A study of Tax Increment Financing (TIF) in Oklahoma

Chris Powell
Jun 5 · 6 min read

The first thing to discuss in this article is: What the heck is a TIF, anyway?
Tax Increment Financing(TIF) is a public financing scheme that captures growth of tax revenue in a particular area to be used to subsidize developers. Typically it affects property tax revenue but other types of taxes may also be subject to diversion. Oklahoma allows sales taxes to be included in TIFs. The idea is to subsidize new development and create growth. In practice what usually happens is that the TIF gets credit for growth that would have occurred anyway, albeit perhaps it would have occurred in a different location. In the meantime, increased tax revenue that occurs from inflation and from natural growth does not go to the government agencies that would otherwise receive it, such as schools, libraries, municipal and county governments.

In this graph, the increment is what would be used by the TIF as subsidies for developers, either as infrastructure or more often as direct payments.

The base value is the part that continues to go to government agencies that have been receiving tax revenue from the area in question. Essentially, the TIF freezes their income from the district. In Oklahoma TIFs can be authorized for up to 25 years, meaning schools, libraries, vo-techs, county governments, and cities lose out on all revenue growth for a quarter of a century. Of particular note in Oklahoma is the fact that our public schools receive funding from the state through a formula intended to equalize per student spending. When a TIF reduces the amount of local tax revenue to a particular school district, that increases the amount the district will get in State Aid funding. However, State Aid is not a limitless resource; increasing drainage of local funds by TIFs spreads K-12 education money thinner statewide.

Proponents of tax increment financing argue that subsidizing developers will create economic growth in and around the TIF district, resulting in increased tax revenue. Essentially, the claim is that TIFs are a way to get something for nothing. Cities in Oklahoma have an added incentive, in that state law only allows municipalities access to sales taxes. By using a TIF a city council gains access to property tax that it otherwise cannot. The only catch is that the TIF funds must be spent on economic development within the TIF district. The politicians controlling the TIF then have funds that can’t be diverted to city services, police and fire, or fixing potholes and sewer lines. Instead, they get to give it to developers, making useful friends for their next election, all the while claiming to create jobs.

But does tax increment financing work? Even if one discounts the harm done to public education funding and sets aside concerns about uses of economic development funds for political benefit, if TIFs don’t benefit a city’s bottom line then there can be no justification for them at all. I live in Bethany where two TIF districts were recently enacted and I decided to do some research to determine if we can expect to benefit or be harmed by them.

After locating a list from 2009 of Oklahoma cities with TIFs I compiled sales tax revenue data to compare cities that had TIFs that utilized property and sales taxes, TIFs that only took property taxes, and several cities that did not have TIFs at that time and were part of either the OKC or Tulsa metro areas. Those non-TIF cities were chosen before I began gathering data, there was no attempt to cherry-pick. Tulsa was removed from the TIF cities to avoid having that part of the results dominated by the state’s two largest municipalities. Sales tax reports for the months of March, April, and May, corresponding to collections from January, February, and March, were taken from the website of the Oklahoma Tax Commission. Changes in tax rates were factored in and population figures, available through 2017, were gathered to generate per capita sales tax figures. The results were quite clear.

When looking at all cities in Oklahoma, per capita sales tax revenue in 2017 was 20.4% higher than it was in 2009. It should be noted that at least some of that increase was due to changes in rates, nearly all increases, by a majority of cities in the state. As stated above, the rest of the figures account for changes in rates. My hometown of Bethany gets significantly less revenue per resident than most other Oklahoma municipalities but the situation has been getting better as that per capita amount has increased by 27.8%. Bethany and the other selected cities that had no TIFs in 2009(Bixby, Broken Arrow, Edmond, Owasso, Sapulpa, Spencer, and Warr Acres) saw a combined 17.5% increase. Property tax TIF cities(Altus, Ardmore, Bartlesville, Durant, Enid, Guymon, Heavener, Midwest City, Okmulgee, Seminole, Shawnee, Tecumseh, and The Village) attained growth of 12.4%, while municipalities with TIFs taking from both property and sales tax(Chickasha, Del City, El Reno, Elgin, Jenks, Lawton, Norman, Oklahoma City, and Pauls Valley) grew revenue by 10.6%. The largest municipality in the state, Oklahoma City, currently has thirteen TIF districts and it’s per capita sales tax revenue grew by a paltry 7.8%.

Comparison of per capita sales tax growth for selected Oklahoma cities.

Oklahoma City has banked a great deal on TIFs as well as other economic development spending through many of the MAPS proposals. Mick Cornett, Oklahoma City’s longest serving mayor, claimed to have created 100,000 jobs during his tenure in an ad during his gubernatorial campaign last year. It was later clarified that those jobs were across the entire metro area, not just within OKC city limits. What was never brought up was that from 2004 when Cornett took office to 2018 when he stepped down, the population of the metro area increased by about 300,000, meaning that one job was created for every three people. It’s also not widely known that the OKC metro per capita GDP, when adjusted for inflation, has fallen by over 15%. If Oklahoma City is an example of anything, it’s what not to do.

The simple answer is that there are no magic bullets. Economic development gimmicks like tax increment financing might allow politicians to make claims of creating jobs and win themselves friends with influential developers and business people, but real economic growth invariably comes from creating spaces where individuals have the freedom to be entrepreneurs on a small scale as well as larger ones. It takes hard work to remove the barriers that prevent innovation and hamper communities. History is full of examples of those who thought that prosperity could be dictated by government, and we know how that turns out. TIFs are just another flashy political program that offers a siren song of something for nothing to which cities listen at their peril.

Additional reading:
Tax Increment Finance and Suggestions for Reform — Byron Schlomach — 1889 Institute
Tax Increment Financing ED — Cynthia Rogers — Prof. of Economics, University of Oklahoma

Chris Powell

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Chris is a former chair of the Oklahoma Libertarian Party and in 2018 was the first LP nominee for Governor in the state.

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