Local governments undertake economic development[FN 1] projects to pump up the local tax and job rolls, enhance urban infrastructure (street improvements, ball parks, affordable housing), and advance planning norms, such as those favoring increased urban densities to facilitate the use of public transit. To achieve these outcomes, investment capital is raised from the issuance of redevelopment agency bonds to be repaid out of increased property tax receipts from the project itself, as new construction is added to the tax rolls. This method of public finance is called tax increment financing (TIF).
This paper is about the legal solutions afoot to deal with two controversial aspects of TIF funded economic development. Economic development has provoked heated ‘public use’ challenges to local governments taking private property for re-conveyance to private firms, and has aroused taxpayer protests that some projects accomplish little of public benefit and hog increased property tax revenues that should have been shared with other local government entities.
The states have responded to these concerns in different ways. Many states require findings of blight as a pre-condition to such projects both to meet ‘public use’ challenges and to steer local governments away from economic development projects of questionable value. But blight definitions vary greatly, and some are so expansive and vague as to be meaningless as constraints. To protect property owners from unwarranted economic development takings, most states have enacted measures in addition to or in place of blight tests. This paper surveys the TIF funded economic development landscape following Kelo v. City of New London.
1) The paper begins with a comparison of different states’ blight tests, focusing especially on how the various statutory criteria apply to the taking of unblighted property in blighted areas. (2) Then, we consider why TIF funding and blight eradication don’t mix. (3) Next, the paper describes a variety of state laws unrelated to blight tests that protect property owners categorically from economic development takings, improve compensation, nurture owner participation in planning, and facilitate voluntarily negotiated acquisitions. (4) The fourth section lists the ways states help school districts and other taxing entities to keep their future property tax revenues from being diverted and lost to economic development projects. (5) In section five the paper draws a distinction between three types of economic development projects mentioned above– civic betterment, plan implementing and purely tax driven. (6) This section shows why the narrowly focused, tax driven economic development projects are so popular with local and state lawmakers. (7) A final section summarizes how state court opinions are dealing with the issues raised in Kelo v. City of New London.[FN 2] Basically, some state courts are demanding of condemnors that they demonstrate the tangible land use public benefits that will result from projects in which land is being transferred from one private owner to another. Civic betterment and plan implementing projects serve a public use, and can withstand such scrutiny; single-asset economic tax-driven development projects cannot.
[FN 1]The term “economic redevelopment” usually refers to projects that have as their public goals increasing the local tax base or creating employment opportunities. “Urban redevelopment” often refers to projects involving the replacement of established uses of land with uses more consistent with the community’s aspirations. In this paper these terms are fungible– public-private partnerships, economic development, redevelopment.
Professor Mihaly reads the U.S. Supreme Court opinion in Kelo v. City of New London , 545 U.S. 469(2005), as defining economic development to mean activities geared to private wealth creation and redevelopment as projects intended “to correct the failure of the market alone to bring an area back to life after a substantial period of economic decline.” Marc B. Mihaly, Living in the Past: The Kelo Court and Public/Private Economic Redevelopment, 34 ECOLOGY L. Q. 1,8 (2007).
[FN 2] 125 S. Ct. 2655 (2005).
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Date of this Version
George Lefcoe, "After Kelo, Curbing Opportunistic TIF-Driven Economic Development: Forgoing Ineffectual Blight Tests; Empowering Property Owners and School Districts" (March 2008). University of Southern California Law and Economics Working Paper Series. Working Paper 75.
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