Property taxpayers in Minnesota are suffering from a TIF plague

Edina Mayor James Hovland recently wrote a commentary published in the Minnesota Star Tribune titled, “Minnesota needs more housing. How do we get there?” From the prospective of a taxpayer, his argument is flawed. He wrote, “… let the state (Minnesota) also strengthen tools such as tax increment financing …” 

Tax increment financing (TIF) is a wonderful tool if you are a developer or if you are an elected official and you want to discretely raise local property taxes in order to transfer wealth to well-off developers by giving them a lucrative property tax reduction incentive for up to 26 years. In other words, TIFs are not property-taxpayer friendly.

Occupiers of completed TIF projects expect to enjoy fire and police protection, paved streets and grassy parks. All of those things cost money. Normally they would be paid by the owners of the new projects. But when the developer-owner doesn’t pay for those amenities, then all of the community’s non-TIF property owners pay.   

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Also, many taxpayers who fund this incentive won’t live long enough to free themselves from this obligation. Further, future property taxpayers will also suffer the high-cost, long-term TIF taxpayer’s plague. TIFs will make the community’s housing stock less affordable and crowd more people out of the housing market.

To make matters worse, most taxpayers, and some of those elected officials who activate the taxing (the TIF-makers), don’t really know how TIFs work to their taxpayer’s disadvantage.  A state representative and a former city council member admitted to me that he really didn’t know how TIFs work, and he didn’t think anyone on his former city council knew how they worked either.

Current TIF law is a risky solution for affordable housing projects. State law requires common-interest community developers to warrant their building’s design, materials and workmanship for 10 years, sometimes less. By definition, these projects are populated with low-income, low-wealth people, many of whom are unwilling or unable to properly support “reserve funds” needed for livable long-term maintenance and upgrade purposes, because buildings and their parts don’t last forever. At minimum, we need them to last and be livable considerably longer than the public’s investment in them.  

So, to answer Mayor Hovland’s question, cities can’t cure the housing shortage problem without compromising the integrity and fairness of its taxation, but our state can. The state of Minnesota can work in partnership with local governments throughout the whole state to efficiently, fairly and wisely fund suitable incentives for developers to service the housing needs of all our citizens. That could eliminate municipalities from competing with each other for developer’s services.  

Ten of the most active TIF municipalities in Minnesota are Minneapolis, St. Paul, Bloomington, Duluth, Rochester, Edina, St. Louis Park, Richfield, Brooklyn Park and Plymouth. These, and many other TIF-makers in Minnesota and elsewhere don’t seem to be aware of the pharmaceutical metaphor that, one or two pills can be curative, but that many pills can be poison (to the property taxpayers in their communities.) 

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It seems as though those municipal TIF-makers have a full confidence in their ability to accurately forecast future interest rates, future livable-property conditions and taxable and market values of various properties, as well as future demographics.

Do you think that those TIF-makers know that over the last 50 years, the highest interest rate for 30-year fixed rate mortgages occurred in 1981 at more than 18%, and that 40 years later, in 2021, the mortgage rate low was about 2.6%? (Currently, fixed-rate mortgage rates are in the 7% range.) This is important because the TIF tax advantage flows to the developer/owner for up to 26 years, and the community’s property taxpayers may or may not enjoy any tax investment-payback after the 26 years.  

I was in the banking business for most of my career.  The business plan for one segment of the banking business, the savings and loan companies, was to make long-term (30-year) fixed-rate mortgage loans to its borrowing customers and fund those loans with short-term (daily) deposits from its savings customers. When general interest rates went up, way up, those deposit customers withdrew their savings and invested them elsewhere, and the savings and loan companies went broke.

There was a time when managers of the savings and loan companies had full confidence in their ability to accurately forecast future interest rates, too. Let’s hope that the City Council in Edina and other city councils throughout Minnesota learn that they can’t accurately forecast the future and take too many TIF pills, and thereby poison their property taxpayers.

Dale A. Anderson is retired and lives in Edina.

The post Property taxpayers in Minnesota are suffering from a TIF plague appeared first on MinnPost.

Originally reported by MinnPost by Dale A. Anderson. Read the full story at the source.