Tax Increment Financing, Economic Development Professionals and The Financialization of Urban Politics

Socio-Economic Review (2013) 11, 413–440 doi:10.
1093/ser/mws019
Advance Access publication September 19, 2012
Tax increment financing, economic

development professionals and the
financialization of urban politics
Downloaded from http://ser.oxfordjournals.org/ at Kainan University on February 20, 2015

Josh Pacewicz*
Sociology and Urban Studies, Brown University, Providence, RI 02906, USA
*
Correspondence: pacewicz@brown.edu
Scholars argue that the state has facilitated the expansion of the financial sector,
but focus largely on how politics transforms financial markets. I explore a new
political mechanism of financialization, by drawing upon an ethnographic study
of economic development in two Rust Belt cities and analyzing usage of tax incre-
ment financing (TIF), a practice that allows cities to securitize projected increases
in property tax receipts and create bonds similar to structured asset-backed secur-
ities (e.g. mortgage-backed securities). Cities initially used TIF as a last-resort
financing strategy, but the practice has transformed urban politics by creating op-
portunities for economic development professionals to exercise jurisdiction over
municipal budgets. Further, TIF structures other roles that development profes-
sionals play by giving them incentives to use TIF in ways that are not aligned
with the city’s fiscal outlook and lock them into ever-higher rates of TIF spending.
This analysis illustrates a recursive relationship between financialization and the
state: public policies have transformed financial markets, but reliance on financial
markets can also transform political institutions in ways that promote further
financialization.
Keywords: financialization, economic development, elites, taxation,
neo-liberalism
JEL classification: G3 financial markets, O17 economic development
1. Introduction
In the early 1980s, the meatpacking plant in ‘River City’ announced massive
layoffs, unemployment levels peaked, and—according to local legend—a prom-
inent downtown billboard read, ‘Will the last one to leave River City please
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414 J. Pacewicz
turn off the lights?’1 The city’s harbor district was hit particularly hard. Once the
center of a thriving manufacturing base, the harbor now contained boarded-up
factories and graced the covers of several magazines as emblematic of the Rust
Belt phenomenon. Yet according to local lore, efforts to rehabilitate the harbor
marked the first time that urban leaders tabled decades of disputes and formu-
lated ambitious plans to revitalize the area with a mix of cultural institutions
and high-end retail. From the outset, funding was problematic. Leaders
secured private donations and federal grants for a historical museum, but it
soon became clear that the harbor required an infrastructure overhaul to

attract further investment. However, state and federal funds were woefully inad-
equate, the city’s coffers were depleted, and the city’s attorney warned that trad-
itional bond measures could downgrade the city’s credit rating and produce a
fresh round of capital flight.
At this point, economic development professionals from the city’s recently
created development corporation stepped in. After considering other possible
options, they eventually decided on a then relatively unknown practice, tax incre-
ment financing (TIF). TIF allowed them to securitize projected property tax
revenue increases that would occur in the harbor after development and use
this revenue stream to create a structured instrument to sell on the bond
market. They then used moneys thus levied to fund infrastructure improvements
and an incentive package for a luxury hotel that they hoped would anchor further
development. Although projected increases in revenue never fully materialized
and the city was left holding debt, blight had been eliminated, and development
professionals were widely hailed as local heroes. The financialization of River City
had begun.
In what follows, I use an ethnographic study of economic development prac-
tices in River City and Prairieville, two Rust Belt cities, to investigate the condi-
tions that lead municipal actors to rely on TIF at ever-higher rates. TIF is
substantively important, because available evidence suggests it has become one
of the most common ways of financing development projects in many US
cities (Geheb, 2009; Briffault, 2010; Weber, 2010a; Merriman et al., 2011).
Further, the practice is theoretically noteworthy, because TIF allows development
professionals to market municipal debt to investors at unprecedented rates by
creating a structured instrument that shifts debt obligations, and hence risk,
away from the city and onto projected property tax revenue increases within sub-
sections of the city. In this respect, TIF is functionally similar to calculative inno-
vations within financial markets, which scholars argue facilitate the financial
sector’s expansion by converting risky assets into derivatives that appear sound
and tradable (Buenza and Stark, 2004; Coval et al., 2009; Davis, 2009; Quinn,
1
I have changed the names of all persons and places to pseudonyms.
Tax increment financing 415
2009). Some have therefore suggested that TIF is an underexplored aspect of

