The Effects of Tax Increment Financing On Assessed Land Values

Public policy debate regarding the use of economic development incentives is active and growing with a focus on the costs and benefits to communities around the country. Communities grant economic development incentives that encourage real estate development, such as tax increment financing, without knowing if the growth of land value or building type valuation inside of tax increment areas accelerate faster than areas outside of tax increment districts. Without the knowledge of how tax increment financing influences land values, communities risk the misallocation of resources from public entities, such as schools and libraries to private entities. In an era of limited public resources, this lack of knowledge is unacceptable. This quasi-experimental study addresses the problem by comparing the growth in assessed market value of land parcels in tax increment financing districts in Jackson County, MO over a period of ten years to the value growth of the remainder of the county. Additional analysis was conducted regarding the type of tax increment financing projects and the distance of the project from the city hall. The data was collected from archival records of the Jackson County, MO Assessor from 2000 to 2015. The research community and public policy officials will benefit from this analysis, which can be used to review the impact of tax increment financing. Findings indicate tax increment financing does have a stimulating and significant effect on land value growth in Jackson County. Land parcels increase in value faster inside versus outside of tax increment financing districts. Specific building types, office, residential, retail, and public buildings in tax increment areas increase in value faster than the remainder of the county. Distance of tax increment financing districts from city hall had significant differences with retail buildings located within one half mile. Additionally, significant differences existed with office, residential, retail, and public buildings between 1.0-1.49 miles from city hall. Tax increment financing plans located between .5-.99 and 1.5+ miles from city hall increased land value faster than other distance ranges. Recommendations are made to encourage office and retail developments due to strong value growth, as well as bringing additional benefits to communities