New research explains what you may have wondered: What is tax “decrement” financing?
Wichita has a financing mechanism known as the Gilbert-Mosley tax decrement fund. I knew about tax increment financing, but I never really understood how tax decrement financing worked. I had thought that in this context, “decrement” had a sophisticated meaning that I wasn’t able to understand because I wasn’t smart enough, or I hadn’t tried hard enough, or I didn’t have the correct documents to read.
Now, Chase M. Billingham and Sean Sandefur have published detailed research that explains how the Gilbert-Mosley financing works. Billingham is Assistant Professor of Sociology at Wichita State University. Their research, which forms a chapter of the book Tax Increment Financing and Economic Development, Second Edition: Uses, Structures, and Impact, is titled “The Conceptual Pliability of TIF and the Political Rhetoric of Environmental Remediation: Groundwater Pollution and Tax “Decrement” Financing in Wichita.” You may download a pdf of the chapter by clicking here. The published chapter had to be cut for length, but this pre-print version provides much greater detail than the published version.
Following, an introduction to the research by Billingham:
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If you ask people around Wichita why growth in the city’s downtown core has been so slow over the past several decades, you’re likely to hear that one of the main culprits was a terrible problem with groundwater pollution in the 1980s and 1990s. You’re also likely to hear about the miraculous and innovative home-grown response that Wichita came up with to solve this problem. This solution involved using tax-increment financing to fund the groundwater cleanup operation, keep Downtown Wichita from becoming a massive Superfund site, and save the city’s core from turning into a “ghost town.”
Despite the local mythology that has been built up around this operation, neither the history of Wichita’s groundwater problem nor the financial mechanisms that were implemented to address it are well understood by the public.
That’s the focus of a new piece of research published this month as a chapter in a new edited volume – Tax Increment Financing and Economic Development: Uses, Structures, and Impact (SUNY Press). In this chapter, my coauthor Sean Sandefur and I explain the history of Wichita’s downtown groundwater crisis, the politics behind the creation of the local taxing district established to fund the cleanup, and the financial mechanisms that are still in place today to direct money toward the cleanup fund.
Although this has consistently been referred to as a novel use of tax-increment financing, we reveal that the actual structure that was implemented is not an example of TIF at all, but rather a simple diversion of a constant flow of property tax dollars into a special fund, with no relation whatsoever to fluctuations in underlying property values and assessments.
The idea of “TIF” is so poorly understood, so vague, and so frequently subject to mystical ideas about projects “paying for themselves” that it can be used as a convenient label to mask how local governments actually engage in public finance. The results of this research are applicable for thinking about a wide range of downtown development projects currently underway in Wichita, as well as other cities.