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On its 3rd try, still a dubious proposition

Column: Point of View
Author: Rob Schofield

October 19, 2004

RALEIGH--If political consultants have learned anything during the past half-century of television politics, it's how to overhaul, package and market a "product." What's more, extreme makeovers are not only applicable to candidates. Today, in North Carolina, the practice is also being applied with equal skill and apparent success to an idea -- in this case a proposed change to the state constitution known as Amendment One.

Amendment One is at least the third attempt by a group of well-meaning and beleaguered state and local officials to win a new way to borrow money without the normal requirement of voter approval. Sometimes called Project Development Financing" (PDF) or Tax Increment Financing (TIF), the idea is really pretty simple and goes something like this:

Many local governments are in difficult straits because voters keep demanding more services and lower taxes. Desperate for revenue to help spur economic development, local officials have latched onto an idea used in other states under which local governments issue bonds (i.e., borrow money) to develop a specified neighborhood or area and then pay off the bondholders with "new" tax revenues that arise as the result of the development. The idea is that the new development will make the specified area much more valuable -- thus raising its property value and the property taxes paid.

As explained by Amendment One supporters, PDF/TIF is a painless, win-win, by-the-bootstraps means of bringing economic development to struggling areas.

Unfortunately, as with a lot of other easy money plans, things are not quite as easy or simple as they appear. In the case of Amendment One, the hidden problems include:

New burdens on existing taxpayers -- When an undeveloped piece of land is developed or a downtown district gets a face-lift, local governments will incur new responsibilities and expenses for schools, police and fire protection and many other services. Unfortunately, if all of the new property taxes generated in the area are pledged to retire debt, the cost for providing expanded services will shift to the existing taxpayers. This has been a problem for PDF/TIF around the country.

Corporate handouts --The language in Amendment One is extremely vague. To be approved for PDF/TIF development, an area's use need only be found to be "appropriate for the economic development of the community." In other states, such vagueness has resulted in the use of more than $100 million in PDF/TIF funds for the construction of Wal-Mart stores! Amendment One does not even include a provision to require businesses that receive PDF/TIF subsidies to pay them back if they change their mind about relocating to a selected area.

No provision for displaced low-income families -- While no one is opposed to the renewal of struggling neighborhoods, the fact remains that many low-income people inhabit such places because they are often the only place to find affordable housing. Amendment One contains no requirement (as has been included in some other states) that some percentage of PDF/TIF funds to be reserved for the development of affordable housing for displaced residents.

Worsening urban sprawl -- Amendment One would not limit PDF/TIF projects to blighted urban neighborhoods, but would permit their use for development essentially anywhere a city or county (or group of cities or counties) chooses.

With so many causes for concern to conservatives and liberals alike, it's clear that the lack of organized opposition to Amendment One is primarily the result of a fifth, and perhaps, most serious problem:

The extreme makeover -- North Carolina voters have twice before rejected proposed PDF/TIF constitutional amendments. In 1982, the vote was 77.5 percent "against" and 22.5 percent "for." In 1993, the vote was 72.8 percent to 27.2 percent. The difference in 2004 is that while both of the earlier proposals stated explicitly that adoption would eliminate the constitutional requirement of voter approval for PDF/TIF borrowing, the 2004 language carefully avoids such an admission. Under the terms of Amendment One, North Carolina voters may well give up the constitutional right to vote on PDF/TIF bonds without even knowing they did it!

As North Carolina voters wade their way through a long and difficult ballot in the coming days, it is important that they look very carefully at the facts about the "new and improved" PDF/TIF proposal. While the supporters may have good intentions, there is ultimately no disguising the defective product they're trying to sell.

(Rob Schofield is policy director of the N.C. Justice Center.)

Copyright 2004 by The News & Observer Pub. Co.
Record Number: i5tk5d89