Progress on TIF Reform
Last Wednesday, Governor Jay Nixon signed into law HB 1434, a measure that—effective August 28—could deal a blow to Missouri’s game of corporate welfare. History shows that in the Show-Me State, subsidies such as tax increment financing (TIF) are granted to just about anyone who asks. This is thanks to the choice currently facing city councils regarding subsidization:
1. Offer TIF in order to attract a business into your municipality and grow, or
2. Say no to subsidizing a business, watch a neighboring municipality say yes, and then suffer as your economic growth is shifted into a neighboring city
This race to the bottom among neighboring communities has created an environment where municipalities feel obliged to hand over corporate subsidies, but the grass is looking greener around St. Louis.
In the past, even if a county government determined that a TIF development might be damaging to the region, an individual municipality within the county could easily override the veto with a two-thirds vote, essentially leaving the county voiceless on developments that impacted it. Under the new law, if a municipality chooses to override, it will only be allowed to use tax incentives to finance the costs of demolition and clearing land. Starting in August, affected counties will be able to significantly limit funds going toward developments that aren’t in the wider region’s best interest.
TIF was originally developed to assist areas that were struggling economically—areas that would otherwise have difficulty attracting investment. Sadly, this has not been the trend in recent years. With the threat of big businesses relocating to tax-friendly municipalities, TIF has instead been used to attract well-connected businesses to areas where development might well have occurred without any subsidies. The new TIF law will not restrict development subsidies unless the overarching county determines that a project will be damaging to the region as a whole. It’s a much healthier approach to decision making than pitting one municipality against another.
TIF reform has been discussed for many years at the Show-Me Institute, and the new law is a win for Missouri’s economic well-being. There are other reforms that should be discussed, such as applying checks and balances to the rest of Missouri (the override limitation only pertains to Saint Louis, Saint Charles, and Jefferson counties), but limiting the powers that municipalities abuse to the detriment of their counties is a step in the right direction.