There are just as many examples of positive uses of incentives. I give you the redevelopment of downtown Long Beach, California or even closer to home, the redevelopment of downtown Houston Street in San Antonio. Both of these projects were incentive driven projects that have successfully helped the redevelopment of areas of a community that required serious amounts of money to upgrade infrastructure needed to attract developers to the area.

Moreover, tax increment financing is not a subsidy. Unlike other types of incentives, TIF is only viable when a developer fronts the money to develop the project. In the case of TIF a developer must have the ability to develop the area before TIF can even be considered. TIF only works when the developer actually creates improvements in the zone that are then taxed. The taxes from that zone are then used to reimburse the developer for the public infrastructure he funded intially.

Although San Francisco and Prop 13 is used as an example of how development can be spured by lowering property taxes, as a former California I can tell you that Prop 13 created another problem. Most communities are now competing for the high sales tax generating business to fund their general funds. I site the example in Southern California where a community used eminent domain to take a property from a Church and give it to a developer who was going to build a Home Depo arguing that it was a for public use. You now see communities using their incentives to attract autodealerships, large box stores and other companies that generate major sales tax revenues for the cities.

Commentary
Louis Miserendino: A tale of two cities
Louis Miserendino
2008-06-26

BALTIMORE -
That Mayor Sheila Dixon is under investigation for improprieties in city contracting is no surprise. In a city where the government has made itself the middleman in every major redevelopment project over the last half-century, the surprise is that such a scandal did not erupt sooner.

Even if allegations prove false that Mayor Dixon took lavish gifts from a developer in exchange for tax breaks and zoning changes while she was City Council president, the investigation highlights a major flaw in Baltimore’s redevelopment process.

Given the city’s stratospheric property tax rate, investors are reluctant to build here without incentives. To get city handouts in the form of tax breaks, favorable financing or discounted property, developers need friends in high places — and will be tempted to win these friends by ethically dubious means.

But this process, which relies on grandiose planning and aggressive use of eminent domain property takings as well as expensive subsidies, does not just invite corruption.

In Baltimore, it has failed miserably to deliver the goods, creating two cities: A “tax-break Baltimore” in areas favored by the planners and a “tax-broken Baltimore” everywhere else. The latter is a great place to film gritty crime dramas like HBO’s “The Wire,” but a poor place to live.

The fact is that “plan, control and subsidize” renewal, while capable of delivering success stories like Harborplace, has consistently failed to produce a widely shared, organic and enduring Baltimore renaissance. Since the original Charles Center project began in 1958, a half-century of downtown and waterfront revitalization has, at best, rejuvenated a few thousand of Baltimore’s 49,000 acres.

Meanwhile, dozens of neighborhoods have suffered from increasing population flight, disinvestment, poverty, blight and crime while waiting for planners to focus on them.

Defenders of the city’s role as development middleman claim Baltimore’s renewal will eventually spread, and assert that subsidies, tax breaks and eminent domain are essential weapons in their arsenal.

But if breaks for preferred developers are a good idea, why isn’t more general tax relief for all property owners not a great idea?

The positive effects of Baltimore’s revitalization have been so limited precisely because redevelopment strategies have failed to address a root cause of Baltimore’s repulsiveness to investors: A property tax rate more than twice the level in the surrounding counties.

Buy or build a $200,000 house in Baltimore City, and you’ll get a yearly property tax bill of $4,536. Buy or build the same house in Baltimore County, and your annual tax bill drops to $2,200.

It’s not hard to see why capital investment and people have been migrating out of the city for decades.

Those who argue taxes are irrelevant to a city’s fortunes need to consider historical evidence. Consider another city by a bay — San Francisco.

From 1950 to 1975, San Francisco’s population fell 14.3 percent — even faster than Baltimore’s 10.3 percent decline over the same period.

Like Baltimore today, San Francisco had a reputation for mean streets, as fans of the “Dirty Harry” movies may remember.

And like Baltimore, San Francisco attempted to treat its depopulation crisis with a dose of “plan, control and subsidize” redevelopment.

Most notably, it displaced nearly 20,000 residents of the Fillmore District, once known as the “Harlem of the West,” to make room for its Japan Trade Center.

San Francisco’s decline continued, however, until 1978, when the city was forced by a statewide ballot initiative — Proposition 13 — to cut its property tax rate by 57 percent.

Despite adverse macroeconomic conditions, investment dollars, jobs and people migrated back to the newly capital-friendly city. Though its tax receipts fell for a few years, by 1982 San Francisco boasted huge budget surpluses. Between the 1980 and 2000 censuses, its population grew 14.4 percent; Baltimore’s, by contrast, fell 17.2 percent.

There’s really no reason why Baltimore can’t join San Francisco as a “superstar city.”

The key is to end “the other capital punishment” by significantly cutting property tax rates. Doing so will make special tax breaks unnecessary, help clean up city government, and initiate an enduring, citywide renaissance.

Louis Miserendino, a lifelong Baltimore City resident, teaches social studies at Calvert Hall College High School. He is the co-author, with Loyola College economics professor Stephen Walters, of the study “Baltimore’s Flawed Renaissance: The Failure of Plan-Control-Subsidize Redevelopment,” released by the Institute for Justice (ij.org) on Monday.