Executive Summary

Tax increment financing (TIF) subsidies are like a development credit card for the
City – buy a project now and pay it off with future revenue. Denver has already
mortgaged over $500 million in future revenue to pay off subsidies to large
private development projects. And this sum is increasing dramatically.

Are we getting our money’s worth?

In this report – Part I of a three-part series – we begin to answer this question by
analyzing how much money TIF subsidies are costing Denver tax payers, and
what are the impacts of these TIF expenditures on the Denver budget.

Key Findings

• TIF Now Costs Denver Taxpayers Almost $30 Million Annually in Foregone Revenue
  

TIF subsidies never show up on the Denver books, but the total sales and
property tax revenues that were diverted from the General Fund in 2003 to pay
for TIF commitments was $29.5 million.

• TIF Subsidies Have Almost Tripled in the Last Six Years. They Consume Almost 7% of General Fund Revenues
  

In 1998, tax expenditures through TIF were $10.6 million and represented 2.8%
of General Fund revenues. In 2003 TIF was $29.5 million and equaled 6.8% of
the General Fund. For property taxes alone, TIF subsidies now consume over a
quarter of total property tax receipts into the General Fund.

• TIF-Project Revenue Performance Falls Short. Denver Receives No Additional Revenue for Decades
  

TIF diverts tax revenue to pay subsidies to selected projects for as much as 25
years. Projects are often justified by optimistic revenue projections – that they
will return additional net revenue above and beyond the TIF subsidy. Revenue
performance numbers, however, are kept secret. Our data shows that only two
of sixteen projects are exceeding revenue projections. On average, projects are
performing at only 62% of original projections.

• TIF-Projects Create Service Needs They Don’t Pay For. Denver’s Other Tax Payers Pick Up the Difference
  

TIF projects create new business activity, but they also create new public service
needs. The revenue from TIF projects does not contribute to paying for these
services. Special mill levy purposes are especially hard hit. In 2003, $4.9 million
was diverted by TIF from special funds to pay for urban drainage and flood
control, aid to the developmentally disabled, police and fire fighter pensions, and
other public service and debt obligation purposes. Denver’s other tax payers
must either make up the difference or suffer cutbacks in these services. Only the
Stapleton project has been structured to return an increasing share of revenue to
the City in order to cover part of the cost of public services to the development.

Recommendations

Our purpose is not critical, it is constructive. We support TIF as a powerful tool
for stimulating urban redevelopment and building a better Denver for all. Its use
and management, however, need to be substantially reformed to ensure that
these major tax-funded investments deliver the strongest possible returns to the
public, and that these investments can be understood and held accountable.

Account for TIF Expenditures in the Denver Budget
Currently, TIF expenditures never show up on the city’s books, are invisible to
the public, and are unaccountable to the normal balance of costs vs. benefits that
all other budget expenditures are subjected to. TIF needs to be accounted for in
the annual budget in the same way as more conventional revenue and
expenditure flows.

Consider a Ceiling on the Growth of TIF Commitments
TIF commitments have grown rapidly over the last several years, and this trend
shows every sign of accelerating. There is little or no natural check or objective
limit to new TIF commitments. Denver needs to consider establishing a ceiling
on the growth of TIF commitments. This should be done before tax payers find
themselves at a level of TIF subsidies that is too high, yet they are bound to fulfill
for decades to come.

Hold Revenue Projections Accountable Against Actual Performance
Incentives to inflate revenue projections during the approval of TIF projects
should be discouraged. Currently, the revenue performance of TIF projects is
kept secret. Policy makers and the public have no way of assessing whether
their substantial tax-funded investments in these projects are doing as well as
they were promised. Revenue projections need to be held publicly accountable
against actual performance.

Ensure TIF Projects Pay a Portion of Their “Fair Share” for City Services
TIF-subsidized projects create public service needs they do not pay for, leaving
Denver’s other tax payers to make up the difference. Following the unique
pattern established by the Stapleton project, TIF-subsidized developments need
to return an increasing share of their revenue to help cover the costs of the public
services that they consume, and to share in the collective burden borne by the
rest of the City’s tax payers.