Among the significant changes needed to update Washington’s 123-year-old Constitution is amending it to allow for Tax Increment Financing (TIF), a public-development tool available in 48 other states (Arizona is the other state with no TIF). A recent financial analysis of TIF (discussed below) found that it could generate millions more for public infrastructure around light rail stations than other versions of TIF-lite currently available to local governments in Washington.
Tax Increment Financing allows local government to borrow against the increases created in property value by new development; that's the "increment" in TIF. A local government using TIF can take the property tax increases caused by a development in a discrete area and use those proceeds (which would ordinarily flow to the general fund) to service the debt it incurs to pay for nearby things like roads, drainage, sidewalks, and parks to accommodate the growth created by density around transit. The baseline property taxes, before the development, still flow to the general fund.
The advantage of TIF is that local governments can use future increases in property tax to support comprehensive redevelopment of areas around transit much earlier. That means growth can truly pay for growth, allowing public amenities like parks and sidewalks to be built at the same time as new people are moving into the neighborhood. The amenities, in turn, often trigger the private project, leading to the argument that the boost in taxes from the development wouldn't occur without this public incentive. After a period of time, 20 years or so, the incremental taxes revert to the general fund.
TIF can support new development to increase aggregate demand for goods and services. That demand creates more construction and retail jobs, and new housing and commercial space. It's a powerful tool, as a trip to the Portland riverfront would demonstate; Portland is a leading example of creating public amenities through TIF.
Washington's Constitution doesn’t allow taxation based on property values, at least in the way we typically think of it. Your property taxes are assessed based on the taxing district's budget, not increases in your property value.
This budget-based system means your property taxes are a share of the city’s budget, for example, not a fixed percentage of overall value. That’s why your taxes can actually go down in economic good times because as overall property values increase, your share of the city’s budget goes down since there is more assessed value to tax. (Read more about how TIF works here.)
As growth happens, how do we ensure that it doesn’t crowd out poor people in the community to make way for a new, wealthier group of people? To answer that question, the Department of Housing and Urban Development funded Growing Transit Communities, a project of the Puget Sound Regional Council intended to support creating “communities that all people can afford to live in, where they can walk or take a train or a bus to work, and have good access to shopping and other activities.”
Last year the legislature considered House Bill 1881, the Community Revitalization Financing Act (CRFA), legislation that included an amendment to the state Constitution that would have enabled local governments to create TIF districts to fund public infrastructure, especially in areas around light rail stations. (Disclosure moment: I am a long time advocate of Tax Increment Financing through Constitutional changes, and have offered unpaid technical advice and support to sponsors of HB 1881.) A sub-committee of Growing Transit Communities reviewed the CRFA along with a variety of other TIF-like development tools. The preliminary review included a hypothetical case study of transit-oriented development around transit stations.
According to the early estimates, amending the state’s Constitution through passage of the CRFA would generate as much as $66 million to service debt over 30 years in a case study of the BelRed station area in Bellevue. That compares to $5.8 million from Local Revitalization Financing(LRF), and $1.8 million from Landscape Conservation Local Infrastructure Program(LCLIP) championed by Forterra. Traditional TIF similar to Oregon’s would generate about $14.6 million.
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