Jason Flohrs: North Dakota Needs to Dump Corporate Welfare
The Fargo city council made headlines recently by approving big property tax increases to pay for the city budget. To justify their vote, they’ve pointed the finger at valuation increases and changes in state aid dollars. But that’s not the whole story. They are also giving away millions of dollars of tax breaks each year to special interests – and you’re footing the bill.
It’s been happening for years in what are known as tax increment financing districts, or TIF districts. Here’s how it works. Say you are a homeowner who wants to add a garage. Under normal circumstances, you’ll have to get a permit that outlines the improvements made, and then you’ll pay more in property taxes because the value of your home has just gone up, thanks to your investment.
But under TIF districts, business owners can avoid paying their fair share of property taxes by going to the local government and asking for special treatment. They say that the expansion of their business will be “good for the community” or “create jobs”, and that’s why taxpayers – rather than business owners or investors – should take on the risk of funding their project.
A simpler way to describe this arrangement is to just call it what it is. It’s corporate welfare, where the well-connected are able to carve out a sweetheart deal at the expense of just about everyone else.
[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]A simpler way to describe this arrangement is to just call it what it is. It’s corporate welfare, where the well-connected are able to carve out a sweetheart deal at the expense of just about everyone else.[/mks_pullquote]
Besides the inherent unfairness of this arrangement, there is scant evidence that TIF districts actually work. There is, however, proof that they don’t deliver the economic growth they promise.
A research paper by scholars at Ball State University in Indiana found “uniform negative impacts of TIFs on traditional measures of economic development such as employment, the number of business establishments, and sales tax revenue.” The authors of the paper go on to conclude that “TIF is not an economic development tool.”
There are other problems with TIF districts that hit much closer to home. When well-connected businesses get a special tax break, there is less money to pay for essential services such as schools, roads and public parks. That means that regular taxpayers – those businesses and ordinary citizens not “in” on the tax break – will need to pay more to make up the difference. In the city of Fargo, that adds up to about 7% of your total property tax bill. For some businesses, this also means that their property tax dollars are being used to subsidize their competitors.
Changing this system won’t be easy. There is plenty of support for TIF districts in North Dakota among those select few who benefit. With millions at stake, you can rest assured that they will plead with local officials to maintain this arrangement. And they’ll make the same tired promises that research has shown just does not pan out: that the return on your forced investment of tax dollars in their business will reap economic benefits for the broader community.
We know North Dakota is a great place to start a business and raise a family. Let’s keep it that way. Instead of wasting millions of your tax dollars doling out corporate welfare, we need to demand that our local and state officials treat everyone fairly without giving some well-connected special interests an unfair advantage over everyone else. Lowering tax rates, reducing regulatory red tape, and eliminating special carveouts are much better ways to attract investment and create an environment friendly to business owners and job creators in the state.
TIF districts ought to be eliminated. But at the very least, important reforms must take place, including establishing transparent and clear guidelines for eligible projects while also demanding clear and independent assessments to see if they are delivering for the local community.
Nearly three out of four Americans in an Election Day poll said the economy is rigged to advantage the rich and the powerful. One look at TIF districts, and it’s hard to argue otherwise.