Phil Rosenthal tackles an interesting question that pertains to Illinois and Chicago after recent news about certain companies threatening to leave unless they get more tax breaks: do such deals help the average citizen? While the conclusion is unclear, here is a bit about the effect of TIF (Tax Increment Financing) Districts which typically generate funds for localized development and infrastructure:
The TIF has become a fashionable way for a municipality to encourage a business to set up shop in a particular locale it might not have chosen otherwise. Some, however, see TIFs as too often just a handout for businesses that want to go somewhere.
“They’re a very popular tool for economic development,” Rebecca Hendrick, an associate professor in political science at the University of Illinois at Chicago, whose book, “Managing the Fiscal Metropolis,” is due out in November. “There are a lot of discrepancies in the empirical research as to whether they’ve had the intended effect. Would the steel company have come in but for the TIF, or would it have come in anyway?”…
“But it turns out that tax rates go up in the entire jurisdiction in the city of Chicago as a result of a TIF being created in the city of Chicago because the way the property tax works is kind of a zero-sum game. If someone gets money, someone else has to pay for it. … Plus, it’s also off-budget.”
Chicago has a lot of TIF districts so this is not a small issue. Of course, there are different ways to measure the benefits of such development for the average citizen: should it lead to a smaller property tax bill? Should it lead to more city and state services since they should have more tax dollars? Should it lead to a better quality of life in rebounding neighborhoods? Should it lead to more jobs? The common focus seems to be on jobs, as the recent offer from Amazon.com to the State of California illustrates. But these tax breaks often lead to a very limited number of jobs.
The article also hints that certain kinds of economic change receive press coverage while others do not:
A steel company moving to Chicago gets our attention. One person losing his or her home generally doesn’t. Even 100 people losing their homes might not make the papers.
“One hundred people losing their mortgages may involve the same amount of money as a steel company moving to Chicago,” Bowman said. “One of the reasons that TIF money is provided to these businesses is it does get more attention, and people feel like, ‘Maybe things are starting to turn around if Chicago’s more attractive than Cleveland.'”
So is this more of a journalism problem? If newspapers and other media sources are more interested in the “movers and shakers,” typically politicians, business leaders, and entertainment/celebrity figures, does this help the average citizen? I assume the media would suggest that they are the public “watchdog,” helping inform people about abuses of power. But, the media, often in big corporations themselves, can also easily be cozy with these bigger interests and also want to be boosters and help improve the image of their community.
In these poor economic times, I imagine we will be hearing more about corporate tax breaks and whether local, state, and national governments should be in the business of handing them out.