits

State Rep. Joe Dorman (D-Rush Springs) requested an interim study last legislative session to review the performance of TIF districts in Oklahoma and to provide the opportunity for the Department of Commerce to provide the legislature with performance data on the of existing TIF districts as they agreed to do back in a 2007. The study was not approved. Likewise legislation designed to compel the Department of Commerce to provide basic information on the performance of TIFs statewide, also championed by Dorman with Republican co-authors, has repeatedly failed.

Tax Increment Financing was born in California in 1952 as a financing method to help fund urban renewal projects. It was not intended to be a catch-all economic development tool. I question our ability use it at all, without abusing it. You won't be surprised that California's innovative financing tool went wildly out of control. In 2012 the state abolished Redevelopment Agencies and TIF. They had to in order to just survive economically. TIF was bankrupting the state, starving California cities' general funds and squeezing out core public services.

Study after study of state and local economic development incentive schemes, including Tax Increment Financing, provides evidence of what we might suspect here in Oklahoma; that TIF is a poor economic development tool, but a great way to grow government, increase political corruption and violate people's property rights. I doubt our ability to use TIF without abusing it. To truly have a strong, healthy economy, we need to tread carefully and avoid leaning so heavily on the imagined free money provided by Tax Increment Financing.