financialization (Weber, 2010a), or the expansion of the financial sector.
However, TIF represents an unusual kind of financialization, because TIF-backed
securities are created by development professionals working within municipal
bureaucracies, rather than by investment bankers or other employees of private-
sector financial institutions. I therefore investigate TIF to develop a richer under-
standing of the relationship between financialization and the state.
Scholars who work within the sociology of finance argue that politics
has facilitated the expansion of the financial sector, but prior studies have

focused on how state policies transform financial markets. I will argue that
politically driven changes within municipal bond markets have created an oppor-
tunity for cities to leverage financial capital through TIF, but cannot account for the
scale on which cities use the practice. In particular, the degree to which cities use
TIF is puzzling, because urban leaders believe that their own use of TIF is fiscally
unsustainable and yet continue to create TIF-backed securities at ever-higher rates.
The key to resolving this puzzle lies in the recursive relationship between fi-
nancial markets and the political institutions that create TIF-backed securities.
In effect, TIF transforms the politics of urban development by providing context-
ual incentives for increased reliance on TIF. Expertise over TIF has elevated a new
type of financial expert—the economic development professional—to a central
place within urban growth coalitions (Molotch, 1976; Logan and Molotch,
1987). Further, TIF structures the career trajectories of development profes-
sionals, their professional self-understanding and other economic roles they
play within the city. Within these latter roles, development professionals have
incentives to use TIF that are not aligned with the city’s long-term fiscal
outlook. This analysis illustrates a recursive relationship between financialization
and the state and expands the purview of financialization studies to the institu-
tions that supply commodities to financial markets. Public policies can transform
financial markets and hence the demand for financial commodities like exotic
municipal bonds, but reliance on financial markets can also transform the insti-
tutions that supply financial commodities in ways that create political and pro-
fessional incentives for further financialization.
2. Financialization and the state

Many scholars argue that the prevailing economic trends of the past several decades
are best categorized as financialization: a shift of profit-making activities away
from traditional economic sectors and into financial activities (Krippner, 2011).
A key component of this trend has been the expansion of financial markets,
which have expanded largely as investors begin to trade new kinds of commodities.
For example, many financial transactions today involve forms of consumer
416 J. Pacewicz
debt—mortgages, auto loans or credit card debt—whereas consumer debt was

once rarely traded as a financial commodity (Coval et al., 2009; Davis, 2009;
Quinn, 2009; Fligstein and Goldstein, 2010; Mizruchi, 2010; Krippner, 2011).
For this reason, scholars argue that the financial sector’s expansion has
co-evolved with innovations in financial engineering (Buenza and Stark, 2004).
Such innovations make financial markets possible by converting risky or other-
wise uncommodifiable commodities into tradable instruments. Key to this
accounting process is the deconstruction of underlying assets into derivative
commodities, which are then reassembled into new products that rating agencies

and other market institutions evaluate more favorably. For example, much recent
financial sector expansion has been driven by structured asset-backed securities
(Coval et al., 2009). Financial actors create structured assets by first securitizing
and pooling debt obligations into a single instrument, then dividing this instru-
ment into ‘tranches’ that absorb defaults in the underlying asset pool at different
rates, and finally selling those tranches that absorb defaults last—and are hence
safer—to investors. Effectively, this accounting strategy makes it possible to
market debt that investors would otherwise consider too risky, because—in
theory—even risky assets can be structured to create virtually risk-free senior
tranches. Scholars argue that structured finance made many modern markets
possible, most notably mortgage markets (Quinn, 2009; Fligstein and Goldstein,
2010; Mizruchi, 2010; MacKenzie, 2011).
This co-expansion of financial markets and financial accounting innovations
has been facilitated by the state (Fligstein, 2001). The state has driven financiali-
zation via deregulation: eliminating capital controls, regulatory stop valves, sta-
tutes governing bank activity and impediments to unrestrained innovation.2
The state has also actively facilitated financialization by providing legal and
economic guarantees of new kinds of financial instruments directly, via
government-sponsored entities, or by formally recognizing the positive evalua-
tions of private-sector rating agencies. Such guarantees create the required liquid-
ity for new financial markets (Carruthers and Stinchcombe, 1999; Quinn, 2009).
I engage with these arguments about the relationship between financialization
and the state by focusing on TIF, and my analysis illustrates many similarities
between TIF and other financial innovations (e.g. structured asset-backed secur-
ities). TIF allows cities to create structured bonds that are considered less risky
than traditional municipal bonds and, therefore, to market higher levels of
debt to investors. In some respects, my analysis extends existing work on finan-
cialization: I show that federal policies that facilitated innovations in other finan-
cial markets had similar effects on municipal bond markets, which remain an
underexplored topic within the sociology of finance.
2
For a review, see Carruthers and Kim (2011).
At the same time, my analysis also illustrates a new, recursive mechanism of

political financialization, one that operates within relatively understudied
aspects of the financial sector. Studies within the sociology of finance have an
understandable tendency to focus on financial markets and institutions, rather
than the trajectory of commodities into these financial centers. However, finan-
cial centers are merely the last link in a chain of activities that move commodities
to investors, and links that precede financial institutions are by no means un-
changing. Scholars are aware of this financial commodity chain but typically
treat it as secondary. MacKenzie (2011), for example, argues that the subprime

mortgage market expansion before the 2008 crisis was accelerated when mort-
gage lenders stopped ‘securitizing [mortgages] in order to lend’ and began
‘lending in order to securitize’. However, MacKenzie argues that this change
among lenders was caused by arbitrage opportunities within investment
banks, which increased the demand for mortgage-backed securities. Like Mac-
Kenzie, scholars often assume that demand for financial commodities within fi-
nancial centers regulates their supply. This assumption may often be reasonable,
but my analysis of TIF will illustrate that it can also obscure causally important
political dynamics.
In particular, I show that the demand for TIF-backed securities cannot account
for the scale on which urban actors create these instruments, because they believe
that current levels of TIF spending are not in the city’s long-term economic inter-
est. Rather, the city’s rate of TIF spending is a function of contextual incentives
within urban growth coalitions, which scholars argue have long dominated
urban politics (Molotch, 1976; Mollenkopf, 1983; Logan and Molotch, 1987).
Following Brenner (2009), I begin from the assumption that the nature of
urban growth coalitions is a function of the broader set of political institutions
in which cities are embedded, and show how cities’ reliance on exotic financing
strategies like TIF has elevated a new financial expert—the development profes-
sional—to a central role within urban politics. Other roles that development pro-
fessionals play are also structured by the jurisdiction they exercise over TIF, and
provide them with additional incentives to use TIF. In effect, urban political insti-
tutions were first professionalized to engage in financial speculation, but develop-
ment personnel now have incentives to engage in financial speculation to
maintain their professional status. This analysis illustrates a recursive relationship
between financialization and the state and points to potential new areas of
inquiry within the sociology of finance, and urban and political sociology.
3. Data and methods

In what follows, I first analyze the historical emergence of TIF and explain how
the practice is used to create structured bonds. I then analyze mechanisms
418 J. Pacewicz
promoting TIF via an ethnographic study of development professionals in River

City and Prairieville, two Rust Belt cities in Iowa.
My historical analysis of TIF draws on TIF statute adoption dates compiled by
the International Economic Development Council, municipal budgets, policy
documents of credit rating agencies and case studies of other cities and states.
A more systematic analysis is impossible because national TIF spending data
do not exist. Many states do not require cities to document TIF spending,
and—even when reports do exist—independent investigations have shown that
misreporting is often the rule, not the exception (e.g. California State Controller,

