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Tax reduction: property tax abatements and other tax deals are well-established mechanisms used by many local governments across North America to attract development. Tax incentives are of questionable long-term effectiveness in securing economic development and jobs. Although they of great importance to the local governments that give them, tax breaks are frequently overwhelmed by other more global economic concerns for the corporations that receive them. There are no long-term guarantees, and it is easy to find vacated office parks and factories symbolic of local government tax bets gone wrong. On the other hand, there are also a lot of apparent success stories and a continuing perception that localities win or lose based on the concessions they offer. Therefore, tax competition continues to persist in spite of the protestations of many regional development experts.
While tax considerations have been used to help retain businesses in traditional central settings and occasionally to attract businesses to “smart” locations (particularly to buoy the jobs side of a jobs/housing imbalance), their use in smart growth situations has not been prominent. The rehabilitation of historic retail districts may make the immediately surrounding area more attractive for more intense residential redevelopment, and the preservation of some historic housing stock – even at existing densities – may contribute to affordability objectives.
Tax Increment Financing: Tax increment financing (TIF) is a mechanism that local governments, through redevelopment agencies (RDAs), can use to encourage private development. By borrowing against future incremental tax revenue in a redevelopment area, RDAs can finance public infrastructure which otherwise might have to be paid by developer impact fees. Further, a RDA may use TIF to acquire property and to construct or rehabilitate buildings for private use, providing, in effect, a tax-financed subsidy to private investment. TIF may be the single most important incentive tool currently available to motivate private investment.
Financing Assistance: Loans and loan guarantees at favorable rates are traditional ways through which governments have assisted socially beneficial projects. While not specifically targeted at smart projects, some non-profit corporations provide financing assistance to affordable housing suppliers. These corporations offer an inexpensive way for local governments and developers to cooperate in setting up special assessment districts.
Regulation Concessions: Local governments ay relax a number of development regulations in order to encourage particular types of development or development at specified locations. Subject to maintaining public safety, virtually anything in a zoning, subdivision, or building code is fair game, but the most common relaxations relate to density, use, height, setbacks and parking. These concessions generally increase the effective yield and hence the return and applicant-selected package of density bonuses and other concessions to developers who include affordable housing units, childcare facilities, revegetation programs, or other elements in their projects or donate land which may be used for those purposes.
Attractive Communities: The final incentive, while obvious, still requires emphasis as it may be among the most powerful. Developers are encouraged to build in certain areas by the same factors which cause their customers to purchase and rent in those areas. Housing consumers and developers serving those consumers are attracted to communities that provide first-rate public amenities and services. Everything else being equal, communities that are clean and well-maintained, that are perceived to be safe, that have attractive and usable open spaces and recreational facilities, that have good schools, and that pay attention to the quality of their public realm will be more attractive to development than communities that are lacking in basic livability qualities. Money spent on the high-quality public infrastructure and services is an investment in the future of the community, contributing to continued private reinvestment and renewal.
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