Explosion in Sub-Municipal EDOs
The eighties witnessed a veritable explosion of new programs-strategies which created literally, thousands of sub-municipal specialized EDOs, still currently active and a well-recognized element of our current ED landscape. Programs/EDOs created in the early eighties include: enterprise zones (EDZs), business improvement districts (BIDs), Main Street programs, and TIF/RDA financing districts.
Why were so many sub-municipal, specialized programs-EDOs created? The usual answer is Reagan’s fiscal austerity and devolution forced local/state innovation. But a simple “Reagan did it” is an oversimplification. A second answer is sub-municipal districts addressed then-felt needs to deal with CBD, distressed neighborhoods, commercial revitalization, and development/redevelopment. Neighborhood level community/economic development and downtown revitalization by the early eighties had become a primary ED/CD strategies. Relatively inexpensive cities, suburbs and small towns could undertake and customize these programs/EDOs to fit their needs and demands. If one “inhaled”, one might think neighborhood commercial centers/strips were the service sector equivalent to an industrial park.
Main Street
“Main Street” arrived on the local scene in 1980 when the National Trust for Historic Preservation founded the National Trust Main Street Center. By 2013, the Main Street Center claimed more than 2000 “programs and leaders use the Main Street approach to rebuild the places and enterprises that create sustainable, vibrant communities“. The Trust asserts since 1990 1600 communities adopted Main Street”[i], an approach that can be used for downtown or neighborhood commercial districts. Main Street integrates a community’s past and emphasizes activities that bring the community together. The Main Street approach is based on four “points” and eight “principles”.
The four points are:
Organization–Build partnerships and boards of directors based on consensus and cooperation.
Promotion–Create a positive image that rekindles community pride and improve consumer and investor confidence.
Design–Creating a safe, inviting environment for shoppers, workers and visitors.
Economic Restructuring—Retaining/expanding successful businesses to provide a balanced commercial mix, sharpening competitiveness and owner merchandising skills, and attracting new businesses that the market can support.
The eight principles are:
Comprehensive (No single activity dominant)
Incremental (Take baby steps)
Self-help (Rely on local consensus)
Partnerships (public-private)
Identify/Capitalize on Existing Assets (develop uniqueness)
Quality (Do it right, even if more expensive)
Change (District success can change public perceptions)
Implementation (Complete projects)
Main Street points and principles suggest to us an intriguing blend of planning (and implied historic preservation), volunteerism, and a public-private partnership based on shared community visions. Main Street is not a microeconomic, business-based approach to commercial revitalization (that’s a BID). Rather Main Street is a CD approach to commercial revitalization. Business is a partner, not dominant driver, in a community-based initiative, relying less on profit than visual enhancements and sound project management that reshape perceptions and consumer demand.
Business Improvement District
The 1908 San Francisco fire/earthquake led to the creation of the “Down Town Association of San Francisco”. During the 1920’s thru 1940’s, downtown property owners formed membership organizations such as Detroit Business Property Owners Association and Downtown Council of Chicago to combat decentralization (Fogelson, 2001). In the 1950’s and 1960’s, chambers (like Denver’s) formed CBD-based organizations to advocate, plan and participate in UR CBD projects and to intensify efforts to resist intense suburbanization (Hoyt & Gopal-Agge, 2007, p. 947).
Allegedly the first true BIDs was Toronto Canada’s 1969 establishment of “an autonomous privately managed entity with the power to impose an additional tax on commercial property owners to fund local revitalization efforts“. The first US assessment-financed business district was New Orleans Downtown Development District in 1974. The first district to call itself a “BID” was New York City (1980’s). By 1997, an estimated 1,000 BIDs operated in the USA (fifty in New York City alone) (Nelson et al., 2008). A 1999 survey suggested that 60% of these BIDs were created after 1990 (about 400 BIDs in the 1980’s) and about 28% were established after 1995 (Mitchell, 1999) BIDs started slowly in the early 1980’s, picking up steam in the eighties (Briffault, 2010) (Houstoun, 2003) (Mitchell, 2009).
