Tax Increment Financing (TIF) districts have long been used as a development tool by local governments, including in Kansas, where the Legislature first authorized their use in 1976. TIFs allow cities to designate areas for development, freezing property tax levels in those districts and using the increased tax revenue generated by new development to fund the project. In theory, TIFs are designed to encourage growth in otherwise stagnant areas. While this concept sounds beneficial, a recent audit in Kansas reveals the substantial flaws and opportunity costs of these subsidies.
Kansas is not alone in its reliance on TIFs. Across the country, states use TIFs to stimulate development, though with varying degrees of success. From Texas to California, local governments have utilized TIF districts to attract commercial, residential, and mixed-use developments, often promising job creation and increased property values. However, the reality of TIF projects is far more complicated, as audits frequently show delays in cost recovery and overestimated economic benefits. Worse, these government subsidies often crowd out private investment and leave taxpayers footing the bill for developments that may not deliver their promised benefits.
Key Findings: TIF Projects Miss Their Targets
In Kansas, Representative Susan Estes requested an audit to assess whether TIF projects are delivering on their promises. The results were concerning. Three of the six TIF districts reviewed failed to recover their costs on time, with two Wichita districts—Ken Mar and Douglas & Hillside—falling behind in debt repayment. This has forced the city to cover shortfalls with non-TIF funds, placing additional strain on the city’s budget.
The audit for Topeka’s College Hill district revealed that the city is expected to use general funds to cover 40% of project costs—diverting resources from other essential services. This mismanagement highlights a fundamental problem with TIF districts: they often fail to deliver the economic benefits they promise while locking cities into long-term financial commitments.
Missed Opportunity Costs: What Could Have Been
While the audit did a thorough job of highlighting the direct financial costs, it overlooked a more significant issue—the opportunity costs to taxpayers. What if the funds tied up in these TIF projects had remained in the hands of taxpayers instead? Instead of subsidizing developers, that money could have stayed in local pockets, allowing individuals to spend, save, or invest in ways that meet their needs and preferences. This missed opportunity for organic economic growth—driven by individual decisions rather than government intervention—should not be ignored.
TIF districts freeze property tax levels in designated areas, meaning the natural increase in property values is funneled back into the project rather than benefitting the broader community. Rising property values could have led to a broader tax base without the TIF, reducing the tax burden for all citizens. By keeping funds in taxpayers’ hands, cities could empower individuals and businesses to fuel local economic growth more efficiently than any government program.
The Direct Costs: Subsidies at a Steep Price
The audit revealed that the direct costs of Kansas TIF projects ranged from $1.6 million to $7.0 million. However, this doesn’t include the additional interest on debt that accumulates when cities use bonds to finance their portion of the projects. In Wichita, for example, bond financing has added to the financial strain as the city struggles to generate enough revenue from these TIF districts to cover its obligations.
These costs ultimately fall on taxpayers, as cities must dip into general funds or raise taxes to cover the shortfalls. Worse, these funds could have been used for other purposes—like lowering taxes or investing in essential public services—if the city had avoided entering into these development deals in the first place.
Overestimated Benefits: A Questionable Return on Investment
The audit shows that while some TIF districts experienced increases in property values, those gains are often exaggerated. For example, the Ken Mar district in Wichita, established in a developed retail area, saw only marginal property value increases. In this case, the development occurred naturally without needing TIF incentives.
Additionally, while job creation is often touted as a major benefit of TIF districts, it’s unclear whether these are truly new jobs or simply relocations from other parts of the city. The benefits are often overstated, and the actual economic return on investment is minimal. With these subsidies, governments are gambling with taxpayer money, often without realizing the full economic benefit they claim to pursue.
This is a reason why the STAR bonds approval this year for the possibility of luring in the Kansas City Chief and Royals likely won’t bring the bang for the buck like some suggest. Picking winners and losers by governments doesn’t work because they lack the knowledge of the marketplace and are using other people’s money thereby sending bad signals and costing taxpayers over time.
Putting Money Back in Taxpayers’ Pockets
What’s truly missing from the audit’s analysis is an acknowledgment of what taxpayers could have done with their money if it had not been tied up in inefficient TIF projects. Cities could lower spending and taxes to provide more spontaneous growth. Taxpayers could invest in their businesses, save for their children’s education, or spend on goods and services benefiting them and the local economy. Instead of relying on politically-driven development projects, governments spending less and leaving money in the hands of taxpayers allows for a more responsive and dynamic economy.
Conclusion: A New Approach to Economic Development
The audit of Kansas’s TIF districts reveals deep flaws in the management and outcomes of these projects. Rather than continuing to gamble on subsidies that rarely deliver, policymakers should focus on spending less and putting more money back into the hands of taxpayers. The costs of TIF districts—direct and in terms of missed opportunities—are too great to ignore. A more prosperous future lies in allowing individuals to drive economic growth through their choices rather than relying on government subsidies that pick winners and losers.
