A study by the Iowa State University economics department questions the effectiveness of a popular economic development tool. Tax increment finance districts allow cities to freeze tax rates in certain areas and use that tax money for improvements. I-S-U researcher David Swenson says the “TIF” districts were originally intended for blighted areas, but that’s changed.The rules have been liberalized over time so the districts can be used for almost anything. As an example, a proposed new shopping mall in an upscale area of West Des Moines will benefit from a TIF district. Swenson studied 10 years of TIFs to see whether they actually provided the benefits expected. The study found no evidence the districts yielded economic or social benefits such as job or population growth for the tax money that was spent. Swenson says this isn’t a condemnation of the entire TIF program.He says the study didn’t prove that none of the TIF districts worked, but it says the concept hasn’t worked as an overall state policy. He says the expanded use of the districts seems to make them less effective.Other states have tougher restrictions on how the tax money is used, and making it available anywhere makes it less of an exclusive development tool. Swenson says changing the TIF regulations might be a tough sell to politicians who can tout that they brought new development into the community.They can say that implementing the district brought in a new company and more jobs. Swenson says the TIF districts put the most tax burden on counties and existing businesses can end up financing the new businesses due to a loss of the district’s tax revenue.
You are here: Home / Study questions use of popular tax incentive