BIDs provide a variety of agreed-upon services and coordinate business practices and advertising on behalf of the businesses within demarcated geographical boundaries. Staff and services cost are borne largely by a self-imposed tax collected by the appropriate taxing authority—which could be the BID itself. BID governance is usually private sector elected by its membership and often include local government representatives. BIDs can, and frequently do, serve neighborhood commercial centers as well as a downtown-CBD area. The concept, linked to historic preservation, expanded to include Residential Improvement Districts (RID)
Wisconsin in 1983 approved a state-wide Business Improvement Districts Act, empowering local municipalities to create a BID. Eventually ninety five (twenty in Milwaukee) BIDs were formed[ii]. Other examples suggest the variety inherent in BIDs. For example, New Jersey empowered “special improvement districts”, Texas “public improvement districts” and Pennsylvania “neighborhood improvement districts”. In many instances, BIDs can be autonomous of municipal government or its subsidiary. In many cities they were spun off from chambers or can be a chamber subsidiary. The variety of configurations is huge.
BIDs have engendered some controversy in the academic literature due to their Privatist structure. Briffault comments that BID’s justification has been an underlying belief that “‘cities exist to create opportunities for individual wealth accumulation and business leaders are best qualified to devise (or advise) policies toward that end‘. (Briffault, 1999, p. 470) In effect, BIDs permit private elites to govern and tax, albeit in a limited area, for private commercial benefit. This raises “more questions than answers, regarding the effect of BIDs on such issues as democracy, accountability, and the regulation of public space” (Hoyt & Gopal-Agge, 2007, p. 947). Still BIDs are comfortably adopting many Main Street principles and are often members of both the Historic Trust and the International Downtown Association. By their structure and business composition, BIDs are the Privatist counterpart to the CD-style Main Street approach.
Economic Development Zone
At decade’s end (estimated) nearly one thousand EDZs existed. EDZ diffusion was a state-driven process; as described above, the federal government never approved an EDZ program in the 1980’s, but, a coordinated “effort” by HUD, working with a score of Think Tanks, NGOs, and professional associations prodded states into authorizing EDZs. Ultimately, forty states adopted some form of an ED; by 1995 only ten states had not approved an EDZ (NH, SC, NC, AK, ID, MT, WY, ND, SD, and IA).
EDZs did not necessarily require a distressed area, and often were geographically-targeted concoctions of each state’s favored programs and initiatives. States were not attracted to the EDZ because of its Privatist nature (some states opposed it precisely for that reason), but because it fit quite nicely within the state economic development system. “To the states, however, enterprise zones embodied targeted economic development rather than supply-side economics” (Mossberger, 2000, p. 121). Arguably, most, states used EDZ programs as vital elements of their interstate attraction programs. Small business, seems to have dropped out of EDZ priorities early on[iii].
State diffusion came in bursts. The first, 1982-1983 period enlisted twenty states; the second (1984-1989) sixteen, and the last 1993 four[iv]. The motivations behind each diffusion-burst are particular to that period. The 1993 burst was largely a reaction to the Los Angeles (Rodney King) riots. There is evidence the 1984-1989 middle diffusion period was driven by the “arrow-in-the-quiver” mentality of state EDOs desiring to catch up with early adopters. Mossberger asserts that in middle period “Continued state adoptions probably occurred in part because of increased interstate competition for business investment and rising state interest in economic development programs of all types” (Mossberger, 2000, p. 82).
Officially, the first state was Connecticut in 1981, but Illinois and Florida were early entrants as well (Mossberger, 2000, pp. 81-3). EDZs in several first-burst states were more community development-oriented than economic development (Illinois, Kentucky, and Indiana). Massachusetts waited for more than a decade before it put its toe in the water (1993). There partisan politics were the issue. Democrats wouldn’t touch it; when Weld (Republican) was elected Governor in 1992, he got it approved.
Looking back in 2000, Mossberger comments EDZs over their first twenty years drifted “ away from the notion of decreasing governmental activity….But regulatory reform largely withered in the process of diffusion … [and] Most state programs emphasize economic development objectives…over community development objectives….States often link a number of (non-zone) economic incentives to the enterprise zone concept (such as low interest loans, TIF, IDB, MBE, infrastructure, venture capital, workforce) … with which the state has had previous “experience”. (Mossberger, 2000, pp. 85-6)
Tax Increment Finance District
In 1970 TIF had been adopted by California and six other states. The last sub-municipal EDO, the tax increment finance district, is linked to the diffusion of TIF during the Eighties. TIF captures incremental tax revenue growth generated by physical development within a defined district, Incremental tax revenues pay for the public infrastructure installed to spur development. TIF is typically presented as self-financing, as costs of development are paid for by the increased revenues resulting from TIF-financed growth—thus avoiding tax increases. It didn’t hurt that TIF is “off budget” and the RDA outside of formal municipal accountability.
