Recently, the Bernalillo County Commission voted 4-1 to approve the use of tax increment financing (TIF) for brand new developments. In New Mexico, we call it Tax Increment Development District (TIDD), but no matter what you name it, the effect is the same: sales and property tax revenue within a development area are allocated to pay for building roads and other infrastructure only in the designated area.
That may seem innocuous enough a proposition, but by segregating tax dollars for one geographical area, tax dollars are diverted away from existing areas, (areas that are forced to subsidize services used by both areas) to new developments. The concept is not entirely without merit. Around the country, TIF’s have been used with some success to re-develop existing, dilapidated areas.
Focusing on the policies that allowed the area to become run-down in the first place would seem to make more sense – but at least it focused TIF for usage in areas with existing infrastructure and that could logically be said to need a “jump-start” to get themselves back on their feet. Unfortunately, like all policies geared towards a small group of people, there is potential for abuse.
Locally, governments are now using TIF to give companies like SunCal and Forest City Covington, both of which are building brand new developments, these preferential tax policies. The Mesa del Sol development now underway received the benefits of TIF and SunCal will receive TIF in order to develop 55,000 acres of open space on Albuquerque’s West Side.
For the average politically-unconnected Albuquerque-area developer, dealing with local governments is a nightmare of red tape. Anti-development politicians and anti-“sprawl” and/or “not in my backyard” citizens have passed numerous laws that make it a wonder anything is built. Out-of-control impact fees, high taxes, opaque zoning laws, capricious government officials (see Wal Mart’s experience in Vista del Norte), and onerous “green” building codes all make the process difficult and time-consuming.
On one hand we have policies that stifle new development and contribute to the decline of existing areas? But, on the other hand we have TIF policies now targeted at massive new developments that seem designed to help Albuquerque area to grow as rapidly as possible. In these seemingly-conflicting issues seems to be control. Massive new developments are okay, but only if they are acceptable to politicians. These very same politicians love nothing more than to give favors to their friends while they set up hoops for the little, less-connected guys (and gals) to jump through.
Instead of making development contingent on political connectedness and correctness, officials should consider how their policies both prevent development and redevelopment in and around the City while pushing people and businesses out to Rio Rancho, Bernalillo, Los Lunas, and Belen (just to name a few popular destinations).
Earlier this year, we at the Rio Grande Foundation were surprised to see that Albuquerque was the least friendly New Mexico city in terms of gross receipts and property tax burdens. Unfortunately, those taxes are just the “tip of the iceberg” when it comes to creating successful cities with friendly living and business environments.
Rather than using TIF to give special tax favors to one developer, our elected officials should focus on improving what we have now by reducing or even eliminating the negative impact of fees and regulations that chase economic activity out of the area.
Eliminating unnecessary and burdensome regulations will have the salutary impact of making special favors such as TIF for new development unnecessary. This will in turn create greater transparency in the process and level the playing field for all who want to work in the field. Hopefully, with some foresight and willingness to change, this can be done, but powerful, politically-connected interests have a stake in the current system and will fight reform.
Paul Gessing is President of the Rio Grande Foundation, a non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.