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Boston, MA—A new research report released today outlines problems with the growing trend among cities to borrow against future growth and divert tax revenues as a way to attract economic development.
“Localities too often use tax-increment financing as an all-purpose subsidy for developers rather than its original purpose as a targeted tool to revitalize neighborhoods with circumstances that otherwise discourage investment,” said Deirdre Cummings, Legislative Director for the Massachusetts Public Interest Research Group (MASSPIRG).
Forty nine states have legalized tax-increment financing deals or “TIFs", with Arizona having eliminated its TIF law in 2006, according to the report. These deals divert future growth in the tax base from a prescribed area toward special development projects over many years, sometimes hurting school departments and other public structures that must then be financed from a narrower tax base.
“If done badly, tax-increment financing can steer development away from the places that most need it,” added Cummings. “It can also leave municipalities with budget shortfalls.”
The report recommends stronger guidelines to ensure TIF becomes more targeted, transparent, accountable, and democratically governed. For instance, TIF deals should be:
• Used only as part of advancing a specific development strategy in limited areas.
• As temporary as possible, with unspent funds promptly returned to the general budget if left unspent after a certain number of years.
• Capped by the state as a percent of a municipality’s land that can be placed under TIF agreements.
• Conducted through a fully open and democratic process, with information about TIF projects placed online like other best practices for spending transparency.
• Accompanied by clear, measure benchmarks for the responsibility of developers.
Lawmakers should pass, An Act to Promote Efficiency and Transparency in Economic Development(H.2565 and S.153), pending before both the Committee on Economic Development and the Committee on Revenue.The bills, filed by Representative Carl Sciortino (Somerville) and Senator James Eldridge (Acton), include many of the guidelines highlighted in the report. This proposed law would: require economic development tax breaks, including TIFs, to become transparent and be posted on the state budget website; improve reporting data to evaluate the success of these investments; and set standards for successful economic development programs. It would also hold companies accountable to their job creation commitments by requiring companies to pay back the value of the tax break if they fail to meet their promised commitments.
“Any investment of public dollars in private enterprises must be held to the highest level of transparency and accountability,” said Cummings.
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