St. Paul’s new public subsidy won’t bring new development

On August 25, the St. Paul City Council added 10 years to a Tax Increment Finance (TIF) District that funds development around Allianz Field. The new district, named ‘Snelling Midway Redevelopment Tax Increment Financing District,’ replaces the ‘Renewal and Renovation’ TIF, which was approved last November to run for 16 years. The extended TIF district will run for 26 years.

Typically, new projects –– especially in underdeveloped areas –– increase property values. A TIF captures the gains in tax revenue that result from the rising property values due to new development (in a designated district) and uses those funds to subsidize new development. These subsidies can take many forms, including reduced or zero tax payments for new development.

In this case,

During the course of 26 years, the TIF district would allow developers to effectively avoid $67.9 million in city property taxes that would otherwise be generated by future property improvements, as well as $65.9 million in taxes otherwise due to Ramsey County and $54.9 million from the St. Paul School District. In exchange, the city would benefit from jobs, housing and major redevelopment of the blighted super block that might not otherwise move forward without tax relief.

Evidence suggests, however, that this could be a waste of taxpayers’ money.

Wasteful and ineffective

TIFs, like other public subsidies, have proven to be an ineffective way to induce development. As American Experiment review of literature found, TIFs

shift the tax burden or cost of development from developers to taxpayers. TIFs may also potentially capture some natural growth in property values and take credit for them, essentially diverting property tax revenues from other public services. Sometimes, TIFs may simply underperform, failing to induce economic activity or raise property values. But more importantly, like most tax incentives, TIFs may go to projects that were going to be built anyway.

For instance, St. Louis spent $709 million on TIF and tax abatements over the past 15 years. Yet this spending has “not created jobs, revitalized neighborhoods, or increased long-term tax revenues.” Similar results have been found in other places like Kansas City.

It is highly unlikely that the results will be any different in St Paul. The TIF will merely divert revenues that could fund schools to property developers.