By Sen. Steve Fischmann
One of the proudest accomplishments in my first session as a state senator was helping build the coalition that defeated bonding for the $408 million SunCal Tax Increment Development District (TIDD) subsidy near Albuquerque. TIDD subsidies utilize future state and local tax revenues to pay off bonds used to finance real estate development projects.
Tax Increment financing can be useful. Unfortunately, in cases like SunCal, TIDDs have been perverted into a tool that pours taxpayer money into the private projects of a few well-connected developers, and they require no public benefit in return. Developers have no real accountability to achieve the benefits they claim, and in practice have fallen woefully short all around the country.
When I pay taxes I expect the money to go to public services like police, fire, parks, courts and education. State government goes way beyond its charter when it picks and chooses specific companies for giveaways to support speculative investments. TIDD subsidies for private development are corporate welfare on steroids, and with large, out-of-state developers lining up at the public trough, pose real danger to the State of New Mexico’s future solvency. Substantial reform far beyond the administrative clean up passed in the 2009 regular legislative session is required.
Private developer SunCal hired 11 of New Mexico’s top lobbyists, spent over $230,000 on public relations directed at the general public and invested heavily in campaign contributions in its effort to convince the legislature to pass publicly funded bonding for its project. By the time it came up for a vote, many legislators were afraid to say no, lest they be accused of opposing economic development.
I found this particularly ironic given SunCal’s recent record of 27 affiliates going bankrupt and putting thousands of people out of work.
TIDD myths debunked
The SunCal campaign spawned many TIDD myths that need clarification. I will address a few.
Myth 1: TIDDs for private development pay for themselves in the long run by generating new economic activity. Studies of TIDD-funded projects in St. Louis, Kansas City, Chicago and other areas indicate this is false. While the subsidies may stimulate modest amounts of new economic activity, their primary impact has been to move growth that would have happened nearby to the project area that enjoys the subsidy. Existing tax base is shifted from supporting government services to paying private development costs. Predictably, tax rates go up.
A study commissioned by local governments in the St. Louis area determined that $2 billion in TIDD subsidies to private projects over 15 years resulted in no measurable change in regional economic growth rates, and cost over $370,000 for each new job created. Most of the new jobs were low-paying retail positions.
Myth 2: TIDD projects affect only the local community. In the case of SunCal, approximately $870 million in tax revenues would have been required to pay off their bonds. Over $780 million of this money would have come out of state general-fund revenues. SunCal’s Albuquerque project would have significantly affected funding available for communities around the state. At approximately 10 percent of the state’s population, my home county of Doña Ana would stand to lose about $78 million in state funding over the life of the bond.
Myth 3: TIDDs are subject to stringent approvals before financing is approved. Unfortunately, it is far easier to divert tax money to bonding a private TIDD project than to bond a public project. New Mexico wisely requires ballot measures to approve state tax financed bonding for new public projects. If a state institution wants $20 million in bond financing for a new building, the project must go on a statewide ballot for voter approval.
However, when SunCal wants a tax-financed, $408-million bond for its private development, it does not need to go to voters. That merely requires approval from a Legislature that it has plied with generous campaign contributions.
Myth 4: Government already pays for the kinds of infrastructure TIDD bonds support. If this were true, developers like SunCal would not invest so much time and effort establishing TIDDs. Government cannot be obligated to provide infrastructure every time someone chooses to develop a piece of private land, so normal procedure is to require the developer to build roads and sewers and then dedicate completed infrastructure to the appropriate government body for ongoing maintenance. While government sometimes subsidizes certain initial infrastructure costs, this is not the norm.
Myth 5: TIDDs by themselves attract new commerce and industry. Subsidies given to a developer do nothing to improve the bottom line of businesses moving into a new project. Experience in New Mexico and around the country shows that additional enticements such as tax abatements, training subsidies and revenue bonds are still required to attract new industry to a development. TIDDs become just one of a series of publicly financed subsidies to attract business.
Myth 6: TIDD subsidies are the only way to ensure comprehensive planning for new developments. Effective planning regulations can always be enacted by local governments. This is one of their main functions. There is no need to give general-fund tax dollars to developers to get well-designed communities.
TIDDs should only be used for public projects
There are many forms of financing that do not force taxpayers statewide to foot the bill for private development projects in local communities. These tools create their own revenue streams and are transparent to anyone who cares to participate as an investor or property purchaser. No one is forced to pony up money; individuals can choose whether they want to be a part of the project.
These tools include special assessment districts, public improvement districts, infrastructure development zones, business improvement districts and impact fees. Unlike TIDDs, they do not go through the back door and use existing public revenue streams to support private projects
I believe tax increment financing is appropriate for certain public projects, such as the downtown Las Cruces revitalization. This is a project that benefits a large number of citizens and existing businesses already occupying the area. It is managed by an existing government entity, and was voted on by local citizens. The public benefit is demonstrable. I encourage the use of TIDDs for this purpose in communities around the state.
In the meantime, we would do well to prevent TIDD projects like SunCal from returning to the Legislature. TIDD-enabling legislation should be revised to apply only to public projects managed by existing government entities. None of us deserves a government that forces hard-pressed taxpayers to fund the speculative private development projects of a few inside players.
Fischmann is represents District 37 in the New Mexico Senate. His business experience includes 20 years in finance and general management at Levi Strauss & Co. and ownership of a real estate brokerage business. He is currently retired.