2011). This dearth of comparative data makes it difficult to precisely situate my
analysis in a broader perspective, but is also constitutive of the politics of TIF: TIF
is attractive to municipal actors because it is unregulated and hence flexible.
Iowa offers advantages for a TIF study because available data on the percentage
of urban areas within TIF districts—a comparative metric I explain below—
suggest that Iowa cities are heavy, but not extreme, users of TIF. Iowa cities use
TIF at rates comparable with other Rust Belt states like Wisconsin and Illinois
(Briffault, 2010). However, no Iowa city uses TIF as heavily as Chicago (Weber,
2010a), and no mid-western city uses TIF as heavily as cities in California,
which is widely regarded as the heaviest user of TIF (California State Controller,
2011), although recent reforms in California may change that.
River City and Prairieville carry a level of TIF debt consistent with other Iowa
cities. At roughly 100 000 residents apiece, these cities contain both a municipal
development office and development corporations, although the development
professionals who work for these entities are not as numerous or well-financed
as those in larger cities. This suggests that the level of sophistication in manipu-
lating municipal finances reported here is likely even more pronounced in larger
places. Therefore, I analyze the way that local and non-local pressures intersect in
the work of development professionals to jointly create the conditions that
produce ever-higher rates of TIF spending. This approach is consistent with
the ability of ethnographic methods to explore the ‘internal conditions’ of
cases and build theories about the underlying processes that drive aggregate
trends (Small, 2009)—the widespread TIF use by cities elsewhere, in this case.
My ethnographic analysis of economic development was part of a more
general study of urban leaders in River City and Prairieville conducted between
2006 and 2008. This broad-based investigation proved instructive because devel-
opment initiatives are often formulated in many sites and bring together a wide
profile of urban leaders: heads of development groups, owners and managers of
large firms, politicians, representatives of organized labor and other civic leaders.
Consequently, I employed an evolving research design described by Marcus
(1995) as ‘follow the practice’, wherein I sought to understand the parameters
of economic development and periodically redefined the boundaries of my study

accordingly.
I began by asking key urban leaders about their involvement in development
initiatives, and learned that they identified economic development most often
with three individuals in each city. They identified a ‘key consensus builder’: the
head of the economic development corporation in River City and the head of Prair-
ieville’s chamber of commerce development taskforce. Further, other leaders claimed
that two other individuals in each city were of secondary importance, but still key in
economic development: the city manager and the director of the municipal devel-

opment department. I therefore refocused my investigation on the practices of
these six key individuals and their support staff, interviewed five of them, spent 2
days observing their work in development offices, and periodically revisited the de-
velopment office for further observations.3 I also attended closed-door meetings
where development professionals formulated common strategies, and I observed
community forums where other urban leaders discussed development initiatives.
From this investigation, I learned that the actions of development profes-
sionals are often oriented toward satisfying the needs of different stakeholders,
which—depending on the development initiative—could include virtually any
urban leader. Therefore, I also analyzed the relationships of development profes-
sionals with others in the city, which led me to interview a wide range of other
urban leaders. Overall, I interviewed over 50 other leaders in each city, and
re-interviewed many of them to assess their reactions to ongoing development
initiatives. This design proved ideal for theory building because I observed virtu-
ally the entire population of those involved in economic development rather than
a sample, analyzed the relationship of these actors to one another, and observed
their reactions to changing circumstances.
3.1 What is tax increment financing?

Although TIF has existed in some form for decades, the practice changed radically
when urban leaders began to use it to create municipal bonds. To explain why this
use is an attractive financing strategy, I now analyze how TIF has co-evolved with
changes in municipal finance and bond markets.
TIF began in California in the 1950s as a technique intended to combat urban
blight and initially bore no connection to bond markets. Originally, the practice
was intended to work as follows. A city identifies a ‘blighted’ area wherein prop-
erty values are expected to decrease and establishes a TIF district to reverse this
downward trend. Within the district, a ‘base rate’ is established, which is equiva-
lent to the current level of property tax receipts; provided that property tax
3
The Prairieville city manager declined interview requests.
420 J. Pacewicz
receipts do not decrease further, all taxing agencies continue to receive just this
base rate of property taxes as long as the district exists. Any increase above this
base rate is counted as the ‘increment’, is not divided according to apportionment
formulas, and becomes discretionary. In theory, this allows a city to use the incre-
ment to self-finance development in the district and reverse blight. This use of
TIF is represented visually in Figure 1.
Advocates justified this original TIF usage as a win – win. It creates no
municipal debt while providing cities with a new revenue stream to encourage
investment in underdeveloped areas. Arguably, other municipal taxing agencies

(e.g. schools) also benefit, since property tax receipts would fall below the base
rate without TIF (i.e. with TIF, they at least retain existing levels of tax receipts).
Despite these apparent advantages, TIF was used only in several western states
until the late 1960s and even there was employed sparsely.
The infrequent usage of TIF before the 1970s must be considered in the context
of the general fiscal environment. Historically, federal development grants and
cities’ general operating funds were sufficient for most development projects
(Mollenkopf, 1983). Even when these financing options were not sufficient,
cities could sell general obligation bonds, which investors assumed were implicitly
backed by the federal government and therefore safe (Hackworth, 2007). Further,
TIF packages are highly technical to design, and most cities lacked personnel who
could do so effectively (Weber, 2010a). In the 1970s, however, western states
entered a period of neoliberal retrenchment, which scholars argue coincided
with a renegotiation of functions between different political units (Mudge,
2008). In particular, the relationship between cities and the federal government
changed (Brenner, 2004), which placed new pressures on municipal finance.
Figure 1 The prototypical TIF usage.

