TIF is Everyone’s Education Problem

Remember the school district in Kansas City that is asking for a tax increase because of lost tax revenue? Show-Me Institute’s Bruce Stahl wrote last week that Tax Increment Financing (TIF) is the culprit.

Supporters of TIF often say that it is harmless. The rationale behind TIF subsidy is that a development’s taxes are “frozen” at current levels for a number of years. If a developer improves the property during that time, he won’t pay additional property taxes on the improvement.

However, TIF amounts to tax redirection without representation. Tax dollars intended for a school district (which come from property taxes) can be used to pay for costs associated with the subsidized development. Unlike school district officials, city officials tend to be enthusiastic about TIF because they can reap the benefits from increased sales taxes (which generally increase when TIF is used to subsidize box store development) without bearing much of the cost of lost property tax revenue.

Many voters get no say in the matter when they live in a school district impacted by TIF but outside of the city that is imposing the TIF. Some readers may think this is fine. After all, these are local subsidies — residents in Joplin certainly won’t pay for a proposed TIF in Columbia. Aren’t the cities of Brentwood and Saint Louis free to use TIF as much as they want?

Well, thanks to the intricacies of Missouri’s tax system, we all pay for TIF, even if we live in cities that do not award such subsidies.

School districts primarily receive funding from three sources: local property taxes, state aid, and federal aid. State officials use the local property tax base as part of the equation to calculate the funding it sends to school districts.

So, when TIF carves out a portion of the property tax base from a school district, the state can end up sending more funding to that district.

According to a 2003  study by the Brookings Institution’s Center on Urban and Metropolitan Policy, TIF can increase state aid by up to 7 percent in Kansas City-area districts, and up to 5 percent in Saint Louis-area districts. The author, Thomas Luce, estimated that up to 21 percent of the state aid going to the Fort Zumwalt School District in St. Charles County was attributable to TIF revenue losses.

Not only does TIF result in dollars intended for schools to be redirected to development, we all end up paying for it through state income and sales taxes. And yet, it is unlikely that a taxpayer in Cape Girardeau will ever benefit from a Kansas City TIF development that he helped subsidize.

If TIF is truly as transformative as supporters believe, then it should stand on its own. The state funding formula should not reimburse school districts for property tax revenues lost to local governments’ development bets.