The Harford County Council is once again poised to act as a financing agent for a developer as part of the welfare for the wealthy flim-flam known as tax increment financing. The onerous process is more commonly referred to by the alkaline acronym TIF.
It was a bad idea the previous time the council agreed to front the financing for a private development project, in this case Beechtree Estates, and it will be a bad idea when the council votes sometime after an Oct. 16 public hearing, presumably to approve cut-rate, county fronted financing for a portion of a 111-acre office, retail and residential development near the I-95 interchange with Route 543 in Creswell on the old Bren Mar Park property.
Make no mistake: The deal on the table is regarded in the realm of local government planners as being a function of local government and is all but assured of approval when the county council acts.
What's in the offing for the two benefiting developers — 95-543 LLC and Bren Mar 1 LLC — is a relative newcomer to the menu of what are often referred to as economic development and planning tools. One reason TIF seems to be getting a free pass in communities like Harford is it's mind-numbingly boring and complex on top of that. So few people other than those directly affected understand it, that almost no one bothers to speak out against it. Those who did speak out in the past against the Beechtree TIF, and who are likely to do the same against the Bren Mar/James Run TIF, have been brushed off by both the county executive and the county council as nothing more than ultra-obstructionists with personal political agendas.
To have a clear understanding why tax increment financing is a bad idea, it's necessary to have a rudimentary understanding of how it works.
Typically, when land is developed, it is the responsibility of the developer to pay for roads, water and sewer lines, sidewalks and other infrastructure. When the development is completed, the private buildings are sold and ownership of the public works infrastructure is transferred to the county government for ownership purposes, as well as long term maintenance and repair responsibilities. The developer profits from the sale of the private buildings, whose price includes expenses assigned to utilities and related costs, while the government gets saddled with responsibility for maintenance of the new infrastructure. In theory, this arrangement is a financial wash because the cost of maintenance and repair is covered over the long haul by the county taxes collected on the private properties in the new development.
Tax increment financing upends this arrangement in a way that gives greater benefit to the developer by increasing the risk and potential costs to existing taxpayers. Instead of the developer having to seek private financing for the roads, sidewalks, water and sewer lines, the government serves as the financing agent by issuing bonds, turning the money over to the developer and then setting up the new development as a special taxing district and collecting the money to pay off the bonds it issued from those who ultimately own the real estate.
Clearly, it's a good deal for the developer. For the county, the benefits are hard to quantify. It doesn't earn money by serving as the financing agent. Depending on how the special taxing district is arranged, the county could end up losing the taxes it would have collected to pay for the cost of schools and other off-site facilities and services impacted by the TIF financed development. In other words, the primary benefit the county government supposedly gets from new developments – property taxes – goes instead to pay off the loans that paid for the roads, etc. that developers traditionally paid for as part of their costs of doing business and their successors paid through taxes. TIF supporters claim these projects bring jobs and other taxes, usually of the income variety, but there's no proof the county receives any greater economic benefit from a TIF project than it does from one developed with conventional financing.
A TIF structured in such a way that the property tax payments against the infrastructure investment are over and above standard property taxes may subject the county to a lesser financial burden — though it doesn't take away the risk to the county if the development deal goes bad.
A TIF structured to charge extra taxes again is good for the developer who gets the deal, but it isn't necessarily good for the market. It gives developers who secure tax increment financing an edge over competing developers who aren't so politically well-connected, thus distorting the market. Moreover, if the project being proposed has economic merit, then conventional private sector — not government involved — financing ought to be available. All TIFs do in the end is allow the favored developer to charge less money for lots and/or buildings because of the low interest rates on the financing. Incidentally, those low interest rates got that way because, you guessed it, the lenders' earnings from TIF loans are exempt from federal and, possibly, state and county income taxes.
Tax increment financing likewise poses an unreasonable risk to the county government — and thus the taxpayers — by putting the government in the business of speculative development financing. TIF advocates claim the county incurs no risk because the project being financed serves as the loan collateral and, though the county issues the TIF bonds, its own credit rating is similarly not affected. It's a claim we've frankly never bought. Let this planned $23 million Bren Mar LLC TIF loan go into default and then see how it affects the county's credit to borrow money in the future for schools, police stations and parks. Should we as taxpayers be asked to take that risk for the sake of a few more office buildings, a so-called "lodging house" and more big box retail?
Like the previous tax increment financing arrangement, the Bren Mar TIF should be rejected. Unfortunately, this one will probably be enacted because such arrangements have become a part of how Harford County does business of the kind that it has no business doing.