Tax increment financing �€the method of local financing proposed under Amendment One on Novembers West Virginia ballot �€can stimulate the state’s economic development, particularly where population is growing. However, it is not a guaranteed success, according to a report released by the West Virginia University College of Business and Economics.


Come November, West Virginians will be asked to vote for or against this type of public financing, known as TIF , as laid out in the Local Option Economic Development Amendment (Amendment One). The West Virginia Legislature enacted the West Virginia Tax Increment Financing Act during the 2002 regular session, but it will not go into effect unless West Virginia residents ratify it as an amendment to the state Constitution.


“For several reasons, West Virginia may be a good candidate for TIF ,”said Mehmet Tosun, director of the West Virginia Public Finance Program in the Bureau of Business and Economic Research.”First, economic development is a critical issue in the state. Further, TIF can be particularly effective in dealing with natural disasters like the flood damages suffered recently here.”>The report examines in detail the feasibility of using TIF in West Virginia. Using TIF , a local government issues bonds to raise funds necessary to develop a blighted area. The development project is expected to increase local private investment and raise property values, resulting in higher property tax revenues collected from the developing area. The increment by which the property tax revenue increases is used to retire the bonds.


Currently used in 46 states, the TIF method was originally aimed at financing a variety of infrastructure improvements for economic development and growth. Today, this goal is often extended to include lowering unemployment, raising wages, raising property values, attracting businesses and industry, developing downtowns, improving infrastructure and increasing local tax revenues. This method gives local governments additional capital and some flexibility in financing economic development projects without tax increases. Further, it provides local taxing authorities with an improved tax base after the entire TIF dept is paid for.


This financing method has already been used by municipalities in states similar to West Virginia. States such as Arkansas, Alabama, Florida, Idaho, Iowa, Kansas, Louisiana, Mississippi, Missouri, Montana, Nebraska, North Carolina, North Dakota and Utah are all comparable �€highly rural with economies based on natural resources.


The report also suggests some possible risks to adopting TIF in West Virginia. First, a survey of case studies indicates that this method may be most often used in cities with a growing population. Since many regions of West Virginia are seeing decreases in population growth, it is possible that many municipalities would choose not to adopt TIF even if the amendment is ratified. Second, the revenue-generating capability of the TIF mechanism is not guaranteed: The success of a TIF program depends on growth in property value, and there are many variables that can negatively affect that growth. Further, the exclusion of excess levies from the TIF mechanism may make its success more vulnerable to economic recessions. Also, TIF programs can be complex and therefore costly to administer.


A similar amendment came before West Virginians four years ago and was defeated by labor organizations. To allay labor’s concerns, the new version has included safeguards such as requiring a prevailing wage and preferences for local labor.


The full report is available to the public for free by visiting the West Virginia University Bureau of Business and Economic Research website atwww.bber.wvu.edu.