Connecticut’s cities and towns need better, more flexible financing tools to compete successfully for new businesses and jobs. In a world where federal financial assistance is disappearing, and state funds are difficult to raise, municipalities must seek alternative solutions giving them local control over funding sources.
The primary revenue stream for Connecticut’s cities and towns has been property taxes and local improvements typically are financed using General Obligation Bonds. However, there is another option. Nationally, one of the most flexible and popular locally controlled economic development financing tools is called TIF, or Tax Increment Financing.
TIFs work by capturing the future value of a project to pay for targeted improvements. A city or town fixes the taxes they currently receive from a TIF development parcel or district (the baseline value) and as development occurs and tax revenue rises all or a portion of the increased tax revenue above the baseline (the tax increment) is used to pay debt service for the improvements made to the district.
Although TIFs have rarely been used in Connecticut, that can and should change. For instance, the State Bond Commission recently approved a $22 million TIF financing for Bridgeport’s Steel Point Project. Commission members arrived at the loan amount by using anticipated incremental sales tax revenue that would be generated by a planned Bass Pro Shops store. However, why couldn’t Bridgeport, and other municipalities, issue their own TIF bonds without getting permission from the state?
Municipal TIF authority in Connecticut can be enhanced by adopting models from other states. In particular, TIFs can be a valuable resource for improvements in areas targeted by local governments for transit-oriented development and smart-growth investment, where new job creation and income and property values are expected to rise over the long term. In places like Atlanta, Chicago and Washington, D.C., TIFs have been used to redevelop transportation corridors and develop both private enterprise and community assets.
While incremental real and personal property taxes are often the only source of revenue available to a Connecticut municipal TIF district or project, other jurisdictions permit the capture of additional sources of tax revenue, such as sales, income, hotel and/or utility taxes.
The increment would be calculated in a manner similar to the property tax calculation, with a base value being established at the time of TIF district creation. All or a portion of the incremental taxes above this base are captured by the municipal TIF district. With additional sources of tax revenue, TIF districts can provide much needed local financing flexibility, while simultaneously supporting municipal revitalization and, ultimately, job creation.
Municipalities should be explicitly authorized to create “scattered-site,” or noncontiguous TIF districts, along with expanded funding for uses such as: land banking; revolving loan funds; historic preservation and/or rehabilitation; site preparation, including environmental remediation; parking facilities; streetscapes, roads, highways or transit services and facilities; storm water and waste treatment facilities; schools; medical facilities; and affordable and mixed-income housing. TIF funds could also be used to help defray the operating costs of many of these improvements and facilities.
The General Assembly should enable pay-as-you-go TIF financing that allows a municipality to create a TIF district and accumulate the incremental taxes generated by a project in a segregated TIF economic development fund. Money from the fund can then be loaned, or granted, to develop new jobs, help construct projects or invest in infrastructure within the TIF district.
Connecticut municipalities ought to be able to use pay-as-you-go TIF funds to provide direct incentives to businesses to help defray the cost of new jobs or new economic development projects by entering into Credit Enhancement Agreements (CEAs) or issuing debt instruments (often called TIF developer notes), obligating the municipality to use future incremental taxes to refund (usually with interest) developers’ costs for a specific project if, and only if, the project is completed.
TIF developer notes and CEAs can be advantageous for businesses by providing a stable secondary revenue source to repay indebtedness incurred in financing new projects, and for municipalities by minimizing their financial risk while improving the local community and economy with new development and new jobs. In this way, TIF districts could be used to encourage the expansion of existing businesses or to attract new ones with minimal financial risk.
Ultimately, the most effective TIF district and economic development program is one that provides dedicated future sources of funds that are locally controlled and directed to help municipalities and participating businesses create new jobs and achieve economic growth while limiting risk and maintaining a stable local economy. That’s a “win-win-win” for the state, our cities and towns and our businesses.•