TIF incentives aid in creation of transformative projects

The article, “How developers of Lexington’s flashiest mall got a tax break meant for blighted areas,” made reference to my organization, the Council of Development Finance Agencies. It stated, “All 50 states have TIF programs, according to a 2015 report from the Council of Development Finance Agencies, but few have made them as generous as Kentucky’s.”

You infer that we characterized Kentucky’s law as generous. We did not. Our report is simply a factual overview of the state TIF laws. It does not make reference to the relative generosity of a state law. In addition, as our report points out, only 49 states and the District of Columbia have a TIF law in place. Arizona does not and has never had TIF.

While I appreciate the review of the use of TIF in Kentucky, I’d also like to point out some other concerns. The piece is very narrowly focused; the reporter appeared to have spoken to very few project sponsors and/or developers. Economic development is very hard and building infrastructure in economically challenged communities is extremely expensive. I’m not an expert on each of these projects but I would ask a few questions.

Can you provide an alternative to financing or funding the infrastructure needed for these transformative projects? Should Kentucky not engage in economic development? Should local leaders hope for market engagement when there is limited interest from the private sector given the enormous costs of infrastructure?

This remains the most relevant and important public policy test for the use of financing tools. That being, that there are no better or more efficient alternatives than TIF. So on the one hand, you can have concerns about the use of public financing tools. That I agree with and these tools should always be viewed with a narrow lens. But the alternative to progress is to have nothing happen.

The article specifically touched on a bankrupt college campus in Western Kentucky and how it has been revitalized into a technology park. I’d ask you to consider the alternative? Should the state do nothing? Should it sit back and allow the property to become a blight on the community? Should it walk away from assisting Western Kentucky communities with revitalization? Where was the perspective of the folks involved in that project? I bet they are pretty thrilled to have economic opportunity in their community.

The article stated, “Overall, Kentucky has given developers $111 million through TIF tax rebates in the past decade, and at least $2.9 billion has been pledged on current projects over their 20- and 30-year terms, according to state records.”

First, the state has not “given” anything to developers. The state has pledged future tax revenues for expected private investments. This is a normal transaction that takes place in communities every single day nationwide.

Another way to consider this is that a state investment of future tax revenue of $111 million has leveraged $2.9 billion in private investment. This is a 26:1 leverage ratio. For every $1 of state revenue committed to a project, about $26 of private investment is committed. I would challenge you to find a better and more effective leverage ratio model anywhere.

Finally, the article referenced that the Kentucky law is generous. If the law is generous, then why would it need to be amended regularly? In actuality, the Kentucky law is very narrowly focused. When a project does not fit, the law can be changed and that constitutes a significant public-policy test. I’m sure that dozens and dozens of projects have attempted to fit into the law but have been rejected.

Ohio amends their state law every year. They do so to ensure the law is relevant and works for projects throughout the state. In a two-year period, 11 states have amended their TIF law. It is entirely normal and routine.

This story was originally published November 3, 2017 at 7:46 PM with the headline "TIF incentives aid in creation of transformative projects."