Structurally, TIF requires establishing a legal entity with a defined geographic area (TIF district), and a determined assessed property valuation that serves as the base for future tax revenue growth. Tax receipts above the base pay off installed infrastructure, and net proceeds are paid to eligible taxing districts, captured by the RDA, or distributed according to a state legislative formula. Legally separate TIF districts are created for each defined geographic area, each managed by the master redevelopment agency (RDA). The RDA (usually) issues bonds to pay required infrastructure costs. Autonomy enjoyed by the RDA varies by state, but can be considerable. TIF can be used for development (Greenfield) or redevelopment; PILOT agreements are also common. Only Oregon used TIF extensively to finance urban renewal projects[v].
TIF is the quintessential state ED program. Every aspect of TIF is defined by each state; commonalities exist, but are overwhelmed by state variation. The purposes desired by each state differ and are reflected in types of projects, processes, actors etc. The complexity of state variation is massive—some ways states differ include (Johnson & Man, 2001) include:
- Who is authorized to create a TIF district (state, county, municipality, RDA). How long can a district exist? Accountability, audits, and reporting requirements.
- Preconditions to which the TIF district must comply, i.e. blight? (how defined?), “but for” (a legal concept specifying that without TIF initiative Western civilization will end in seconds), and a “plan” which includes TIF/project goals, costs/benefits estimates, base value, and projects incremental revenues given type of projects anticipated
- Form of community input required for TIF plan and specific TIF actions
- Uses allowed for TIF districts (commercial, residential and affordable housing)
- How plan is adopted/approved; who has the final say
- Issuance of bonds: type of bonds, terms and conditions, who issues bonds, eligible uses of bond proceeds, bond repayments, surpluses, losses and default.
TIF, in some form, may be the most used local government development/redevelopment tool in America; tax abatement is its chief rival. California, its originator, was arguably TIF’s most aggressive user–its growth was fueled as a bypass of 1978 Proposition 13 (property tax relief). In 1980 there were 299 TIF districts in California (Briffault, 2010, p. 70), and by 1987 467 California cities operated TIF districts” (Johnson & Man, 2001, p. 32). By 1988 almost six hundred project districts/RDAs received 6% of the state’s property tax receipts and by 1990 there were 658 districts (Briffault, 2010, p. 70). In 1998 TIF garnered 8% of property tax receipts despite major state legislation intended to them rein in, limit, refine and refocus use of TIF by California’s municipalities. At that time (1990) there were 351 RDSs in existence and over 700 on-going projects[vi]. In 1998 five projects districts exceeded 18 square miles each; by 2008 six projects exceeded 30 square miles each[vii]. In the period 1990-2010 TIF was the prime strategy-tool employed by California EDOs. Its RDA were (essentially) terminated in 2012.
Through the Seventies, states incrementally adopted versions of TIF, but the real explosion occurred after Reagan’s. TIF’s attractiveness as a substitute for federal (UDAG) dollars was compelling. By 1984 twenty-eight states had approved TIF legislation, thirty-three by 1987, and forty-four by 1992 (Briffault, 2010, p. 70). In Illinois, for instance, the number of TIF districts quintupled in a single year after the state loosened the requirements in 1985 (Kerth & Baxandall, 2001, p. 5). Indeed, Chicago’s Mayor Daley (Son) proclaimed TIF as “the only game in town” and the city’s “only tool” for promoting economic development”. In 2007 Chicago was home to 155 TIF districts (Briffault, 2010, pp. 65-6). Other examples include:
At the end of the 1980’s there were more than 1000 TIF districts, although most of them are concentrated in California and in the upper Middle West states of Minnesota, Michigan and Wisconsin. Minneapolis has been a particularly heavy user (Briffault, the Rise of Sub-Local Structures in Urban Governance, 1997)There is no national registry of TIF districts and many states do not centrally collect or publish data on their TIFs either….In 2003 Wisconsin had 789 TIF districts, … Missouri in 2007 there were at least 291 TIF projects … In Iowa in 1999 there were more than 2400 TIF districts covering 7.1 per cent of the urban tax base… In 2007 there were 402 active TIF districts in Cook County Illinois covering more than 10% of the county’s land area (Briffault, 2010, pp. 70-1)
In contrast to this, Hawaii, Mississippi and New Jersey had laws authorizing TIF since 1985, but none had an operating tax increment district as of 2001 (Johnson & Man, 2001, p. 32). By 1997 48 states had approved TIF (including North Carolina which subsequently rejected a constitutional amendment)–Arizona and Delaware were the laggards; by 2010 only Arizona had not adopted some form of TIF. Originally inspired as a California tool to raise funds for local match to combat blight in UR projects, TIF had become the go-to tool in the economic development toolbox. In most states TIF is now an all-purpose local government tool for financing public investment (infrastructure) for private development. As of 2010 sixteen states no longer require a finding of blight and other states simply create special “conservation” or “economic development areas”. Wisconsin is a fine example of TIF’s evolution.