First, discretionary federal development grants declined in the 1970s, and

cities responded by selling more bonds, thus creating a sharp increase in muni-
cipal debt. In 1970, the average city received two discretionary federal develop-
ment dollars for every dollar of municipal debt, whereas by 2000 it carried two
dollars of debt for every development dollar received (Hackworth, 2007, p. 18).
Investors initially tolerated these debt levels, but this confidence was shaken
when several large cities defaulted, or almost defaulted, on their general obliga-
tion bonds and the federal government did not intervene (Sinclair, 2005).
Much as within other financial markets, investors looked increasingly to rating

agencies to evaluate the soundness of municipal bonds (Sbragia, 1996; Hack-
worth, 2007; Weber, 2010a).
A city’s credit rating not only influences its ability to sell bonds, but has
become a general signal of fiscal health. Detroit’s partial recovery in the early
1990s, for example, was reversed when Moody’s downgraded the rating of
the city’s general obligation bonds, precipitating new rounds of capital flight
(Hackworth, 2007). The need to maintain a high credit rating constrains muni-
cipal actors by making it difficult to finance discretionary projects in traditional
ways. For example, surpluses in a city’s general operating funds are heavily
weighted in rating agencies’ calculations, which makes cities unwilling to fund
development with general revenue dollars (Sinclair, 2005). Similarly, general ob-
ligation bonds are legally backed by the full faith and credit of the city. However,
general obligation debt makes the full faith and credit of the city less certain,
lowers the city’s credit rating and makes it difficult for the city to sell more
general obligation bonds (Briffault, 2010).
Particularly in the Rust Belt, these fiscal austerity pressures coincided with new
challenges in the 1980s. In River City and Prairieville, for example, the manufac-
turing crisis resulted in plant closings and layoffs in sectors like meatpacking and
manufacturing and urban leaders found themselves in need of new revenue
streams to redevelop now-abandoned industrial corridors (Harvey, 1989). In
River City, Prairieville, and elsewhere, urban leaders responded by hiring new
personnel with expertise in municipal finance (Fainstein, 1991; Weber, 2010a).
In the early 1980s, River City’s leaders founded a development corporation
while leaders in Prairieville founded a development taskforce, and both were
staffed by self-avowed financial experts.
By the early 1980s, municipal finance had therefore changed in three key ways:
there was a greater need for development dollars, traditional methods of finan-
cing development were constrained and cities now contained a new class of finan-
cial experts. Against this backdrop, TIF spread rapidly across the nation.
Cities in 49 states currently employ TIF. The practice spread eastward from
California to the Midwest in the 1970s and arrived in other parts of the USA
in the 1980s and 1990s. Cities in states where TIF has been used longer tend to
422 J. Pacewicz

Figure 2 Number of states with legislation enabling TIF usage.6
be heavier users, although some southern cities (e.g. Houston) have adopted the
practice within the past two decades and have quickly become very heavy users
(City of Houston, 2010). Further, TIF spending tends to increase steadily once
states have adopted statutes allowing the practice (Merriman et al., 2011)—a ten-
dency illustrated by Figures 2 and 3, which shows the percentage of property tax
receipts captured by TIF in Iowa. This increase in TIF spending is typically ac-
companied by three changes in how TIF is used.
First, many cities create ever-larger TIF districts in areas that do not meet the
legal definition of blight. For example, 10% of urban land in Iowa is within a TIF
district (Briffault, 2010). In comparison, Weber (2010b) estimates that over 30%
of Chicago—including the posh LaSalle Corridor—is currently in a TIF district
and several major California cities have designated over 50% of their land area
as TIF districts (California State Controller, 2011). Second, many cities use TIF
revenue as an incentive for incoming businesses, and some argue that this is
the most common TIF use (Weber, 2010a). Finally, and most importantly,
many cities ‘front-fund’ development projects by securitizing projected TIF rev-
enues and using this hypothetical revenue stream to create municipal bonds.
The evolution of TIF-backed bonds mirrors that of structured financial instru-
ments in other financial markets, which convert risky revenue streams into
6
This S-shaped curve is typical of policy innovations wherein adoption by one political unit mounts
pressure on other units to adopt the innovation (Boushey, 2010, p. 42).

