What if Cities Stopped Giving Away School Dollars to Finance Development

Nashville pushes pause on tax increment financing deals while it considers their unintended impact on schools and other public goods and services.

Students at Amqui Elementary School in Nashville, Tenn., watch a broadcast of President Barack Obama delivering a speech on the importance of education in 2009. (AP Photo/Mark Humphrey)

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The explosive growth of Nashville over the last half-decade has lately been tempered by a few tough challenges.

Like most American cities, Nashville is facing a critical shortage of affordable housing. Unlike most cities, its former mayor, Megan Barry, resigned under a scandal in March. Then in May, voters overwhelmingly rejected a $5.4 billion transit plan that proponents hoped would transform the Nashville metro area for the better, reducing congestion and creating better mobility options for pedestrians, bicyclists, and bus and train commuters. The same month, the new mayor, David Briley, released a budget that included no cost-of-living increases for Nashville’s public school employees.

Partially in response to the budget shortfall, Nashville Metropolitan Council Member Bob Mendes proposed a solution: Leave the school district’s revenue out of tax increment financing (TIF) deals that the city makes with developers.

A typical TIF deal in Nashville freezes property taxes at a certain level on a parcel that’s set for development and allows the developer to divert the appreciating portion of the tax assessment to pay back construction loans. That means the school district, which collects about 40 percent of property tax revenue in the city, ends up with less money than it would have under an unsubsidized deal. Last year, the Metropolitan Development and Housing Agency (MDHA), the city agency that administers Nashville’s TIF deals, diverted almost $10 million of would-be revenue away from the school district, according to a report in The Tennessean.

Mendes, who has served on the council for three years, says he believes he had the votes to pass the bill last week, but he agreed to hold off bringing the legislation up for a vote. In exchange, the city and MDHA agreed to make no new TIF deals until at least next summer, when a committee is expected to wrap up a comprehensive study of Nashville’s TIF program and make recommendations for its improvement. Mendes also sponsored the legislation to create the committee.

“My feeling is that there’s an important place for tax increment financing in how we run the city, but yet almost everybody hates it,” Mendes says. “My opinion is if we put more sunlight on exactly what deals are being done and why, then people would have a better opinion of it, and we’d have a more nuanced approach.”

Mendes says the MDHA and TIF deals are largely insulated from the political process in its day-to-day administration. Deals are made between MDHA officials and developers and then brought to the council for approval.

Officials with MDHA and the Mayor’s Office of Economic and Community Development did not respond to interview requests. Both bodies have two appointees each on the seven-member TIF study committee, with city council appointing the other three.

“So far, the people who’ve been appointed hit a spectrum of development people, city finance people, and I’m assuming the council is going to pick some community advocate people, and it will be balanced,” Mendes says.

Greg LeRoy, executive director of Good Jobs First, which tracks economic-development subsidies, says cities everywhere should consider keeping schools’ portion of property-tax revenue whole when making TIF deals.

“Education is the best way out of poverty, and therefore, good schools are necessary for equitable economic development,” LeRoy says. “You’re shooting yourself in the foot if you’re under-funding your schools in the name of economic development.”

Beyond that, LeRoy says, employers are attracted to places with good public schools, because that’s usually the first consideration for young employees when they’re considering where to move.

“To us, shielding school funding goes hand in glove with good economic development because K-12 education is the cornerstone of our nation’s workforce development system, and because it’s critical if you expect to attract good employers,” LeRoy says.

Last month, the Lincoln Institute of Land Policy released a report called Improving Tax Increment Financing for Economic Development looking at a number of studies on the impact of TIF programs in various cities. It notes that, while TIF districts are only meant to capture the increased tax assessment that wouldn’t have existed without the development, in practice they capture value that would have appreciated in the normal course of time. It recommends that states allow school districts to opt out of TIF deals, and that local governments should make more information about TIF deals publicly available.

Mendes also helped pass TIF-related legislation in 2016 in response to reports that the MDHA was ending up with some tax revenue that should have been going to the city’s general fund, according to The Tennessean.

“I think there’s a pretty widespread feeling, even among people who are hardcore, downtown business-type folks, that some of what we’ve done with TIF over the last 10 years when the city has been booming is maybe not the ideal usage,” Mendes says.

Jared Brey is Next City's housing correspondent, based in Philadelphia. He is a former staff writer at Philadelphia magazine and PlanPhilly, and his work has appeared in Columbia Journalism Review, Landscape Architecture Magazine, U.S. News & World Report, Philadelphia Weekly, and other publications.

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Tags: educationnashvilletax increment financing

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