Wisconsin adopted TIF legislation in 1975 in response to the challenges of eliminating blighted areas in depressed urban areas…Since it was first adopted in 1975, several major changes … expand the ways that TIF can be used, and have increased the involvement of the overlying taxing jurisdictions and local residents. Changes [include] mixed-use TIDs … multijurisdictional TIDs … New TIF powers were also given to Town governments that allow them to use a Town TIF for specific project types…In recent years, more TIDs are being created in more places…As of January 1, 2011 there were 1,074 active TIDs[viii].
RDAs were a new variation of the older UR redevelopment agency and TIF, with its alliance with private developers, banks and real estate investors. A powerhouse, bulldozing property-based ED conglomerate, closely tied to mayors, sometimes county CEOs, mostly loosely-attached to city managers, RDA employed an approach-style the polar opposite of Main Street and BIDs. RDAs could be construed not only as a way to “pay the bills” for the jurisdiction, or to move the costs of development and redevelopment off-budget, but also to address the rise of offices, retail, and professional service sectors in older central cities. TIF in growing states like California meant malls and sales tax chasing—and higher ranking in the metro competitive landscape. TIF and RDAs brought many a metro region closer to a polycentric landscape than any other ED structural type. In many ways this was a brand new ball game for economic developers. Unless checked by states, TIF and RDAs offered a way around expensive school taxes and one should not be blamed for thinking them as a “growth regime coalition”. Their power, aggressiveness, and often closed bureaucratic/expert internal policy-making (the author was CEO of an Erie County NY version of one of these structures) rendered them both powerful and vulnerable, a remarkable icon of physical Privatist development/redevelopment in an Age of Anti-UR.
Below the Radar: Wrapping Up Sub-Local EDOs
If CD took off in the Seventies, it is clear ED expanded the scope of its activities/strategies greatly during the 1980’s. Commercial revitalization corresponds to the shift to FIRE/service sectors in jurisdictional economic bases. EDZ marks the increased involvement of states in local ED. Most states, ignored “distressed areas”, choosing instead to use the program as an umbrella for their most used “arrows in their quiver”. In many states it was an open question who really ran EDZs: states or localities. More than any other single program, EDZ was the most significant intrusion of States into local ED thus far. TIF replaced UR as the principal tool to conduct physical development /redevelopment.
[i] National Trust Website, http://www.preservationnation.org/main-street/about-main-street/
[ii] Roger N Nacker Ph.D. President Wisconsin Economic Development Association, “A Short History of Economic Development in Wisconsin and the Rise of Professional Economic Development“, November, 2000.
[iii] Enid Beaumont, “Enterprise zones and federalism” in Roy E. Green, New Directions in Economic Development (Newbury Park, CA, SAGE Publications, 1991), pp. 41-57; David B. Robertson and Jerold L. Waltman, “The Politics of Policy Borrowing” in David Finegold et. al. (Eds) Something Borrowed, Something Learned (Washington DC, the Brookings Institute, 1993) pp. 21-44.
[iv] HUD 1995 State Enterprise Zone Update in Mossberger, chapter 4, Figure 3, pp.81-83
[v] “Learning from Experience: A Primer on Tax Increment Financing”, Fiscal Brief, New York City Independent Budget Office, September, 2002, p. 2.
[vi] Michael Dardia, “Subsidizing Redevelopment in California” (Public Policy Institute of California, January, 1998), p. ix. http://www.ppic.org/content/pubs/report/R_298MDR.pdf
[vii] Legislative Analyst Office State of California, ”Unwinding Redevelopment”, February 17, 2012, p. 4 http://lao.ca.gov/analysis/2012/general_govt/unwinding-redevelopment-021712.aspx
[viii] State of Wisconsin Tax Incremental Finance Manual, Revised as of April 2012, Chapter 1, Section 1, “What is a TIF“, p. 1-2, Department of Revenue, Division of State and Local Finance
Ron W. Coan 