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Friday, March 13, 2009
Still Confused About TIDDs?
By Sean Olson
Journal Staff Writer
A contentious fight has erupted over the use of Tax Increment Development Districts as lawmakers debate a TIDD bill that would benefit West Side developer SunCal Cos. in this legislative session.
Some proponents would have you believe that TIDDs are the end-all, be-all answer for new development. Opponents frame it as a coffer-draining boondoggle that puts taxpayers on the hook for developers' costs.
The following is a quick primer to help sort out some of the issues:
What are TIDDs?
Tax increment development districts allow developers to divert some sales and property taxes generated within the districts after they are developed. The money is used to reimburse the developer for building roads, utilities and other public works.
How do they work?
A developer has to pay for everything up front. Once the roads and utilities have been built, businesses have been started and people have moved into the area, the property and sales taxes generated there are used to back bond sales. A government-run TIDD board handles all the money and uses the bond proceeds to reimburse the developer. Taxes are diverted over a period of about 40 years to repay the bonds. The development company does not have direct access to the tax revenues and is not guaranteed it will get paid back for its original investment.
Are there risks for the state?
Yes. The biggest comes in the form of "cannibalization." TIDDs are designed to bring new business and tax revenue to the state. But if the businesses and people that move into a TIDD simply relocate from a different part of New Mexico, the state could lose tax revenues that benefit everyone, not just the people and businesses in the TIDD.
Illinois lawmakers recently complained that their state has lost millions due to cannibalization from its many TIDD projects. In Arizona, some state leaders have renounced TIDDs as an incentive that led to bidding wars between local governments and to deals that gave away more tax revenue than the cities and counties could afford.
How are taxpayers protected?
The New Mexico Board of Finance, along with local governments, must approve each TIDD deal, and elected officials serve on the TIDD boards that handle the money. The state Legislature has to authorize each district to sell bonds, as is the case in the TIDD bill before the Legislature right now. The districts are technically their own governmental entity, so if tax revenues dry up and there is no money to make bond payments, taxpayers are not legally on the hook.
I've seen ads that promise TIDDs create jobs. Do they?
In a roundabout way, yes. Companies need to bring in new businesses to create a tax base. New businesses mean new jobs. SunCal is promising nearly 13,000 new jobs, based on the amount of retail, commercial and industrial space it would make available. It also includes nonpermanent construction jobs. If the company doesn't find new companies to move to New Mexico, and instead entices local businesses to relocate, there won't be new jobs. Critics argue that new development, and the jobs it brings, can happen without the TIDD incentive.