Tsk-tsk on Governor’s TIF Proposal
The recently released Fiscal Year 2019 Executive Budget includes a provision that would allow the Metropolitan Transportation Authority (MTA) to create tax increment financing (TIF) districts in New York City to raise revenue for transit improvements. As evidenced by the successful financing of the Number 7 line extension to Hudson Yards, TIF can play a role in financing parts of the MTA’s capital program. The proposal in the Executive Budget, however, does not advance that goal in a responsible manner. The bill gives the MTA the ability to usurp New York City’s control over how its tax dollars are spent and does not guarantee that the MTA would use the additional revenue appropriately. Given that State law already allows the MTA to use TIF, the current proposal is not necessary to promote the use of value capture to raise revenue for the Authority.
The proposal in the Executive Budget would allow the MTA board to create “transportation improvement subdistricts” within New York City. An assessment would be imposed on property owners within the districts “[f]or the sole purpose of providing an additional stable and reliable dedicated funding source” for the MTA to “preserve, operate and improve essential transit and transportation services” within the MTA region. The proposal would only apply to projects and properties located in New York City.
The MTA board would be required to follow a series of steps to create a new subdistrict. First, it would identify an eligible MTA capital project and all of the properties within one mile of the improvement. Next, it would estimate the amount that property values within the subdistrict have grown or are projected to grow as a direct result of the MTA’s investment. Finally, it would require the City to remit to the Authority an amount of up to 75 percent of that increment. If the City does not remit the revenue in a timely fashion, the State Comptroller would withhold an equivalent amount of State aid. The Board would be required to hold a public hearing and notify the Mayor before it creates a new subdistrict, but it would not require the City’s approval. The subdistricts do not expire, and the legislation does not restrict how the MTA can use the new revenue.
Why it is Problematic
A provision in the 2017 Executive Budget, adopted by the state legislature, gave cities and towns in the MTA region the ability to use value capture to fund MTA capital projects. (See CBC’s primer on tax increment financing for more about how TIF works and the history of TIF in New York State.) The key distinction in the new proposal is that TIF subdistricts in New York City could be formed by the MTA without City approval.
When a local government creates a TIF district, it elects to dedicate future revenue to a specific capital project instead of other needs like public safety, education, or housing. Eliminating the City’s right to appropriate local revenues reduces accountability to taxpayers and could hamstring the ability to fund basic services in the future. It is also unclear whether the bill violates the rights afforded to New York City under the home rule provision of the state constitution; as written, it undoubtedly violates its spirit.
In addition to concerns over local autonomy, the proposal also fails to conform to other best practices of value capture:
- The transportation improvement subdistricts would exist in perpetuity. Generally, TIF districts sunset after a period of time, after which the incremental revenue flowing to the district reverts to a city’s general fund. By contrast, the MTA’s subdistricts would never expire, and the MTA would continue to collect revenue from property owners long after the Authority has recovered its investment.
- The incremental revenue is not segregated to repay the costs of the projects that created the value. Typically, TIF districts divert incremental tax revenue to a specific fund, which is then used to pay for capital improvements within the district. Under the Governor’s proposal, the special assessments would flow directly to the MTA with no guarantee they would be used for any particular purpose. The preamble of the bill does not even restrict the use of funding to pay for projects in New York City, or even to pay for capital projects. As written, the bill would allow all funding to be used to support the MTA’s operating budget. Indeed, MTA Chairman Lhota said before a joint legislative budget hearing that the new TIF revenue could be used to keep fares and tolls down throughout the MTA system.
- Districts can be used to tax current property owners for past MTA projects. States and cities have used value capture as a financing tool to pay for new capital projects. By contrast, the Governor’s proposal appears to allow the MTA to collect incremental property tax revenue within one mile of completed projects or projects already under construction.
- The bar for identifying capital projects is too low. The bill says that transit improvement subdistricts can be created around capital projects so long as the projects are in an approved MTA capital program and have an estimated cost of at least $100 million. This low bar could include projects like the Enhanced Station Initiative that will not add capacity and are unlikely to generate significant increases in property values. The bill requires the MTA to analyze the projected increase in fair market value of properties within the proposed subdistrict, but it does not limit its use to truly transformative projects.
- The subdistricts are too large. The bill would allow the MTA to capture revenue from areas up to one mile from an MTA capital project. This distance greatly exceeds the distance of the industry-standard transit zones. (The Center for Transit-Oriented Development, for example, considers transit zones to be no more than a one-half mile buffer surrounding individual stations.) As TIF districts get too large, they can divert revenue growth that is likely unrelated to the specific capital improvement. For example, in Chicago, where TIF districts cover a significant share of the city’s commercially zoned land, the city has struggled to raise enough revenue to fund its operations.
For these reasons, the State and the MTA should use the powers granted to them under the existing TIF law to partner with New York City when considering the use of value capture for future projects.