Executive Summary

Tax increment financing (TIF) subsidies are one of the most powerful and important tools currently available to cities to promote redevelopment of blighted properties. TIF is like a redevelopment credit card – we can buy new projects now and pay them off with future tax revenue.

But like a credit card, TIF subsidies pose risks and should be used carefully. TIF imposes real costs on taxpayers. In Denver, we have already mortgaged over $500 million in future tax revenue to pay off existing TIF subsidies to private developers. The city is poised to increase that sum substantially with several new TIF projects in the next five years. Diversions of tax revenue to pay for TIF subsidies now represent an annual cost of almost $30 million to Denver taxpayers, and are rising rapidly.
TIF is a public investment in private projects. Like any investment, it is meant to deliver a substantial increase in value to the investor—in this case, the public.

Are we getting our money’s worth?

In this report – Part III of a three-part series¹ – we continue to explore this question by analyzing the kinds of wages and benefits that are paid at TIF-subsidized projects, the housing mix that is provided at the projects, and the effect of these projects on surrounding communities in terms of property values, gentrification and displacement.

Key Findings

• Jobs at TIF-Subsidized Projects Pay Wages Below Denver’s Average, Even for Similar Occupations

Contrary to the ostensible purpose of publicly-subsidized economic development, TIF-subsidized projects may be exacerbating the growing problem of low-wage/low-benefit employment in Denver. Wage surveys at three signature TIF-projects reveal that jobs there pay substantially less than Denver average wages, and 14%-27% less even than average wages for comparable occupational categories. In short, these TIF projects are expanding the low-wage/low-benefit sector of Denver employment.

• Wages at TIF Subsidized Projects Fall Short of Family Self-Sufficiency, Imposing Hardship on Workers and Costs on the Public

Wages at the three major TIF-subsidized projects examined in the study are so low as to leave most workers’ families unable to provide for basic family needs on their own. At these three projects alone, the estimated “self-sufficiency deficit” amounts to almost $23 million a year. This results either in personal family hardship – extra jobs taking time away from family and community activity, skipped meals, missed payments of bills, unsupervised children – or costs imposed on publicly-funded assistance. At the three TIF projects examined here, it is estimated that workers are eligible for roughly $10 million annually from various public aid programs.

• Expecting Better Wages and Benefits at TIF-Subsidized Projects will
  not Harm Denver’s Business Climate

There is little evidence from case studies of other cities that moderately increased local wages harm the local business climate. Many cities already encode living wage standards and community benefits expectations into subsidy programs and studies generally show no effect in terms of rising unemployment. In fact, many high-road, high-wage employers support encoding wage expectations into city subsidies as a way of leveling the playing field against low-wage, low-road employers.  Moreover, stimulating higher wages can be a growth strategy, creating a high-quality, motivated labor force and increasing local spending and tax revenues.

• Employees at TIF-Subsidized Projects face Unaffordable Housing Burdens and the Housing Mix at TIF-Subsidized Projects Does Not Serve Most Denver Residents

Contrary to the ostensible purpose of publicly-subsidized economic development, TIF-subsidized projects are exacerbating the housing affordability crisis in Denver. First, because of the low wage structure at TIF-projects, well over half of employees at TIF sites are estimated by HUD standards to face unaffordable rent burdens (paying more than one-third of income on housing). More broadly, housing created at TIF-subsidized projects is overwhelmingly high end and unaffordable to average Denver families. In eight key downtown projects receiving a total of $30 million in TIF subsidies, only 16% of 1387 housing units are affordable to families earning less than $42,000 (60% of Area Median Income); none are affordable to low-income families earning less than $21,000 a year.

