8/7/2019 A Measure That Would Give Power Back to the People, And Provide a New Way to Fund Public Infrastructure

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Straight Talking, Lorcan Sirr and & Conor Skehan A measure that would give power back to the people, and provide anew way to fund public infrastructureTax Increment Financing works in North America, but to be a success here would require

a reform of local governmentIs private funding the future for regeneration projectssuch as Ballymun?

The penny is beginning to drop that Ireland isone of the most centralised countries in Europeand the debate has begun in earnest for democratic reform. This can be seen indiscussions surrounding the Dil and thenumber of TDs, what they do and how they doit. The very presence of the Seanad is under threat from the main parties. The operation of

local government is also under scrutiny. Whatever might or might not happen to the Dil andSeanad, reform at local government level is very likely.

Central and centralised government has arguably been responsible for much of the currenteconomic debacle. Hence, the role of local government will be reassessed to see if affordinggreater power to the regions and local authorities existing or newly reformed ones couldresult in more efficiencies, better democratic procedures, and more locally responsive authorities.That's the theory anyway.

Local government control over the raising and spending of its own finances above and beyondcommercial property rates will be central to any debate about reform of governance. Reduced

public finance available for infrastructure and regeneration developments, coupled with reformof governance, will lead to the need to explore new strategies for raising public funds.

In the UK and particularly in Scotland this search for new ways to fund local developmenthas led to an exploration of a concept known as Tax Increment Financing (TIF). TIF is notsomething new. It has been bandied about in various guises for many years. Around since the1950s in the US, and popular in places like California and Chicago, TIF is a method of raising

private finance for public infrastructure or development. Funds raised this way are repaid byfuture increases in local tax revenue from the improved facilities.

We need something like this. In 2007, Ireland ranked near the bottom of a 17-country Europeantable in physical infrastructure. We were also near the bottom in the business-performancecategory. Ireland's global infrastructure ranking has since improved, but at the same time fundinghas dried up, with spending on it due to be cut by 3bn to 5bn over the next four years.

Infrastructure does produce results. In Britain, for example, it is estimated that every 1 investedin infrastructure produces 10 worth of benefits in business support and job creation. These

projects are typically done as a joint venture between the lender and local government.

8/7/2019 A Measure That Would Give Power Back to the People, And Provide a New Way to Fund Public Infrastructure

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Competence, both professional and elected, at the local government level is a prerequisite for thesuccessful operation of TIF. They are long-term projects and can be complex to manage. For thisreason, such a scheme should only be introduced in tandem with fundamental local governmentreform. A scheme of revenue raising that commits an area to repayments for many years needs to

be introduced and implemented by people who will act in an open, competent, honest andconsidered way. Gombeen-ism and clientelism has no place when the long-term stakes are sohigh.

There are, of course, risks attached to TIF, the principal one being that the anticipated increase intax returns on completion of the new infrastructure or development is over-estimated. This willlead to a situation whereby local government is left with insufficient funds with which to makethe required repayments to the original lenders. This risk is greatest where population, andassociated future income, is low. Another danger is that businesses may simply move from onelocation to another, thereby taking their commercial rates from one local authority to another.Again this risk is greatest in smaller areas where there is likely to be over-reliance on a small

number of tax- and rate- payers.TIF is most likely to be successful and appropriate in larger metropolitan areas. In Ireland, this

probably means it would only work in the Dublin, Cork, Limerick and Galway urban areas.Smaller areas will have less potential to raise income post-completion, and will have even less

potential to attract lenders. Practice so far has seen the potential value of projects capped,typically at around the equivalent of 600m.

Crucially, a proper consideration of risk sharing is key to TIF; specifically, it involvescommitment to the idea that if lenders are providing capital at a rate of interest which includes a

premium for risk, then if the project fails to deliver expected returns they must take their share of the financial losses. Lenders will have done their research, calculated the figures and costedaccordingly. If they lose, they lose.

It can only exist as part of a new fiscal system of local revenue generation and such changes, inturn, will require reform of Ireland's property markets. In the residential market, this will involve

production of the long-awaited register of property prices. On the commercial side, it may meanthe adoption of European-style shorter leases with more frequent rent reviews pegged to inflationrather than the market. It may also involve a modernisation of commercial rating practice.

Transparency in transactions and valuations or the lack thereof has been a massive issue inthe last decade. This is particularly pertinent when it is the taxpayer who will reap the rewards,

but also foot the bill, as with TIF.

Ultimately it won't solve all our urban regeneration ills, nor provide all needed infrastructure, butis worth considering. Central government hasn't exactly covered itself in glory in the last fewyears, so perhaps it is time to return some power to the people at a local level.

Dr Lorcan Sirr and Conor Skehan lecture in the College of Engineering and the BuiltEnvironment at Dublin Institute of Technology January 23, 2011