A report by a St. Paul fiscal watchdog group recently found that the use of tax-increment financing has been “overused and placed an undue burden” on taxpayers.

In$ight St. Paul, a nonpartisan group which says it supports stronger financial footing for the city, noted that many residents are not aware of how tax-increment financing — known as TIF — works. TIF is used by local governments as a financing method that allows them to fund improvements and redevelopment projects in designated areas — known as TIF districts or zones — by capturing and redirecting the future increase in property taxes generated by the projects. The catch is that the taxes don’t go into the city’s general fund but are spent on the specific projects.

The report can be found at insightstpaul.org.

Some of the key findings of the report:

• In many cases taxes paid by owners in TIF-financed projects exceed 25 years. These funds don’t to the city’s general fund but instead are used to retire the debt to pay for the subsidy for developers.

• The taxes generated by the project do not pay for public services — such as police, fire and public works. Rather, they are paid for by taxpayers outside of the project.

• Currently 7% of property taxes in St. Paul supports costs associated with TIF.

• The TIF districts often compete with and devalue existing properties outside the districts.

St. Paul is the state’s biggest user of TIF to find development projects, according to In$ight St. Paul.

Last year the group issued a report warning that the combination of high taxes, business loss and slow growth was threatening the city’s future. That report was authored in part by a former city council member, a developer and former city budget director.

In$ight St. Paul also is asking that more information detailing the impact of TIF in the city be made available.

“The In$ight St. Paul Report recognizes that there may be occasions when the use of TIF financing is justified as in, for example, the removal of a blighted area or structure,” according to the news release on the report. “The Report, however, identifies the critical
issues that must be addressed before agreeing that TIF is a proper mechanism on any project designed to increase the City’s tax base.

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