Dummy’s guide to Tax Incremental Financing

TIF is how cities finance lots of cool stuff. Here’s my explanation of it in a recent article for the Monitor about the Waller Creek Chain of parks, which is being funded by TIF.

City Council voted Thursday to pump another $110 million into the Waller Creek chain of parks.

The money committed by the city is part of a long-term $375 million project to turn 35 acres of land along the creek into a chain of parks and civic spaces. The other $275 million is supposed to come from private fundraising conducted by the Waller Creek Conservancy, a nonprofit.

The city is funding the project, which broke ground last fall, with an urban development tool known as tax increment financing.

The way TIF works, the city borrows money to pay for capital projects in a certain area based on the presumption that that investment will lead to higher property values in the surrounding area. At the same time, it sets up a special district that includes many of the surrounding properties. During the life of that district, any property tax revenue derived from the increased value on those properties is designated toward paying off the debt.

Did you understand that? I labored to make the description as simple and succinct as possible. If even one person learned about TIF as a result, that article and the 30 years I’ve spent on this planet have been a success.

So is TIF a good thing or a bad thing? I don’t know, is government spending a good thing or a bad thing? It depends.

TIF is great when it works out. If property values increase, the city gets its money back. If they don’t, well, hopefully you got a valuable public asset out of it, like a library or a park. But other times you may just be left with a minor league hockey arena.

The city has successfully financed* the $175 million Waller Creek Tunnel with a TIF district it created downtown in 2007. That’s because property values downtown have soared over the past 10 years. In that case, it’s not really a vindication of Council’s decision to fund the tunnel. Nobody really thinks that the property values in the district soared because of the tunnel; their increase was mostly a result of a citywide real estate boom, which was largely driven by regional (and national/global) economic growth.

Council just voted to double down on the bet. This time, the money’s for the parks around the tunnel.

The Tax Incremental Reinvestment Zone was scheduled to close in 2028. On Thursday, however, Council voted to invest another $110 million and extend the life of the TIRZ until 2041.

Jimmy Flannigan noted that TIFs don’t create “free money.” Although he voted in favor, he warned of the prospect of an economic downturn. There will certainly be one in the next 23 years, but hopefully it won’t be enough to sink the city’s ability to pay off the $110 million + interest.

So is the Waller Creek Chain of Parks an endeavor to which it is wise to dedicate a significant portion of future tax revenue? I’ll have to cop out on this. If the city is truly able to construct the idyllic vision of a continuous, public space from Lady Bird Lake to 15th Street, that would be pretty cool. If it ends up being a glorified sidewalk above a dirty creek, that will be too bad.

One thought on “Dummy’s guide to Tax Incremental Financing

  1. Some (most? all?) of the land in the Waller Creek TIF was taken out of the flood plain by the tunnel, making the (first, not extended) TIF one of the more pure TIFs around. Without the tunnel, land prices in downtown would surely have gone up, but not in an unbuildable floodplain.

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