Alarming patterns in economic development contracts
Central to the success of the economic development program Tax-Increment Financing (TIF), is job creation and retention, as increased employment is an indicator of economic growth and improved public well-being. But when we dig deeper into the specifics of many of the TIF Redevelopment Agreements and the “Employment Certifications” provided by developers to the City, a couple of alarming patterns begin to emerge.
Local and state governments sometimes use subsidies to encourage the redevelopment of economically challenged areas. Tax-increment financing (TIF) has been an increasingly common tool used for this purpose. TIFs allow cities and towns to borrow against future tax revenues from an area in order to invest in immediate infrastructure or development projects. Within a “TIF district,” a portion of property tax revenue is set aside for economic development, and is generally used for community improvement, such as affordable housing development, improving parks and schools, fixing basic infrastructure, putting vacant land to use, and meeting other local needs.
Central to the success of the TIF program is job creation and retention, as increased employment is an indicator of economic growth and improved public well-being. For this reason, many of the TIF Redevelopment Agreements (RDA’s) include jobs covenants. These covenants should, ideally, provide safeguards for the City against the failure of the developer to adequately improve the economic situation in troubled regions, standards to ensure the project is worthwhile, and an incentive for the developer to focus on increasing employment, thus furthering economic growth.
Unfortunately, when digging deeper into the specifics of many of the TIF Redevelopment Agreements and the “Employment Certifications” provided by developers to the City, a couple of alarming patterns begin to emerge:
Lack of Clear Jobs Requirements– While many TIF projects include jobs covenants, not all of them have enforceable language. A few projects list what job levels can be “expected” as a result of the project and others, such as the Dearborn Center Project and the project with Sears Roebuck Co., note “commercially reasonable efforts” must be used to reach jobs goals, a phrase that has no legal definition or meaning.
Insufficient Monitoring/Enforcement of Requirements– In the projects that do require the developer to hit certain jobs targets and include penalties for failure to do so, it is not always clear that the City is monitoring employment levels or enforcing the conditions of the agreement when the developer fails to comply. Wheatland Tube Company, for example, was required to maintain 200 full-time equivalent (FTE) jobs for three years after completion of its project, 224 FTE jobs for years four and five, and 236 FTE jobs for years 6-10. Yet in payment requisition forms sent to the City, Wheatland Tube Company claimed to employ 199 employees in 2010 and 155 in 2011. It is unclear whether the City received any documentation of these workers or penalized Wheatland Tube Company for failure to reach the required job levels.
There are a few notable examples, including NAVTEQ and Merlin LLC, where the City appears to be monitoring the job levels frequently and receiving documentation of all of the developer’s employees.
In order to make developers more accountable, the City should:
• Ensure all TIF projects have clearly written jobs requirements with clear consequences established for failure to meet these requirements
o Where possible, developers should be contractually bound to deliver on the promises they make in exchange for TIF subsidies they receive.
o Any exemptions, grace periods, or other potential loopholes should be spelled out clearly upfront.
• Monitor job levels regularly and requiring documentation to support any numbers provided to the City
• Enforce the provisions in the contract, so that a portion of TIF funds should be withheld from the developer if all jobs requirements are not met.
