Tax Incentive Handouts Aren’t the Only Way to Promote Denser, Downtown Development

The setting sun baths downtown Fargo in a golden glow in ealrly August. Doug Burgum is taking his interest in downtown revitalization on the gubernatorial campaign trail with a newly announced pitch he calls his Main Street Initiative. David Samson / The Forum

Over the weekend the Fargo Forum editorial board took aim at critics of development incentive programs like Renaissance Zones and tax increment finance districts.

“[B]ecause tax benefits go to selected businesses, some people just can’t see the big picture. The Renaissance Zone and tax-increment financing district program, another tax forgiveness program to develop property, are controversial. That’s because a small, but very loud, minority squawk about them,” the paper opines.

Supporters of these incentive programs argue that they work. They spur the sort of development many people want. They raise the value of property and thus tax revenue that property generates.

Detractors say the incentives are, in the aggregate, perpetual and thus narrow the tax base and put upward pressure on the taxes everyone else pays. They also point out how unseemly it can be to have politicians doling out financial favors to deep-pocketed developers who often lobby long and hard for them. And then there’s the question of whether or not they’re necessary. Would the development getting the incentives have happened without them? The developers say no, but then they’re the ones getting the incentives.

I’m not sure why the folks at the Forum, or anyone else for that matter, would see these as mutually exclusive positions. The incentives can work – or seem to, anyway, depending on where you come down on the question of necessity – while simultaneously narrowing the tax base in uncomfortable ways and greasing the skids for cronyism.

Here’s the thing, though: Incentives aren’t the only way to spur the sort of development we want.

The Forum editorial, inadvertently I’m sure, tells us this is true:

…developing property downtown is more expensive than on the city’s fringe. Developers encounter added costs with environmental mitigation — dealing with underground tanks, asbestos removal, old foundations, building around power lines — and must bring century-old buildings up to current codes, for example.

Without incentives like the Renaissance Zone, the resurgence of downtown Fargo just wouldn’t be happening. Period.

Downtown development wouldn’t happen – period! – without tax incentives because it’s cheaper to develop on the fringes of a community.

But the reason it’s cheap to develop on the fringes of a community is because the taxpayers basically subsidize it, as Governor Doug Burgum has pointed out in the past:

One of the drivers of property taxes is a city’s footprint. The larger the footprint, the more linear feet of streets, roads, sewer, water and sidewalks there are to pay for and maintain, and the larger the financial burden on taxpayers. The high cost of sprawl is further amplified by the need for additional water towers, fire stations, police stations, longer garbage collection routes, and an increase in dedicated public employees to serve citizens.

When developers build on the fringes of a community, the taxpayers step in to provide the infrastructure and services to make that development workable. But what if those costs were more closely tied to the developers?

What if we appropriately priced the cost of development in areas which require the build out of public infrastructure, and expansion of public services, so that it’s not cheaper than developing in areas where those things already exist?

Under the status quo taxpayers are in a lose-lose situation. Either they’re subsidizing development on the fringes of their communities, driving up taxes by expanding the city’s footprint as Governor Burgum described it, or they’re paying for big-money tax handouts to develop in downtown areas.

That situation is what needs to change.