Tax Increment Financing: The Undoing of Pontiac

By nearly anyone’s admission — including the mayor, council, employees and residents — the city of Pontiac is in dire financial straits. The city has immense general fund revenue and expense structural problems that are the result of a long list of bad decisions by city management over the past several years. When adding Michigan’s economy to the mix, the city’s financial status becomes one of desperation. For example, the city police department that employed 170 officers in 2004 is now down to 65 officers.

Rarely mentioned, and possibly the most devastating mistake made by past city leaders, was the creation of five tax increment finance authorities in the city. When a tax increment financing authority is formed, the property taxes that go to the city are locked in place with annual increases going to the authority. Pontiac’s authorities, which are their own little empires with their own board members, have spent millions of dollars over the past several years on items like the Phoenix Center; a golf course and related housing development; the Centerpoint projects including infrastructure and buildings; brownfield projects; Clinton Valley housing; a proposed mall renovation; and various other projects. While some of these efforts have been — at best — moderately successful, others have been financial disasters.

While the city’s general fund is in deficit to the tune of millions of dollars, the tax increment finance authorities have been, and continue to be, flush with money to spend on what many would consider extremely questionable projects. The city’s June 30, 2007, audit reports the five combined tax increment finance districts received $10.6 million for the year. It must be pointed out that approximately 25 percent of that amount ($2.7 million) was generated from government entities other than the city; namely Oakland County, Oakland Community College, Huron/Clinton Metro Parks and SMART (regional public bus system). These governmental units turn money over to Pontiac that otherwise would be available for their own use.

Doing the math reveals that Pontiac’s tax increment finance authorities divert $7.9 million annually (based on the city’s June 30, 2007, audit) from the city’s general fund. The question the current mayor, council, employees and city residents should consider is whether this diversion is worth it, or whether it would be a better idea to have an adequately staffed police department and other essential city services.

The fortunes of Pontiac will not change as a result of grandiose projects coming from politicians or from the city’s economic development department. Pontiac can only turn things around if it provides good basic services, such as police, fire, water, sewer and roads, privatizing entirely losing ventures such as the Silverdome, Strand Theatre, Phoenix Center, golf course, and transportation center, and eliminates the city’s income tax and tax increment finance authorities.

This is an edited version of an article that first appeared in The Oakland Press on Jan. 21, 2008.

Louis Schimmel is director of municipal finance for the Mackinac Center, and a member of its Board of Scholars.