The Reno City Council will meet on Feb. 11 to vote on whether to approve the use of sales tax anticipated revenue (STAR) bonds to subsidize development within the city's redevelopment zone. This measure deserves some intense scrutiny.
The STAR bonds would divert up to 75 percent of sales taxes collected within the redevelopment zone to the Reno Redevelopment Agency for up to 20 years, channeling millions of dollars away from city, county and state governments.
The redevelopment agency already uses a method called tax-increment financing (TIF) to siphon off property tax revenues collected within the redevelopment zone. The STAR bonds would essentially let the agency double-dip by taking sales taxes, too.
The agency uses these tax dollars to provide subsidies to private high-end real estate developers. Because many taxpaying families living in the redevelopment zone are low-income, use of TIF and STAR would constitute a regressive wealth transfer.
Private developers looking to cash in on these wealth transfers recently pressed Redevelopment Agency Advisory Board officials to recommend using STAR to the city council. One developer reportedly threatened to walk away if he didn't get taxpayer subsidies, saying, "If you want to develop Reno, you need this kind of mechanism or else it's not going to get done."
This underscores an inherent danger of the Nevada redevelopment model: Making public officials responsible for large sums of taxpayer money that are explicitly designated for disbursement to private developers invites rent-seeking behavior and corruption.
STAR should concern individuals of all political stripes. Local government employees' unions should note that STAR will channel money away from the local police department, fire department and school district. Local taxpayers should recognize that city and county governments will likely raise taxes to recoup revenues lost to the redevelopment agency. Moreover, state lawmakers and taxpayers statewide should realize Reno's use of STAR would divert millions of dollars away from the state's general fund. Indeed, a unique aspect of STAR bonding is that it empowers local officials to appropriate the state's portion of sales tax revenues.
At a time of widespread anxiety over state and local government finances, would diverting money from basic services to subsidize high-end development be responsible?
The problems inherent in this redevelopment model are particularly egregious given that taxpayer subsidies are completely unnecessary for the purpose of encouraging urban revitalization. A recent study by the Nevada Policy Research Institute, available at http://www.npri.org/, details how excessive use of zoning ordinances and other regulations discourages private investment and is often the underlying cause of urban blight. The study highlights the success of the redevelopment model used in Anaheim, Calif., which doesn't rely on taxpayer subsidies. State and local policymakers now have reason to pay even closer attention to the study's conclusions.
Reno residents should ponder whether they want their tax dollars used this way when many families are experiencing declining incomes.
Beyond that, state lawmakers should recognize the dangers inherent in the broad powers granted to Nevada's redevelopment agencies and determine where reform is possible.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. This article originally appeared in the February 10, 2009 edition of the Reno Gazette-Journal.