How I Learned To Stop Worrying And Love The TIF

The more I learn about TIFs, the less I'm opposed to them.

What is a TIF, you ask? Well, it stands for "Tax Increment Financing." But what is it? That's a good and humble question.

But first, it's important to acknowledge a key fact about taxation. Namely: taxation is theft. There’s no arguing this. Taxation is the forcible confiscation of wealth—on penalty of being thrown into a cage or shot if you resist—from individuals who never consented to their wealth being confiscated, by individuals who have a monopoly on violence.

Now, for those of you who are still reading!

TIF stands for "tax increment financing." And I do not think it means what many people think it means. They think it means some kind of freebie handout from the hardworking taxpayers of a community to a lazy-bum developer who isn't innovative, courageous, or smart enough to go get the financing he needs for a big project.

I don't blame them. I used to think TIFs were trash. Corporate welfare. Picking winners and losers. Subsidies for developments that wouldn’t otherwise be economically viable. Other such criticisms.

But the more I learn about TIFs, the more I realize two things: 1) they typically don't cost taxpayers anything, and 2) they're an increasingly necessary part of how a developer puts together the funding puzzle for a project the whole community would be really glad to have. The reality is, TIFs are simply the opportunity to do what we all want to do: pay less taxes (a natural instinct since, as you’ll recall, taxation is theft).

TIFs can be structured in all sorts of ways. They're a complicated funding agreement with plenty of legalese. And each one is subject to negotiation between the developer and the public entity (city/county). That means—as in the case of the Osage Beach Outlet Mall redevelopment proposal—the city can say, "Hey, we desperately need more rental housing. What can you do to help with that, in your development plan?" And that becomes part of the negotiation.

What gets lost in all this is the main question most folks have: "Is this developer getting some big, free chunk of cash from the city?" The answer: No. When it comes to previous (and currently proposed) TIFs at the Lake of the Ozarks, the actual "where the money comes from" part of a TIF is usually just this: a developer gets to keep the difference between the property tax before they improve the property value and the property tax after they improve it, for the purpose of helping fund the development.

The Missouri Department of Revenue puts it this way: "The idea behind Local TIF is the assumption that property and/or local sales taxes (depending upon the type of redevelopment project) will increase in the designated area after redevelopment, and a portion of the increase of these taxes collected in the future (up to 23 years) may be allocated by your municipality to help pay the certain project costs[.]"

Even this is sort of confusing. So here's an example.

(And it should be noted, the numbers in this example aren’t precise, but they’re correct enough to make a general point.)

Frederick owns 100 acres in Camden County, worth about $300,000. His annual property taxes are $5,000. But he wants to build an amusement park. It’s going to cost $20 million to build, so of course he wants to utilize every possible avenue to fund it. After the amusement park is completed, his property taxes will be $333,000 a year. Nuts! I mean, great for the entities that benefit from the property tax they forcibly extract from his wallet (new football uniforms! new digital classroom upgrades! new desks in the courthouse! new cars for all the deputies!), but nuts for Frederick. After all, that $333,000 has to come out of his gross revenues — and he’s still got the monthly debt payment on the development cost, plus plenty of other bills to pay, staff to pay, insurance to pay, buckets of funnel cake mix to buy, and so on.

(Some might wonder why these entities that take people’s money without their permission would have any right to suddenly begin swiping 66.6-times as much money from Frederick every year, simply as a way of thanking Frederick for making an immense investment in a business that's a huge boon to the community. Some might wonder this.)

Anyways, planning his amusement park, Frederick goes to the county. Hat in hand. Asking if maybe, just maybe, the county would consider allowing him to continue paying what he has been faithfully paying, year-in and year-out, on his property—$5,000 per year—so that he can take what would have been the increase in his property tax—$328,000 per year—and use it to help pay off the massive loan on the development costs: infrastructure in particular. Once the debt is paid off, then Frederick would begin paying $333,000 per year in property tax to the county.

Now, that’s a simplification. TIF agreements are pretty complex. Some have other components. But consider: the majority of the Lake of the Ozarks area’s major developments in the past 20 years have happened with the help of a TIF. Prewitt's Point (HyVee/Target/Lowe's/etc), Eagle's Landing (Menards/Kohl's/ALDI-coming-soon/etc), Dierberg's Lakeview Pointe (Dierberg's/Dollar General/Dick's/etc), Osage Beach Commons (new development next to the outlet mall, bringing Hobby Lobby in 2022), Woods Supermarket (Sunrise Beach),

Would those developments have happened without a TIF? Maybe. But maybe not. And when the options are — in the current case — either a rapidly declining outlet mall, or the opportunity for a massive "city center" scale redevelopment... and when the city would not be financially liable even if that redevelopment went bust... well, why not work with these ambitious developers to help open the door for what's next for the community?

Many folks who reflexively kick against any notion of a TIF do so because they're sick of corporate welfare, where the government takes taxpayers' money and gives it to mega corporations. They're right to be sick of that. The federal government does it all the time; it's immoral and a major part of what's wrong with this country. (Exhibit A: Big Pharma during Covid times.) But that's not a TIF.

When an arrangement between an entrepreneur and a local government allows that entrepreneur to pay for some of his investment costs with the money that the local government would otherwise have confiscated from him… well, that’s not a handout. That's not corporate welfare. And that's not putting taxpayers at risk. Rather, it's an acknowledgement of the fact that taxation destroys wealth, and it's an opportunity for someone to take what would have been lost and put it to good use.

That’s a good deal, and I’m not worried about it.