• Neighborhood Gentrification and Declining Minority Populations are Correlated with an Infusion of TIF Dollars

TIF-subsidies are targeted to lower-income, “blighted” areas, in the hope of leveraging neighborhood transformation by increasing area property values and business activity. While these goals are generally positive, pursuing them without attention to the needs of existing area residents entails a risk of neighborhood gentrification and displacement of low-income families. TIF-subsidized projects are concentrated in Denver’s core-city and downtown neighborhoods, areas that have traditionally been home to Denver’s lower-income and non-white communities. The infusion of hundreds of millions in TIF redevelopment subsidies in these areas of town is correlated with rising property values and declining low-income housing stock. Although most of Denver became less “white” in the last decade as new immigrants moved to the city, areas targeted by TIF dollars displayed the opposite trend, and whites actually grew as a percentage of the population in those communities. Though they once boasted some of the city’s longest tenure patterns, neighborhoods targeted by TIF changed in the last decade so that the average length of time living in the community is shorter than the city average, suggesting residential displacement and neighborhood transformation. This evidence suggests that long-time, lower-income, non-white residents of Denver are not sharing fully in the benefits of TIF-leveraged
urban renewal.

Recommendations

Our purpose with these reports 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.

Make Job Creation an Explicit Component of the Subsidy-Approval Process and
Establish a System for Tracking Job Creation and Job Quality Performance

If job creation is a goal of subsidized economic development, the number and types of jobs created by TIF-subsidies should be an explicit part of both the TIF project planning and approval process. Just as DURA and project developers are responsible for estimating future project revenues, an employment projection, including wage and benefit projections, would allow the city to estimate the true net economic impact of any development. The City should also establish a reporting system that allows for tracking the number, wages, and benefit structure of the jobs actually created.

Establish Minimum Job Quality Standards for Subsidy-Created Jobs

Low wage jobs without health care contribute little to our local economic vitality and impose hidden costs on the publicly-funded service system. Wage and benefits standards focused on achieving family self-sufficiency should be established for jobs at TIF-subsidized projects. These minimum standards should include expectations for the provision of affordable health care for workers. Mechanisms to meet this health care goal include: recruiting tenants who already provide health care, establishing health insurance purchasing pools for employees of TIF-subsidized projects, or including these employees in the City of Denver health plan.

Establishing living wage and benefit standards would ensure that taxpayer-subsidized job creation is indeed a net economic benefit to the City, rather than a hidden increase in public service burdens. Using TIF tax subsidies to create jobs with health care, child care, and self-sufficiency wages would help move more Denver families out of poverty, and ensure our public investments have maximal impact by creating more families with more money to inject into the local economy. Accountability rules could be established that reduced TIF outlays to developers in cases where agreed upon jobs standards were not met.

Establish Meaningful Affordable Housing Requirements for TIF-Subsidized Projects

DURA, working with the City and community stakeholders, should draft an affordable housing policy for all TIF-subsidized developments. This policy should be designed to match the goals of Denver’s official housing plans. The 1999 Denver Housing Plan noted that Stapleton was the city’s best chance to expand low-income housing, but the Stapleton development plan did not adequately address that goal. The 2005 Report of the Commission on Homeless advocates for low-income housing along transit lines, but it is unclear how that goal will be incorporated at sites like the Cherokee/Gates redevelopment at I-25 and Broadway. City officials should be serious in meeting these goals through better affordable housing expectations on TIF projects.

Strategies to achieve a better affordable housing mix at TIF-subsidized sites could include: development impact fees channeled into a housing trust fund, revolving funds to improve housing affordability (e.g., a down-payment fund for for-sale housing and a deposit fund for rental housing), and a commitment that projects subsidized with public funds deliver affordable housing to lower income levels and at higher unit counts than currently required of non-subsidized developers under Denver’s Inclusionary Housing Ordinance.

Document the Effects of Development on Surrounding Neighborhoods

Evidence suggests that TIF-subsidized development catalyzes gentrification and displacement of long-time neighborhood residents. DURA should track the downstream effects of TIF-leveraged investments by documenting the effects on surrounding neighborhoods over time – and make this documentation available to the public. Changes in household income, racial demographics, household tenure patterns, and other factors should be monitored to ensure that
evelopment is benefiting, rather than displacing, surrounding neighborhood
sidents.

Draft Polic to Ensure TIF-Subsidized Development Maximizes Benefits for All Denver Residents

To help broaden the range of residents benefiting from TIF-subsidized developments and to mitigate the tendency of TIF projects to catalyze gentrification and displacement, city officials should draft appropriate policy to address this issue. Appropriate policy responses could include elevated affordable housing requirements at TIF-projects, more comprehensive First Source hiring programs for surrounding neighborhoods, and supplementary investment in smaller businesses serving long-time neighborhood residents.