Tax increment financing makes small dent in transit infrastructure costs
March 30, 2016
New paper from the Institute of Municipal Finance and Governance offers cautionary advice to city policymakers.
Toronto, ON — Is tax increment financing (TIF) a good option to pay for Toronto’s infrastructure? A new paper from the Institute of Municipal Finance and Governance (IMFG) reveals that this line of financing is only one of many that the City should consider. In the paper, called Can Tax Increment Financing Support Transportation Infrastructure Investment?, authors Murtaza Haider and Liam Donaldson study Toronto’s Sheppard East subway extension and its impact on surrounding property values to determine if it could have been financed by TIF. The paper shows that while TIF is a viable funding option, it is not enough to cover the full cost of major infrastructure projects.
“Massive investments in public transit are needed to address the growing traffic congestion in our cities,” says Haider. “Equally important for us is to know how we will pay for these investments. TIF could pay for partial costs, but not all.”
As Canada prepares to embark on a decade of major infrastructure spending, this potential revenue tool has attracted renewed interest. In Toronto, tax increment financing has been proposed as a way to fund the city’s Smart Track initiative. The question is whether it would work in practice, and how much money it might raise.
Haider and Donaldson find that the revenue from a 30-year TIF on the Sheppard subway line would only have covered a small fraction of construction costs. They argue that TIF is more appropriate for projects up to a few hundred million dollars, and should be complemented with other revenue sources.
“We need to be mindful of how we will pay for large investments to expand urban transit,” says Haider. “TIF, Land Value Capture and other financing tools should be a part of the debate on improving transit services in Canada.”
The paper was made possible by the generous support of Sustainable Prosperity at the University of Ottawa and can be accessed at: http://bit.ly/1MyJXVm
About the Authors
Murtaza Haider is an associate professor at the Ted Rogers School of Management, Ryerson University, Director of Regionomics Inc., and an adjunct professor of engineering at McGill University. He is the author of the recently published book, Getting Started with Data Science: Making Sense of Data with Analytics. In 2015, he was a Visiting Scholar at the Institute on Municipal Finance and Governance.
Liam Donaldson is an urban planning consultant with Regionomics Inc., and a research assistant with Ryerson University.
About the Institute on Municipal Finance and Governance (IMFG)
The Institute on Municipal Finance and Governance is a research hub and think tank that focuses on the fiscal and governance challenges facing large cities and city-regions. It is located within the University of Toronto’s Munk School of Global Affairs.
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