The Shelby County Board of Commissioners is expected today to once again perfunctorily approve Tax Increment Districts, this time, for two suburban towns, despite the risk that they erode county property taxes needed for education, jail, and health care.
Once upon a time, Tax Increment Financing (TIF) was a special incentive reserved for neighborhoods fighting blight and disinvestment, but over the years, that focus was eroded as developers lobbied and won wording that gave them access to the money for mixed-use developments.
Because of it, TIF districts are mushrooming in Shelby County towns as incentives for private profit. Their use should raise questions about the need for the incentives in towns whose markets appear strong enough to attract development on their own merits and without incentives.
The towns’ TIFs should trigger deeper review by the commissioners but instead, they largely rely on the towns’ calculations to justify the TIF’s and the municipalities’ promises that the projects there would not happen without the incentives, the so-called “but for” test.
TIFs and Blight
Within Memphis, the Community Redevelopment Agency (CRA) use TIFs to “combat blighted areas,” build affordable housing, improve declining neighborhoods, and provide “economic opportunity.” Its TIF districts are singularly focused on that goal: Binghampton, Cleveland Street Corridor, Klondike, South Memphis/Soulsville, and Uptown.
It’s much different in the towns. There, no special organization exists to focus on blight and disinvestment. Instead, the TIF districts in the towns are set up by their various towns’ Industrial Development Boards, whose primary work is about giving PILOT incentives, and a result, sees TIFs through that lens.
Approval by the Shelby County Board of Commissioners is required because when TIFs are approved, they not only capture the towns’ property taxes but also county property taxes within the district. The town’s property taxes pale in comparison to Shelby County.
Here’s how Tax Increment Financing works: after an area is designated a TIF district, its tax baseline is frozen and any increase in property taxes is placed in a fund to pay for infrastructure improvements that make the area more profitable.
It’s County Taxes, Stupid
For example, Lakeland’s Lake District TIF is $36 million for a real estate venture to develop 110 townhomes as well as multi-family units. Lakeland already has two TIF districts and are considering one more. The Bartlett TIF is for an addition to the Union Depot mixed-use development and to acquire the privately owned Quail Ridge Golf Course.
There are already TIFs in Millington and Arlington and one from Germantown will soon be on the board of commissioners’ agenda. There is not a TIF district in Collierville, but that town is already known for its excessive uses of PILOTs (to a factor of more than 10 when compared to the other suburban towns).
Comparative property tax rates indicate the heavy reliance by the towns on county tax revenues to finance their TIF developments and how the county taxes make up the bulk of the towns’ TIF funds:
$2.69 – Shelby County
$1.1157 – Millington
$1.79 – Germantown
$1.13 – Arlington
$1.66 – Bartlett
$0.94 – Lakeland
$2.58081 – Memphis
Business interests like to say that TIF districts are “painless” because the new TIF taxes would not exist without them but that’s not the full story. They are the same kinds of people who once said sprawl was economic growth, so the watchword should be “trust but verify.”
What is regularly overlooked is that TIFs rely on predictions of future gains, which in turn means diverting potential property tax growth from general public funds that would otherwise fund essential services. This comes with opportunity costs and TIF analyses must not be overstated or they may not materialize.
Better TIFs Are Possible
Because TIF justifications rest on a “but for the TIF, this project would not happen,” the question always remains about whether developments backed by TIFs would have gone forward without them. That’s the quandary facing county commissioners who do not independently make this assessment but rely on the towns’ numbers.
If the projects are not actually dependent on the TIF to proceed, they are in effect redirecting funds that would otherwise support broader public services rather than the narrow area or a particular developer.
A problem with TIF deals is that they often lack transparency, accountability, and public engagement. Oversight mechanisms can be weak, and further complicating the issue in Tennessee, the law does not require a robust demonstration that the TIF-generated revenues will actually cover development costs, leading to overly optimistic projections.
Most of all, the expansion of TIFs beyond blighted areas to larger scale, mixed-use, suburban-style developments blur the line between the “public good” and “private subsidy.”
They Can Be Better
This is not to say that TIFs don’t work. In fact, they are better than PILOTs in that the projects are intended to pay for their own improvements while PILOTs give away taxes and shift infrastructure costs to the general public.
A committee of the Shelby County Board of Commissioners is now engaged in a complete review of PILOTs and something similar should be done with TIFs. That review should narrowly define blight and restrict TIFs to deteriorating areas, it should require rigorous “but for” analyses, it should put transparency and public input as priorities, and it should limit the number and duration of TIFs.
TIF districts are not inherently good nor inherently bad. As a funding mechanism, they can, when administered wisely and under the right conditions, steer investment to the areas that need it. By design, TIFs often service narrow interests – developers, political constituencies, and speculative growth – and that’s why the shift to suburban mixed-use projects is troubling.
What our community should demand is not the wholesale abolition of TIFS (or PILOTs, for that matter) but an honest conversation about who benefits, who bears the risk, and what kind of growth we want. Without that, TIFs risk becoming a subsidy machine that enriches some while costing many.
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Note: The Tennessee Secretary of State maintains a list of TIF districts in the state but none are listed in Shelby County. An official in the office said none were submitted for the report. The Shelby County trustee prepares reports on the amount of PILOTs on Shelby County but not TIFs.
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