On May 4, 2021 Raleigh City Council approved a tax increment grant (TIG) policy which will allow City Council to grant up to 2% of the citywide annual property tax valuation (currently estimated to be $5 million) in tax breaks to private developers. City Council approved this policy on a 7-1 vote (Cox opposed; Baldwin, Stewart, Melton, Knight, Branch, Forte, and Buffkin in favor)(1).
How it works:
The tax increment grant policy will be allocated on a case-by-case basis by Raleigh City Council, like how rezonings must be approved/denied by City Council. When a property is developed, there is typically a corresponding increase in the value of the property, which will subsequently result in an increase of property taxes owed. However, if a specific development is approved for a tax increment grant, the developer will only pay taxes on the valuation of the property prior to development; any increase in property value because of the property being developed is not taxed. So, while there is not a decrease in the net amount of tax revenue, the city government is leaving future tax revenue on the table (2).
Why it matters:
Given that property tax increases typically occur on an annual basis, this policy effectively allows city government to require ordinary residents of all income levels to pay more property taxes, while allowing high income developers to pay less. This policy shifts the tax burden from real estate developers (typically run by very wealthy individuals that make campaign contributions to city council candidates (3)) to the average homeowner. Though homeowners are directly impacted by the annual increase in property taxes, tenants are indirectly impacted as increases in property taxes are passed on to tenants. This means the city government is specifically choosing to take money from working-class people to give handouts to their wealthy developer backers. If the city were to tax the full property valuation of a development instead of granting a tax break via the TIG policy, the need to increase property taxes on average homeowners and tenants would be decreased.
So why is this policy being implemented?
City government claims that this TIG policy is a tool that can help secure more community benefits from private developers which may include affordable housing, upgrades to infrastructure, or park amenities. However, for-profit entities must protect their profit margins, meaning that any community benefits provided will be a fraction of the value that could have been obtained if the full valuation of the property development were taxed. Further, many development projects seek to rezone their piece of property for increased density, meaning City Council can ask that certain conditions (community benefits such as affordable housing, upgrades to infrastructure, or park amenities) be met for the rezoning to be approved. Many members of the current Raleigh City Council claim that they are not allowed to ask for community benefits in exchange for a rezoning approval, but this is terribly misleading as they are under no obligation to approve any rezoning either. We suspect the true reason this policy is being implemented is to further encourage development by subsidizing the profit margins of private developers. At a time when the economic fortunes of ordinary working-class people are being battered, this perverse policy that Raleigh City Council is implementing would increase the difficulties for working-class people in order to make wealthy developers even richer.
Development must address the housing and transportation needs of residents equitably
Development of Raleigh is essential if we are to meet the housing, transportation, and utility needs of residents. However, it is vital that development occurs in an equitable and democratic manner. This TIG policy falls short of that standard because the shifting of the tax burden from wealthy private developers to all other residents of the city is reminiscent of a regressive tax structure in which low-income people pay higher tax rates. A better strategy regarding development would be to tax the full valuation of private developments to fund other public services such as permanent free bus fare (see Fare Free Forever), quality public housing, commuter light rail, and preservation of natural resources like the Neuse River Basin. For the Raleigh City Council to continue along the current path is a clear declaration of which side they stand on: against workers and ordinary Raleigh residents and with the wealthy developers that pay for their campaigns. We deserve better and must come together to fight for municipal governments that actually represent the will of the people, not just the ultra-rich. Learn how you can join in this fight at dsanc.org.
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