Last year, we wrote about a powerful coalition of developers pushing a bill in Olympia for “tax increment financing” (TIF). 

Under TIF legislation, a city (or county or other taxing authority) can create a district of almost any size, then take nearly every new property-tax dollar generated in that area, sometimes for decades, to subsidize large redevelopment projects serving special interests. 

As growth occurs, property values (and taxes) increase. All the increased tax revenue (above those collected in prior years) in the TIF district can then be raked off to pay for big-ticket projects. As TIF districts proliferate, tens of millions that would have gone into a city’s general fund are drained away, leaving less and less to meet city’s overall basic needs. 

Undaunted by its failure to gain support in the Legislature last year, this coalition regrouped, gave TIF a new name — “value capture financing” (VCF) — and now are back with a revised bill that threatens even more severe effects on our wallets.

 

Sleight of hand

Under TIF, cities may capture future property-tax revenues otherwise destined for their general fund, but the amount of new revenue that can be raised annually from new taxes is restricted by a state-imposed 1-percent lid. No local jurisdiction may collect more than a 1-percent increase above tax revenue collected the previous year. Only a voter-approved special levy or bond allows cities to layer on new property taxes above that 1-percent lid. It’s your vote helping to ensure that, most of the time, an extra tax is used for projects and activity our city really needs.

By contrast, VCF gives a local jurisdiction the right to create a VCF district of any size and, in that area, impose new taxes that double the amount of additional property-tax revenue it can raise from 1 to 2 percent over the previous year. And city leaders could use those extra dollars for whatever purpose — all without a public vote. Given their deep pockets and massive influence at city hall, developers are the most likely beneficiaries of such a system.

If approved, the bill would require an amendment to the state Constitution so voters statewide still would have an opportunity to reject it. But if voters aren’t made aware of its implications — it’s an intricate mechanism not easily understood — VCF could very well pass.

Also, owners representing half the total assessed value within a proposed VCF district could file a petition and kill the new tax, but bill supporters know it’s logistically impossible to get hundreds or even several thousand to sign such a petition.

To get buy-off from a few misguided environmental and social-service groups, proponents of the VCF bill added a so-called social-equity component: 25 percent of funds raised by VCF is supposed to go to housing, open space or “sustainable” projects. Only half of the 25 percent must go to low-income housing, but “low-income” is defined as serving those at or below 50 percent of median, not the very poor.

 

Pet projects still priority

On its face, VCF doesn’t take away existing taxes dedicated to the city’s general fund, but in reality, it threatens future revenues for broader essential services. 

The bill allows cities to impose added taxes on residents of special districts for 30 years — the time needed to pay off bonds floated, say, for extension of Paul Allen’s streetcar, a new sports arena, completion of the west phase of Mercer Corridor, underground wiring in South Lake Union and other things that many in the city may not agree are essential. 

Then, when it comes to housing levies and library bonds, bridge repair or sidewalks for our neighborhoods, items that truly serve the public, these tax increases would go to the voters, who are more likely to say no, since they’re already maxed out. 

And in down economic times, when falling tax revenue impacts the general fund, there’s no slack because a large chunk of future taxes is prioritized for these VCF projects. 

Here are there any ways to make this VCF bill more palatable:

•A definition of “blight” restricting creation of districts only within areas that truly need infrastructure improvements;

•Some standard to ensure that all funding (not just one-quarter) go to improvements that truly serve existing businesses and low-income residents, not corporate gentrifiers;

•Restrictions on the number of VCF districts and size to no more 10 or 15 contiguous blocks; and

•A mechanism for administrative appeal that allows citizens to go to a state agency to challenge a cities creation of these.

So far, all indications are that the proponents of this bill will vigorously oppose any such amendments. As has been the case with TIF laws we’ve fought before, they’d rather see the bill go down than make the changes needed to prevent free spending abuses, which is, of course, the whole idea behind the legislation in the first place. 

JOHN V. FOX and CAROLEE COLTER are coordinators for the Seattle Displacement Coalition (www.zipcon.net), a low-income housing organization. To comment on this column, write to QAMagNews@nwlink.com.