Downtown areas across Michigan are looking for new residents and businesses, but the latest package of bills being discussed in Lansing aren’t the cure. The legislature is considering legislation that would allow cities to "set up historical neighborhood tax-increment finance authorities."

At first glance, the idea has some merit. Many downtowns do need revitalization, and historic buildings can contribute to community life. A closer examination, though, reveals that such a proposal combines three errors into one package: historic districts, tax increment financing, and an obsession with the latest fad in urban planning.

HISTORY PRESERVED PRIVATELY

Start first with historical districts. Once government planning is put in charge of historical preservation efforts, the result is high-handed and capricious management that puts politicians and community busybodies in charge of privately owned property. Does your house need a new coat of paint? The historical commission must approve it first. Thinking of using an old house as a rental property? Wait until the historic commission approves your remodeling plans – if they approve at all.

In 2000, Owosso enacted a historical preservation ordinance, aimed at encouraging local development and preserving the city’s heritage. After citizens learned of the onerous restrictions created by the new designation, they demanded a public vote on the issue. The subsequent ballot measure lost by a vote of 70 percent to 30 percent. The residents of Marshall, by contrast, have shown that private cooperation is the best way to capitalize on the economic, aesthetic, and historical value of older homes.

The downtown initiative also contemplates tax increment financing (TIF). In theory, TIF is a good idea. It designates city blocks (or even a single building) as a special district, and pours in public money for improvements. The expected increase in property values – the increment – is reflected in increased taxes which go to repay the costs of the improvements.

TAX INCREMENT FINANCING: PICKING WINNERS

TIFs are fraught with significant problems, such as unfairness. TIFs can displace long-term family-owned businesses and neighborhoods in favor of wealthy corporations (such as GM) that fail to deliver on their promises to deliver more jobs. As seen in Pittsburgh, Detroit, and other cities across the country, the designation of an area as a TIF district is a wrinkle on the idea of government picking winners and losers.

A TIF allows politicians to point to a new development and say, "Look what we did." Perhaps that’s one reason why they are attractive. But in general, TIFs do not produce a net increase in economic activity; they merely shift money around.

It is no wonder, then, that as an economic development tool, TIF is inferior to the mundane activity of creating the right economic climate for people and business. A study produced by the Citizens Research Council, found that the economic health of a community is better served by lowering the overall tax burden rather than engaging in selective tax reductions.

THE LATEST URBAN PLANNING FAD

To the errors of government-controlled historical preservation and tax increment financing, the parcel of legislation under consideration adds an interest in the latest fad in urban planning, "stopping urban sprawl."

Though urban sprawl is poorly defined, advocates of so-called "smart growth" use it as a rationale for taking various measures to pack people into cities. Examples of smart growth policies include starving funding for road projects in favor of mass transit, and using tax and regulatory policies to encourage more people to live on less land.

But as one Mackinac Center publication put it, "the solution to "urban sprawl" lies in fixing the problems that cause people and businesses to leave cities in the first place."

Across Michigan, downtown areas need transformation. The solution to urban ills – declining population, stagnant property values and budgetary troubles – lies in less government intervention, not more. It does not lie in giving busybody committees the authority to decide if your house meets "historical standards." Neither does it lie in playing favorites with the tax code, or chasing after the latest fad in urban planning. Instead, officials must address the concerns – crime, bad schools, bloated city budgets, capricious regulation – that drive people from downtown areas.

#####

A native of Muskegon and graduate of Kalamazoo College, John R. LaPlante is an adjunct scholar with the Mackinac Center for Public Policy. He has written for the Mackinac Center on contracting out state-owned ski resorts and local regulations affecting grocery super-centers. Legislation to create new taxing districts can be tracked at MichiganVotes.org.