Instigating Reinvestment in Our Neighborhoods Using Existing Tools in Unconventional Ways

Tax Increment Finance (TIF) is a tool used by cities to instigate economic development by rebating the developer the increment of property tax generated by the development. For example, (using simplistic numbers for the purpose of this example) if a property, pre-development, is generating $100 in property taxes and post-development, that property is generating $1000, the increment, or in this case $900 would be rebated to the developer. The money refunded to the developer can be used for many development costs i.e. infrastructure cost, site work, etc.

However, TIF comes with a heavy social cost to the community. Generally, property taxes are split between the city, county and the school district giving each a percentage of the property tax. A significant percentage of the property tax is used to support the school system. This money is forfeited to the developer and ultimately the education system, literally, pays the price for the development during the duration of the TIF program.

As controversial as TIF is in most cities, could it be used in an unconventional way as an affective tool to spur reinvestment in neighborhoods? Over the summer, I worked as an intern in the Community Planning and Economic Development department for the City of Davenport, IA. With all of the funding programs coming into the city funded by the American Recovery Act, the city wanted to continue to target neighborhood stabilization as one of its primary focuses. In addition to the Neighborhood Stabilization Act & Neighborhood Stabilization Act 2, Davenport implemented a program offered citywide known as Davenport NOW.

Davenport NOW is a program that targets every property owner that builds a new, owner-occupied residential or commercial structure, or a property owner that invests over $5,000 in improvements to an existing structure. Based on the amount the assessed value increases from the improvement, 50% of the City portion of property tax is rebated to the property owner. This rebate may be administered in a one-time upfront payment, or in several installments over a period of ten years.

A property owner will receive more money from the rebate over the longer period of time but it may be more advantageous to receive the money upfront to help subsidize some of the initial cost of the improvement. During my tenure with the City of Davenport, this program was seeing a tremendous amount of interest from property owners in the city looking to make improvements to their property, especially from new homeowners. Can a program similar to Davenport NOW be successful in Memphis?

The housing market in Memphis, like many other cities, has become relatively stagnant and infested with home foreclosures. Vacant properties have tendencies to be a drag on neighborhoods, particularly, property values because they are often plagued by a lack of care, squatters and even damage by the former owner. But, if a program similar to this was implemented in Memphis, it may serve as the catalyst for stabilizing the market. The program has the ability to be combined with the Federal First Time Homebuyers Tax Credit, a program also seeing success.

One of the most important parts of this program is that it has no adverse affect on the school system, unlike TIF. Since this program is only using the City’s portion of property tax revenue, the school system is still able to receive its funding, which is very much need in the City of Memphis. Implementing innovative programs like Davenport NOW, coupled with NSP funding and CDBG funding may serve as an excellent avenue to trigger reinvestment and help get the economy and housing market back on track in Memphis.