Does Edina's Grandview Development need TIF?

Congratulations, Edina.  Your taxes have been increased, again, by a secretive and anti-democratic administrative mechanism known as Tax Increment Financing (TIF).  Like public financing for all of our local sports stadiums, TIF allows public funds to be paid to the few, mostly large corporations, by the many, in this case the tax-payers of Edina.  Earlier this month, the Edina City Council voted to grant a future developer of the Grandview site a get-out-of-tax-free card for a minimum of 26 years.

A bit of background about TIF is in order.  The concept of TIF has been around since the late 1960’s but was first codified in Minnesota in 1979.  The concept began benignly enough: encourage the development of environmentally or economically “blighted” property through the use of tax incentives for the developer.  The original idea was that an inner city property owner would use tax funds to clean up contaminated property and would then return the formerly blighted property to the tax rolls, resulting in a net increase of taxes. 

Sadly, the idea has been so twisted and abused by city governments like Edina that it bears little resemblance to its original purpose. 

As shown by Edina, TIF is now simply a way for local governments to manipulate tax payers into bribing developers to do what the developers have every financial incentive to do.   No tax-payer incentive required.

When a TIF district is formed, the county auditor certifies the current tax capacity of all properties within the TIF district as the district’s “original tax capacity” and also certifies the “original tax rate” on those properties.   As the property in the district increases with development, the increases above the original tax capacity are “captured”. In other words, the taxes are calculated, but the developer does not have to pay the increased tax amounts as long as the TIF district is in effect.   The taxing authority, here the city, instead allows the developer to use the “captured” taxes to help offset the developer’s business costs.  In essence, the taxes on Grandview will be frozen in place for at least 26 years. The taxpayers of Edina will pick up the tab for the pleasure of having a slew of new high-density housing and buildings in our midst.

The key to the use of tax funds in this manner has always been satisfaction of the “but for” test.  Under state statutes, any locality attempting to use TIF must first certify that the property would not be developed “but for” tax incentives granted to the developer.   The question, therefore, is whether the site at the corner of Eden and Arcadia Avenues, just off Highway 100 and 50th Street, would have lain fallow forever “but for” the financial incentives afforded by the TIF designation. The Edina City Council and the City Economic Development Manager Bill Neuendorf have answered this question with a resounding “yes”.   It strains credulity, however, to suggest that no developer could be convinced to purchase one of the very few available development sites in Edina without foisting the costs on the taxpayers.  The reality is that, like Pentagon Park, several large developers were already chomping at the bit to get a chance to develop the Grandview site without any tax incentives. 

The bureaucrats of Edina have pulled this stunt before with the Pentagon Park. There, the developer had actually purchased the property and begun development well before the city decided to create a TIF district.  This bears repeating: Even though the developer had already paid millions for the property and started development, the City nevertheless certified that the property could not be developed “but for” tax incentives.  The City then retroactively decreased the tax value of the property to millions less than the developer had paid.  The net result of the city’s shenanigans was that the Edina school district was hit with $1.2 million in retroactive tax increases, all of which are borne by the city’s tax payers. 

Is it too much of a stretch to suggest that the same may happen again?  Certainly the school district, burned so badly last time, is concerned that history may repeat itself with the Grandview TIF district, as well they should be.  The Edina School Board took the unusual step of expressing their concern in an open letter to Mayor Hovland and the city council, stating “We do have a concern that the adoption of the TIF district with its current scope might have a negative impact on the local financial support for the school district.” 

Indeed.  Like the Pentagon Park TIF district, the Grandview TIF district should cause all Edina taxpayers the same concern.