Financial Post, Terrence Corcoran on TIFs: ""a new way for politicians to subsidize the development industry and buy votes"
The TIF tiff
Terence Corcoran, Financial Post
Published: Tuesday, March 28, 2006 So far it's only dollar signs in the eyes of urban fiscal planners in parts of Canada. It's called Tax Increment Financing, or TIF. At root, TIF is a new way for politicians to use taxpayer money to subsidize the development industry and buy votes. It's such a muddled idea it would be good to stomp it out now before it spreads too far and becomes the next big thing on the new urban agenda.
Calgary is the first Canadian city to deploy tax increment financing. With TIF, Calgary last year agreed to borrow future taxes to redevelop the East Village area. The project will have the city incur $75-million in debt-financed expenses to prepare infrastructure and renew the brownfield area. The debt, plus $40-million in interest over the next 20 years, will allegedly be repaid out of future tax revenues from the project after the land is sold to private developers at a tax-prepaid discount.
As you might suspect, it takes way more than a village to craft a TIF scheme. The provincial legislature had to pass special legislation, the city of Calgary had to set up a special board, staffed by the mayor and others, at a cost of $3-million, to oversee the project. Half the 40-acre land mass -- parts of it brownfield and in a flood zone -- is owned by the city, bought some years ago for $20-million. The other half might have to be expropriated. Once the land is revitalized, developers will be called in to pick up prospects at subsidized rates. One major office tower occupant and developer, Encana, North America's largest energy company, has wangled its way on to the TIF East Village freeload.
All this is taking place in Calgary, the fastest-growing big city in the free-market heart of the richest province in the country. Imagine what might happen if the same concepts were applied to such dog-eared socialist towns as Toronto and under the wild-eyed fiscal speculators now in charge of the province of Ontario. Open the flood gates!
Actually, no need to imagine what Ontario might do. Tax increment financing has been part of backroom plotting in Ontario for some time. Hinted at in two budgets and subject to an unreleased and undiscussed discussion paper last September--Tax Increment Financing: Developing a Model for Ontario -- the TIF concept now appears set to land on Toronto taxpayers.
Last week's Ontario budget said the McGuinty government would introduce enabling TIF legislation "to assist with brownfield redevelopment and public infrastructure development." The budget said "this new fiscal tool" would be applied to two "pilot projects," Toronto's West Don Lands redevelopment and the extension of the Toronto subway toward the North Pole.
At a news conference yesterday promoting the West Don Lands project -- a Calgary-style boondoggle except on a big-budget blockbuster scale -- Ontario's Public Infrastructure Minister, David Caplan, said the West Don Lands would qualify for TIF-style financial backing.
The West Don Lands is 80 acres of land expropriated by the city for $330-million in a crazed 1980s urban cleanup plan called Ataratiri. After the purchase, the city discovered the land needed remediation and sat on a flood plain. Yesterday, 20 years later, an agency called the Toronto Waterfront Revitalization Corp. began spending $230-million to clean up the land and get it ready for sale. Three levels of government are set to split the cost -- $120-million from the province and presumably the balance split 50-50 between the city and Ottawa.
How the TIF will kick in isn't clear. Most likely, developers will buy the land and enjoy a 20-year property tax holiday as an incentive, thereby adding another layer of tax money to the West Don Lands project. Another possibility could be bonds issued by the revitalization corporation that would be repaid out of future taxes, freeing developers of property taxes for the better part of 20 years.
As for the proposed subway extension from Toronto to Vaughan Corporate Centre, a mythical megaproject in the northern Toronto suburb of Vaughan, the application of TIF could take many forms. The big development opportunity here is the last subway station on the extension, smack in the middle of two major intersections (Jane Street and Highway 407) and massive parcels of land controlled by some of the largest real estate developers in the city. Would they be offered TIF options to build major office, residential and commercial projects out in the suburbs at taxpayer expense? Is the province of Ontario going to be offering major real estate speculators and Home Depot builders tax incentives to build the corporate centre?
By artificially designating some areas for TIF treatment, local and provincial governments would be warping the market by providing subsidies to one set of developers and regions over others that cannot qualify for TIF treatment.
And TIFs do come at taxpayer expense. Even the Mayor of Calgary, an effective TIF salesman if ever there was one, said in an interview yesterday that the TIF concept is simple: "It's a good way to go. What it really is doing, Terry, is dedicating future tax dollars to fix a problem today."
That's also known as debt, debt that will have to be paid by future taxpayers whose taxes will have to be higher to pay for the TIF projects.