Figure 3 TIF revenues as a percentage of all property tax receipts in Iowa.
derivatives that rating agencies deem more secure than the underlying assets
(Coval et al., 2009). In particular, TIF allows municipal actors to create bonds
that are rated as safer than general obligation bonds and do not negatively
impact the city’s credit rating as heavily as general obligation debt.
The key to this magic trick is the ambiguous legal status of TIF revenues. Trad-
itionally, cities have issued two types of bonds: general obligation and revenue
bonds. General obligation bonds are backed by a city’s property tax base and,
because a city is legally obliged to repay them, are counted by rating agencies
as debt. In contrast, revenue bonds are not backed by a city’s property tax base
and therefore do not impact a city’s credit rating as negatively as general obliga-
tion bonds, but are difficult to use because they must be backed by a revenue
stream other than the property tax base (e.g. tolls). Legally, TIF debt is not a
general obligation, because the securitized revenue stream is circumscribed to
projected tax revenues in city subsections, not the entire property tax base. In
this way, TIF-backed bonds are like revenue bonds: a city has no legal obligation
to repay them if projected TIF revenues do not materialize (Geheb, 2009; Briffault
2010).4 However, TIF bonds are also similar to general obligation bonds because,
in practice, rating agencies hold cities responsible for their TIF debt (Geheb,
2009). Evaluations of new TIF bonds weigh the creditworthiness of the city
4
This legal separation between TIF revenue and the city’s tax base is maintained in two ways. TIF is
sometimes issued by legal entities (e.g. redevelopment agencies) that are geographically contiguous
with the city but legally separate. In other cases, development agreements specify that a city has a
‘moral’ rather than a ‘legal’ obligation to finance TIF debt (Briffault, 2010).
424 J. Pacewicz
where bonds are issued, and—in cases of default—rating agencies downgrade the
city’s rating (Briffault, 2010).
From the city’s point of view, therefore, TIF debt is similar to general ob-
ligation debt: both must be repaid to maintain a positive credit rating,
either with TIF revenue or in some other way. From the rating agencies’ per-
spective, however, TIF allows urban actors to create two distinct financial pro-
ducts: the full faith and credit of the city and projected revenue increases
within particular TIF districts, which rating agencies express as an incre-
ment/base ratio (i.e. projected receipts minus current receipts divided by

current receipts). These derivatives are then combined into a structured instru-
ment. Debt, and hence risk, is first repaid entirely by TIF revenues and, should
these be inadequate, by the city’s overall tax base. From a financial perspective,
TIF-backed securities are therefore safer than general obligation bonds and
receive more favorable ratings. Further, aggregate TIF debt is borne primarily
by subsections of the city, not the city itself, so rating agencies weigh such
debt less heavily in their evaluation—essentially as unrealized growth rather
than debt.
TIF therefore allows cities to sell bonds at better rates and higher levels, pro-
vided that municipal actors are prepared to make enthusiastic projections for
growth within city subsections. If such projections are overenthusiastic, the city
is left with TIF debt. In the aggregate, overenthusiastic projections are the
norm, and TIF use is typically accompanied by large and mounting TIF debts
(Briffault, 2010; Weber, 2010a; Merriman et al., 2011). In 2009, for example,
River City and Prairieville carried levels of TIF debt that were, respectively,
equivalent to 3.5 and 1.7 times their annual property tax receipts. This means
that both cities would need to divert all property taxes to servicing TIF debt
for, respectively, 3.5 and 1.7 years to eliminate their debts. This level of TIF
debt is within a normal range for cities in Iowa and other mid-western states,
but is low compared with cities in other states. In many California cities,
for example, the ratio of TIF debt to annual property tax receipts is over 20
(California State Controller, 2011).
Not surprisingly, many academic and popular commentators worry that TIF
allows cities to accumulate unsustainable debt levels. I will demonstrate that
urban leaders also believe their own use of TIF is unsustainable. To account for
these rates of TIF spending, I now examine the contextual incentives that
promote the use of this practice.
4. Results
TIF allows cities to market high levels of debt, but not without consequence for
urban politics. Here, I first analyze how TIF has made development professionals
central to urban politics. I then show how TIF structures the other roles they play
and gives them additional incentives to use TIF.
4.1 The co-evolution of TIF and the economic development profession

