California has always been a national trend setter.  It gave us the hippies of the 70’s, Silicon Valley in the 80’s and 90’s and tax limitations in the 00’s.

If being a leader is a forecast of the future, California’s repeal of its Redevelopment Agency enabling legislation in June 2011 may signal similar action by state legislatures elsewhere.

Could Michigan be one of them?

Governor Jerry Brown, under the authority of California’s fiscal emergency legislation enacted two bills (The Termination Bill & The Continuation Bill), “to secure funding for ‘core government services’ including fire protection, police and schools”.  His action bares the state’s 400 Redevelopment Agencies from conducting new business and provides for their windup and dissolution effectively terminating use of Tax Increment Financing in California.  The action did however, allow cities and counties that created Redevelopment Agencies to continue operations if they agree to make continuous payments to fund core government services.

Challenged (July 2011) at the California Supreme Court level by local government Redevelopment Agency sponsors, the court recently upheld the law. In its ruling (December 29, 2011), the Court held that “if the legislature creates a political entity, it can later dissolve it, baring specific Constitutional removal of power”. 

The Court ruling established February 1, 2012 as the terminal date for the state’s 400 Redevelopment Agencies.

This is a major philosophic change in practice of economic development.

California was one of the first states to recognize the need for special financing tools to eliminate blight, establishing in 1945 legislation allowing the use of a portion of property taxes to create public/private partnerships to eradicate blight.  It was the first state to use tax increment financing in the early 1950’s whereby taxes paid on the value of new development was redirected to pay for government supplied infrastructure needed to serve the new development.

Like almost every state, Michigan followed suit enacting similar legislation in 1980’s that gave local government specific power to establish a special purpose local government authority that can establish a tax increment financing district and redirect a portion of real estate taxes to a special fund, funds which are to be used to promote economic development or another specific purpose specified by the authority.

Today Michigan has over a dozen special purpose authorities authorized to use tax increment financing. In fact, to many economic development practitioners, the use of tax increment financing is the “back bone” of local government economic development efforts.

These special local government authorities and use of TIF funds is one of the top, if not the top, Michigan economic development tool to attract and incent new development. 

With the constriction of developer bank financing for project infrastructure today, economic development practitioners in almost every development project consider use of TIF financing for funding required infrastructure improvements needed to make the project happen.

Is Michigan in line for TIF termination?

For the past several years, this author has watched as university research and public and private “think tanks” have studied use of Michigan tax increment financing authority. 

There is no doubt that TIF has been used inappropriately in many cases, the most flagrant misuse being use of TIF funds for purchases and services that would ordinarily be funded by the operating budget of the local government.  Some example being the purchase of public works vehicles since they plow snow in the authority district, purchase of street signs both in and outside the district, replacement of street light luminary globes, development of a park next to the authority district to attract visitors, payment of salaries for the portion of time government employees spend doing their regular job in the special purpose district.

In my opinion call for termination of TIF due to misuse is inevitable.

However we must remember the original purpose of TIF was to provide infrastructure financing not to replace local government general fund budgeted expenditures.

Here’s why TIF in Michigan is necessary. 

During the economic good times land use planners and government officials could require developers of new projects to pay-for, install and donate to local government both on-site and off-site infrastructure necessary for their project.  Today developers are not inclined to do so.

If the private developer can’t or won’t fund public infrastructure needed for new development, the burden is upon Michigan local government to do so in order to support future new growth and development.

With revenue limitations upon local governments TIF may be the only means to effectively financing infrastructure necessary for new development.

There is no doubt in my mind that TIF termination will be on the legislative docket for discussion as Michigan’s financial emergency is no different that California’s.

My hope is that Michigan’s TIF returns to its original purpose “project infrastructure financing”.

 _ _ _ _ _ _ _ _ _ _

(For an overview of Michigan TIF’s see: Michigan Tax Increment Financing: A Primer; Planning & Zoning News, Dec. 2008, p.11-14).

(For a description of the importance of TIF in Michigan Economic Development see:  If Not TIFA, Then What?; Planning & Zoning News, May 1994, p. 5-8)

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  1. Robin Says:

    Is Michigan in line for TIF termination? Gee, I sure hope so. Here’s a thought – why don’t we get rid of the spending that only creates debt and nothing more and save ourselves? Why don’t we keep more of our funds instead of sending funds to state and federal government for their lottery system – only to employ other government agencies to win our money back?

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