Katherine Gregor makes several good points, but this one deserves emphasizing:
Of course, exempting TIFs from Prop. 2 doesn't make much sense. Tax increment financing allows the city to contribute new increments of property-tax revenue (and by more recent state law, sales-tax revenues) to help pay for the infrastructure needed by a development. If a property that used to yield $1 million in tax revenues now yields $3 million, due to redevelopment, the extra $2 million is "tiffed" to pay off the project costs. So a TIF can help developers make projects with retail economically viable by contributing city property- and sales-tax revenues – exactly what Prop. 2 otherwise rejects.
This is a critical point, and one that has gotten lost in the debate. Proposition 2 would not prevent the City from making large-scale, incentive-laden, Domain-like deals in the future. Proposition 2 would affect smaller projects for which the cumbersome TIF bureaucracy is impractical. Affordable housing "buy downs" in a single VMU development, for example. Or small infrastructure projects intended to encourage better urban design. (The amendment does not exempt all infrastructure spending, as some proponents imply; the amendment forbids spending on infrastructure "suitable to serve the improvements and uses intended by the developer or owner of a Retail Use benefited thereby" -- i.e., exactly the kind of infrastructure spending the City might offer as an incentive.)
I don't like being out-wonked, so let me briefly explain the unlimited array of incentives authorized by TIFs.
When the city authorizes a Tax Increment Financing district, it creates a specific fund that holds the incremental tax revenue generated by the development. The fund can capture either incremental sales tax revenue or incremental property tax revenue.
The statute authorizes the tax increment fund to "pay project costs for the zone"[1]. The statute broadly defines "project costs" to include:
- "capital costs, including the actual costs of . . . new buildings, structures, and fixtures";[2}
- "the actual costs of the acquisition of land";[3]
- "real property assembly costs";[4]
- "relocation costs";[5] and
- "payments made at the discretion of the governing body of the municipality or county that the governing body finds necessary or convenient to the creation of the zone or to the implementation of the project plans for the zone."[6]
Number 5, in particular, is broad enough to authorize virtually anything.
Another provision authorizes the TIF's board of directors or the city to "enter into agreements [AC: i.e., deals with developers] as the board or the governing body considers necessary or convenient to implement the project plan and reinvestment zone financing plan and achieve their purposes."[7] The agreement "may during the term of the agreement dedicate, pledge, or otherwise provide for the use of revenue in the tax increment fund to pay any project costs that benefit the reinvestment zone[.]"[8]
Although the charter amendment would bar tax abatements, none of the above is a "tax abatement." The statute provides for tax abatements separately; abated taxes aren't even considered when calculating the tax increment.[9] (By the way, the prohibition of tax abatements may very well be preempted: the statute provides that "[t]o the extent of a conflict between this chapter and a municipal charter, this chapter controls."[10])
In short, the TIF statute authorizes oodles of incentives. Although the City technically might not be able to offer sales or property tax abatements, that's just semantics -- it could offer equivalent deals.
Proposition 2, perversely, would allow the City to strike the type of deal that so agitates Proposition 2 supporters while clamping down on the kinds of incentives that Austinites broadly support. Proposition 2 supporters who believe the charter amendment would handcuff City Council are simply confused.
[1] E.g., Tex. Tax Code s. 311.0123(e)(2).
[2] Tex. Tax Code s. 311.002(1)(A).
[3] Id.
[4] Tex. Tax Code s. 311.002(1)(C).
[5] Tex. Tax Code s. 311.001(1)(F).
[6] Tex. Tax Code s. 311.001(1)(K).
[7] Tex. Tax Code s. 311.010(b).
[8] Id.
[9] Tex. Tax Code s. 311.0125(d).
[10] Tex. Tax Code s. 311.018.
