TIF Debate: Hertz Vs. Engen

by William Skink

I tuned in to the entire City Club Missoula debate on TIF yesterday and even live-tweeted the showdown between Mayor Engen and former state representative Adam Hertz.

After Susan Hay Patrick, ED of United Way, said the word “civil” about a dozen times, and twice referred to herself as Mary Poppins, a tax expert with the first name Pippa explained what TIF is and how it works.

Unless you are someone like Pippa who loves talking about complicated tax incentive structures, the effect of listening to her explanation is that portions of your brain start deactivating. I’m sure many people dropped off or tuned out listening to all the technical jargon.

Engen was up next and said (I’m paraphrasing) oh that old TIF thing? That goes all the way back to the 70’s, long before my time of being your humble servant.

Engen is not wrong, and anyone who underestimates Engen’s ability to talk the good-feeling TIF talk is going to drown in New Urban speak.

Consulting my tweets, I see Engen got going with a list of beneficial projects TIF has funded. It was a long list. Even things like the gazebo on the court house lawn has TIF money to thank for its existence.

Engen called TIF what it is, a subsidy. And Engen said things like TIF IS AN INVESTMENT IN OUR FUTURE!

Last but definitely not least, Adam Hertz made his introductory statements with a very civil and very illuminating assessment of problems he sees with how TIF is being used.

Hertz established early that he is not an “abolitionist” when it comes to TIF. By explaining what he is NOT, Hertz is letting us know that there is abolitionist sentiment that exists.

Overall, Hertz did a fantastic job. I’m obviously biased, but I’d say he made his points quite well.

One point Hertz made is how each state gets to define how it uses TIF money, and in Montana it’s simply for “blight”. This definition is apparently quite old and vague, so one solution at the state level is to more tightly define what can be done with TIF money.

Another problem Hertz explained is the BUT FOR argument. This argument boils down to this: without TIF money, the project would either not have happened, or would be smaller (and why that would be bad, I don’t know).

To see this argument in action, here is Engen making it for the hotel that replaced the Merc:

“We believe that project, but for TIF, likely would have happened at a smaller scale, if at all,” Engen said. “The investment there was in infrastructure around the hotel, not the bricks and mortar that built the hotel. I believe that TIF is an investment in the future. That increment at the end of the life of the district goes back to the tax base.”

Before getting to the BUT FOR challenge, Hertz pointed out that it’s not just the hotel’s “increment” that gets siphoned from the general fund. No, ALL increases in property value ultimately flows to MRA.

If you owned a home in one of these districts, and since the district was established your property value/property tax assessment has gone up, that extra tax loot you are paying does NOT go to the general fund for schools and electric buses.

Ok, back to BUT FOR.

Hertz countered the BUT FOR argument, along with the validity of what should be considered “blight” and MRA’s actual intentions, by bringing up the Southgate Mall. The above quote continues with this:

Hertz didn’t disagree with the program’s designed intent, though he believes that cities have abused the program and found ways to skirt state statute. He cited Southgate Mall as an example, saying it wasn’t considered blighted until it announced its plans for expansion.

Only then, Hertz said, did the Missoula Redevelopment Agency add the mall to Urban Renewal District III, qualifying it for tax increment financing.

“The mall had announced their intent to do a very large project,” said Hertz. “They had been excluded from URD III when it was created, because there were no findings of blight at the mall. When they began to announce their projects, MRA saw an opportunity to capture some of that new increment that otherwise would have gone to the taxing jurisdictions as it normally should.”

Hertz disagreed with Engen and the “but for” argument – that being that certain projects wouldn’t occur but for tax increment financing. He said it’s hard to prove, but there’s a lingering sentiment that some businesses use the program to pad profits and not necessarily need it to bring a project to fruition.

I put CAPTURE in bold because it’s a great word to use that better describes the intentions of MRA.

To further expand on just how much MRA is capturing, the most surprising number of the debate was the percentage of Missoula’s tax base that is now tied up in TIF districts.

In just 3 years, we have gone from 4% of the tax base sniffing TIF to 14%.

The Missoula Current article ends with sunshine and lollipops. I’ll get to why that is a big problem after the quote:

Engen said the program is often misunderstood and isn’t as “black and white” as some make it out to be. The benefits of today’s investments will be realized over the long term, he added, and that has wider community benefits.

“As each of these TIF districts settle over time, or sunset, we’ll see a tremendous boon to the tax base,” he said. “We’ll see public infrastructure that’s in place that might have long languished or never have gotten completed, all of which adds to the quality of life in the community, the value of the community. I’d very much hate to see this tool go away because it’s worked here very well, and it’s worked elsewhere very well.”

The length of these TIF districts is only supposed to be 15 years. The Missoula Current article glosses over the fact that a little trick in the fine print of Montana Code Annotated allows for the life of the district to be extended. Council member Jesse Ramos has made this point explicitly:

“That TIF money is only supposed to be used for 15 years, so that district was created in 2000 and was supposed to sunset after 15 years,” Ramos explained, “but there’s a small provision within Montana Code Annotated which states that if you settle debt within the district, it extends the district out the length of the bond for a maximum of 40 years total. In September of 2015, the city council sold $5 million worth of bonds for that walking bridge, [built with] TIF funds, and extended that district out until the year 2040. So, all the growth in that tax base in going to be skimmed off the top until the year 2040.”

Ramos says that services in that district, such as police, fire stations, new hires, and wages and benefits for employees are paid for by taxpayers outside of the district. Taxes from within the district are going towards the MRA to pay off projects such as the bridge and the mall development. Part of the mall development included road construction on private property in front of the now-closing Lucky’s Market.

While Engen sings pie in the sky after sunset, the scheme is to take on a big load of debt in order to extend the life of the district, thus keeping their little skim and give racket going.

No, we don’t understand what’s going on here at all. Just a lot of “noise”, right Engen?

Some other quick points before I wrap up.

Adam Hertz can’t run for Mayor, as he lives outside city limits. Jill Valley asked him if he was running for Mayor, and that was his reply. So far the only contender against Engen’s probable reelection bid is the person I’m supporting, ABE (anyone but Engen).

Hertz did say some interesting things, like he thinks there is a good chance the out-of-state owners of the Southgate Mall could go bankrupt soon. Hertz also dropped the term “corporate welfare” regarding Stockman Bank’s use of TIF, said “Crony Capitalism” at one point, and even indicated legislative action might be coming if a reform path doesn’t materialize:

resistance to reform could cause the state legislature to do the knee-jerk reaction of taking away the TIF tool.

That is NOT an exact quote, but very close.

Engen also made some vague claim that there will be “consequences” if his tool is taken away from him, like maybe the police won’t get their new showers and lockers.

Ok, Mayor.

About Travis Mateer

I'm an artist and citizen journalist living and writing in Montana. You can contact me here: willskink at yahoo dot com
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3 Responses to TIF Debate: Hertz Vs. Engen

  1. John Kevin Hunt says:

    Engen says this is his last term.

    What Jesse forgot to mention, is that millions of dollars in urban renewal bonds are not general obligation bonds (“GOBs” — backed by the power of the city to raise taxes). This is because issuing GOBs would require a public vote. There are two multi-million bond issues in which the bonds are “secured” by nothing more than the assumption that the local economy will expand and sustain growth a particular minimum rate sufficient to pay off debt. The pandemic exposes the golly of that nonsense. These are JUNK BONDS. We are approaching a deep global depression, as well as an inevitable collapse arising from the fed’s strategy of monetizing via 40% of bank holdings being in — are you ready? — mortgage-backed securities! When this house of cards again collapses, Missoula may have no option other than bankruptcy.

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