In the waning days of her reign, former Kansas City, Missouri, Mayor Kay Barnes tried to defend the city's extensive use of tax-increment financing (TIF). A stinging city audit said the TIF program had produced $233 million less than original projections. The normally cool Barnes called the report "biased" and "outrageous" at a press conference.
A criticism of TIF is that in many cases it simply slides development from one part of town to another. The tax-incentivized Wal-Mart on the site of the old Blue Ridge Mall, for instance, opened the day after a Wal-Mart off 87th Street closed.
Barnes and her allies were reluctant to accept this phenomenon as meaningful, however. At the press conference, Peter Yelorda (pictured), the Blue Cross and Blue Shield VP Barnes appointed to chair the TIF Commission, said the "substitution effect," as it's known among economists, was an "erroneous concept."
Yelorda was wrong.
On Thursday, the Transportation and Infrastructure Committee discussed the budget for the Capital Improvements Program, which is supported by a 1-percent sales tax.
Pat Klein, the city staffer who manages the program, explained that in the past, TIF projects have intercepted about 15 percent of the money raised by the 1-percent tax. (TIF allows developers to skim sales taxes.) But TIFs have grown in size and number to the point that the old rules no longer apply. Now, Klein said, the city relinquishes 22 percent of the tax to TIF.
TIF's larger bite of the sales-tax apple supports the contention that the incentive doesn't create new tax streams out of whole cloth, as its backers routinely claim. According to figures in The Kansas City Star last month, for every new $1 in tax revenue the city receives, $4.50 is going out to developers with TIF projects.
In the 2009-10 budget, TIF allocations will cost the capital-improvements program $13.9 million. Projects and attractions scheduled to receive money from the 1-percent tax this year -- Vivion Road, Beacon Hill, Turkey Creek, the zoo and others -- will simply have to make do with less.
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Nice piece David. The substitution effect is very real. It doesn't take an economist to understand that without a growing population we're simply moving retail around and robbing the tax base. You would think a vice president of a major insurance company would at least understand the basics.
If the leadership of Blue Cross Blue Shield believes substitution is an "erroneous concept" we may very well be seeing another insurance company in front of Congress trying to explain where the money went!
Yeah, but I thought in Obamaland, if you abuse the tax system, and you are a Democrat, all you have to do is apologize and it's all good. Just ask Mr. Geithner.
To make matters worse, it doesn't help when developers use shameful tactics to get the tax breaks. Check this out:
http://www.tonyskansascity.com...
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