Reports › Look Before You Leap: Tax Increment Financing in Jefferson Parish

Jul 22, 2008

Look Before You Leap - Jefferson Parish TIF

Look Before You Leap: Tax Increment Financing in Jefferson Parish provides an overview of tax increment financing (TIF) and describes four TIF districts proposed in Jefferson Parish. It also reviews the perceived benefits of TIF, as well as the pitfalls and potential abuses of the mechanism. It concludes with recommendations concerning the future use of TIF in Jefferson Parish.

Filed under: Economic Development and Subsidies, Jefferson Parish, Taxation and Assessments

As Jefferson Parish pursues tax increment financing, BGR calls for careful approach

Today the Bureau of Governmental Research releases Look Before You Leap: Tax Increment Financing in Jefferson Parish. In this report, BGR provides an overview of tax increment financing (TIF) and describes four TIF districts proposed in Jefferson Parish. It also reviews the perceived benefits of TIF, as well as the pitfalls and potential abuses of the mechanism. It concludes with recommendations concerning the future use of TIF in Jefferson Parish.

Jefferson Parish is considering the use of TIF to finance projects and improvements in designated areas. In each case, it would set aside a portion of the sales taxes generated by retail stores in the area to pay for the project or improvements. Officials are discussing the use of TIF for:

  • Acquisition of blighted property in Terrytown near Oakwood Mall
  • Various physical improvements to the Fat City area in Metairie
  • Infrastructure and marketing for a new West Bank business park
  • Traffic flow improvements at the intersection of Manhattan Boulevard and the West Bank Expressway in Harvey

In turning to TIF, Jefferson Parish joins a host of suburban governments using the financing mechanism to rebuild infrastructure, address blight, and improve the quality of life and economic prospects for their residents.

TIF enables local governments to capture incremental tax revenues from new development in a designated area and reinvest them in that area to fund improvements. The TIF district finances its own renewal and, if all goes well, eventually generates greater tax revenue for the community as a whole. In theory, the incremental revenues occur only because of the TIF investment. TIF has tremendous political appeal in that it can be implemented without raising taxes and, in many cases, without obtaining voter approval.

Though TIF is popular among local governments, critics have questioned its effectiveness as an economic development tool. Its side-effects can negate or reduce benefits. For example, TIF can confer benefits on certain businesses at the expense of others, reduce government revenues from adversely affected businesses, and transfer costs of public services and infrastructure to taxpayers outside the TIF district. When TIF funds private improvements, rather than public works and infrastructure, it increases the risk of providing inappropriate private subsidies.

The typical approach in Louisiana – TIF based on sales taxes (sales TIF) – presents more serious problems than the property tax-based TIF used in many other states. For example, sales TIF districts are more likely to capture revenues unrelated to the TIF investment, such as taxes that stores outside the district would otherwise generate. This capture reduces current tax revenues available to the jurisdiction. Also, the quest for the large, creditworthy retailers or shopping centers necessary to generate significant tax increments for sales TIF districts can distort land use decisions. Given the inherent risks associated with sales TIF, BGR considers it a poor tool for economic development and recommends against its use.

Jefferson’s sales TIF proposals are in the formative stages, making analysis and evaluation difficult. However, some patterns are emerging. On the positive side, the Parish appears to be using TIF to invest in public infrastructure and blight remediation, rather than to pay developers’ mortgages. The projects also appear to be compatible with Parish plans. On the negative side, the Parish is proceeding without the benefit of policies or procedures to guide it. In addition, the use of TIF will further fragment the tax base and affect the Parish’s ability to respond to needs on a parishwide basis. The dedication of revenues to TIF districts could ultimately affect the Parish’s ability to meet the rising costs of services funded by undedicated revenues.

If Jefferson Parish is determined to proceed with the use of sales TIF, it should put in place the framework needed to carefully evaluate TIF proposals and minimize their downsides. To that end, BGR has made a series of recommendations, more fully described in the report, that would:

  • Encourage prioritization and careful targeting of projects
  • Limit the use of TIF to areas that would not be developed without public funding
  • Minimize anti-competitive impacts
  • Provide for careful evaluation and approval of TIF districts
  • Minimize investment and maximize return
  • Ensure transparency and accountability

“It’s easy to see the appeal of TIF, but it is not free money,” said BGR Chairman Lynes R. Sloss. “If Jefferson Parish pursues TIF, it should tread carefully and seek to reduce the risks associated with the mechanism. Adopting clear policies and procedures would be a good first step.”