ANNAPOLIS — New recommendations for the use of tax increment financing may be forthcoming as a state growth commission studies funding priorities for development, the commission chairman said Thursday.
Jon Laria, an attorney with Ballard Spahr and head of the Maryland Sustainable Growth Commission, attended a briefing on TIFs before the House Environmental Matters Committee.
After a brief primer on TIFs, a complex form of public investment in development projects, Laria said the commission is likely to consider ways to expand use of the bonds by local authorities.
“We want to lay a foundation,” he said. “We hope to come back with recommendations on how to expand local authority on TIFs. For example, in some areas that has already taken place — there are special BRAC —zoned TIFs.”
Somewhat new to Maryland, TIFs were created in California in the 1950s. Ironically, as Maryland looks to expand its use of TIFs, California officials are seeking to curb the sale of TIF bonds as that state struggles under the weight of a fiscal crisis.
At present, 49 states use TIFs, which decrease upfront costs for developers through a private bond sale.
The bonds are repaid through future property taxes from the increased values of the new development, often over a period of up to 30 years. This reduces the total amount of property taxes local governments are eligible to collect on the new project.
“It is a way of getting private developers to share in the risk of public improvement,” said Abigail Ferretti, a principal with Partners for Economic Solutions, a Washington-based financial advisory group.
“In Maryland, TIFs are used for infrastructure, for roads, utilities, lighting and parks, for government buildings, public parking garages, land acquisition, site removal and relocation,” she said.
Between 2000 and 2010, there were $275 million in TIF bonds sold in Maryland, Ferretti said. Many of those were in Baltimore, including for Mondawmin Mall, Clipper Mill, East Baltimore, HarborView and Locust Point.
Del. Doyle L. Niemann, D-Prince Georges, asked about the lengthy terms of the repayments of TIFs, a question echoed by Del. Anne Healey, D-Prince Georges.
Healey said development of the National Harbor project in her district has added to the county’s assessable tax base, which has also boosted the county’s wealth assessment.
That has impacted state school funding, which is allocated on a wealth-based formula, creating a gap, she said, because the TIFs used to fund some of the National Harbor project will not provide full tax revenue to the county for decades.
“How do local governments get education funding so they don’t get taken to the cleaners and give away their tax base?” she asked. “How do local governments know what is in their best interest?”
Del. Elizabeth Bobo, D-Howard, also wondered about potential impact of TIFs in the 30-year redevelopment of Columbia. Plans to build 5,500 new dwellings, expanded retail and office space are being drawn up. TIF funding for nine new public parking garages is a concern, Bobo said.
Laria said after the briefing that financing for development projects remains a challenging issue as the recession continues. TIF bonds, he said, are one strong option.
“TIF is one a suite of potential financial tools that the state uses,” he said. “You need to stretch and find things that work.”