Originally created to solve a problem that no longer exists, tax-increment financing is now being used by cities for a variety of purposes:
None of these aims provide sufficient net benefits to justify taxpayer subsidies. At best, tax-increment financing does little more than shuffle economic development like deck chairs; at worst, it actually slows economic growth by placing an extra burden on taxpayers and discouraging businesses that do not want to compete with those subsidized by TIF.
Idaho is not the only state struggling with urban renewal. Almost immediately upon taking office, California‘s Governor Jerry Brown proposed to eliminate that state‘s 425 urban-renewal districts in order to eventually make the $5.5 billion in property taxes that go to those districts available for schools and other more vital purposes. Since some of those taxes are dedicated to repaying urban-renewal bonds, eliminating the districts won‘t immediately free up the entire $5.5 billion, but it will curtail the growth of funds diverted from other tax districts to urban renewal.
Idaho legislators will be tempted to try to tighten the rules that govern tax-increment financing to insure that it is used only to fix genuine problems of blight or to produce real benefits that could not be achieved any other way. There are two problems with this approach. First, it is probably impossible to adequately define blight, competitive disadvantage, or other terms so tightly that cities will not abuse TIF. Second, there is little evidence that city governments are better than private developers at determining the type and location of new development that cities need, and plenty of evidence that they are not as good.
It makes far more sense to simply repeal Idaho‘s TIF law. This would lead cities to seek other means of promoting economic development, such as deregulation, that are less costly to taxpayers and probably more successful in the long run.
Short of outright repeal, there are several things the Idaho legislature can do to curb abuses of tax-increment financing: