Newspaper article The Topeka Capital-Journal

Paul Byrne: Topeka Shouldn't Compete with Itself

Newspaper article The Topeka Capital-Journal

Paul Byrne: Topeka Shouldn't Compete with Itself

Article excerpt

The Topeka City Council is poised to create a tax increment financing (TIF) district as part of an economic incentive package for the Wheatfield development on 29th and Fairlawn.

This proposed use of TIF is a textbook example of how not to use economic development incentives. As an economist who has researched TIF extensively, I can say the consensus among economists is that successful economic development incentives require two necessary conditions. First, the incentive should target businesses that attract economic activity from outside the area (primary industries). Second, the expansion or relocation should not occur "but for" the existence of the incentive.

The latter is always a difficult condition to assess, since firms looking for government incentives are the only ones who truly know the answer to this question. They also have strong motivation to insist that the development will not take place without the incentive, whether this is true or not. The first condition is a little bit easier to assess. It simply requires you to ask the question, "If this development did not exist, where would the economic activity otherwise take place?" If the answer to this question is that it would have occurred somewhere else within the jurisdiction, then the economic development incentive is not really creating economic activity. It is simply moving it from one part of the city to another.

Although the Wheatfield development project may be creating new businesses and economic activity on the property at 29th and Fairlawn, the local, retail nature of these businesses means that any increase in spending within the development (along with the corresponding tax revenue) is simply being shifted from one area of Topeka to another. If I spend $100 at the new pizza restaurant at the Wheatfield development and pay $9.15 in taxes, this does not generate any new economic activity or taxes within the Topeka economy. This is because I would have otherwise spent the $100 at another local pizza place and paid the same $9. …

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