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On Nov. 30, the Courier Journal ran a story touting the successes of Louisville’s tax increment financing districts, or TIFs for short. According to the story, $50 million has been made available to and invested by various projects throughout the Louisville area over the last 20 to 25 years. To put this into perspective, using U.S. Bureau of Economic Analysis numbers, the cumulative output of the Louisville MSA economy over this time has been $1.3 trillion. Therefore, this investment amount has been a very small portion of the entire Louisville economy over this period.
Additionally, as the article acknowledges and/or implies, many of the benefits have accrued to larger businesses rather than smaller ones and to neighborhoods already undergoing gentrification, such as NuLu. As the piece points out, much research, including my own, shows that a lot of investment would have taken place anyway without the incentives. And as some economists would point out, if these projects are such good ideas, then why do they need the help of taxpayers? Why not let the marketplace alone determine the success or failure of these projects?
TIFs are a mixed bag
My research over the years, as well as those of others, shows that most TIFs have mixed results. Like I’ve learned from the research I have done on enterprise zones, Trump opportunity zones and other local economic development initiatives, usually large corporations benefit the most, with some job creation and/or the retention of jobs supposedly about to leave the area. While the latter is definitely good news, many of these initiatives are also undertaken with the goal of revitalizing low-income and blighted neighborhoods, but this goal is usually not met.
TIFs, like the old enterprise zone programs, are originally meant for neighborhood redevelopment. Those parts of “revitalization” programs which show the biggest success involve massive amounts of government infrastructure and public works spending, such as the expansion of the Louisville Airport in the 1990s to the amount of over $700 million in federal money. However, this came at the price of destroying a residential area adjacent to the airport in order to do the expansion. Despite this, when it came to jobs, this was one of the few bright spots of the old Louisville Enterprise Zone program.
Revitalizing Louisville will take more than TIFs
And then there are the Hope VI grants, some of which were used to rebuild public housing in the area east of downtown Louisville, as well as the Environmental Protection Agency permitting the development of Slugger Field, a site which had been declared a brownfield, to trigger the subsequent growth and “rebirth” of the East Market District (now called NuLu), Butchertown and Phoenix Hill neighborhoods.
There is nothing inherently wrong with state and local governments trying to stimulate greater business and community reinvestment in certain areas of a municipality which need it. Evaluations of such programs, however, usually show that favorable outcomes are often skewed toward business and not residential interests. Also, tax breaks may make a difference, but targeted public works dollars seem to have a more dramatic impact. With deteriorating public infrastructure and underfunded mass transit systems in most urban areas throughout the U.S., it is not enough to rely upon tax breaks and cuts to stimulate local economic growth. More must be done outside of the private sector alone to bring back our cities.
Thomas E. Lambert has mostly taught economics, business statistics, public administration and public policy at various colleges and universities over the years such as the University of Louisville, Indiana University Southeast, and Northern Kentucky University. The views expressed in this op-ed piece do not necessarily reflect those of any institution for which he currently works or for which he has worked in the past.
This piece originally appeared in the Louisville Courier Journal.