In River City and Prairieville, municipal finance was once a contested aspect of
urban politics. During the 1970s, budget hearings stretched across many city
council meetings and involved considerable, often heated citizen input. Today,
city budgets typically pass within 15 min and without significant debate. This is
because the key development professionals in both cities—the heads of the devel-

opment corporation and taskforce, the city manager and the director of municipal
development—meet beforehand, analyze the budget, and establish priorities.
Next, they meet with city council members individually, discuss the budget, and,
if necessary, reformulate their priorities and hold more meetings. Thus, the
budget is effectively pre-approved before it formally comes before city council.
The degree of control that development professionals exercise over the budget
process is partially a function of the increased complexity of municipal finance.
Cities rely on municipal bonds, which are now connected to the city’s credit
rating in ways that are non-intuitive to those without financial expertise. Conse-
quently, elected officials often report feeling unqualified to participate in the
budget process. For example, River City’s mayor once told me that ‘the city
council really does not have the expertise to [formulate the budget, because]
there are a lot of technical details, labor jargon, and engineering questions.
[The] development corporation usually has all the I’s dotted and the T’s
crossed. For city council to get involved would really burden the process.’
Yet the lack of familiarity that elected politicians have with budgetary issues is
itself the outcome of another development: other urban leaders have come to see
elected politicians, and open democratic procedures in general, as impeding effi-
cient fiscal operations. The following, from a key Prairieville booster, is typical:
You get lots of criticism: ‘City council people just come to these meet-
ings and then vote yes on everything!’ But at some point that is the way
it should be. . . . You can’t work out complicated ideas in 10 heated
minutes. . . . Completely hokey stupid ideas that are not going to
work should never make it to council. [And] the [municipal] bureau-
cracy [poses] roadblocks, like public meetings [that] make it difficult
for the city to do different things. [A lot of it] does not fit well with
public meeting rules and Freedom of Information Act requests. . . .
[If] company X is going to do a quarter-million-dollar investment,
[you can’t] have that show up in the paper the next day. . . . And some-
times you gotta cut deals to do projects [that] do not fit within the city’s
legal requirements for bid contracts.
426 J. Pacewicz
Many urban leaders see democratic forums as a fiscal ‘roadblock’: such forums
are not a good environment for solving complicated budgetary issues and make it
difficult to ‘cut deals’ with private firms. That such deals with private firms
should be an aspect of municipal finance at all is a consequence of financing strat-
egies like TIF, which formally ties public finance to private development. TIF-
backed securities are predicated on property tax revenue increases in subsections
of the city and frequently necessitate pledges from firms to relocate or expand
their operations. City council members are unsuited for such negotiations with
firms because their activities are bound by formal transparency requirements

and because quorum laws prevent them from collectively meeting with firms in
private. TIF therefore creates a structural opening for a new kind of urban
actor who is capable of acting simultaneously as an insider and an outsider: a
city representative not formally tied to the city.
Professionalized economic development has evolved to fill this insider – out-
sider role. The key development organizations in both cities, for example, have
different histories but have become functionally indistinguishable. Prairieville’s
development taskforce began as an extension of the organizationally independ-
ent—and fiercely Republican—chamber of commerce, while River City’s devel-
opment corporation was initially supported by Democratic politicians and
municipal bureaucrats as a counterbalance to that city’s chamber. However,
both organizations have become explicitly non-partisan and identify themselves
alternately as private non-profits and as political representatives of the city. Even
funding for these development organizations blurs the public – private boundary:
they are explicitly private, but the city is by far their largest ‘donor’. Similarly, de-
velopment professionals understand themselves as insider – outsiders, who speak
on behalf of the city and as private-sector advocates of firms:
Ben Denison, head of River City’s development corporation: We kid-
dingly describe our relationship with the city as ‘We make the promises
and the city fills them.’ We have carte blanche from the city to include
incentives on proposals to companies, conditional on the approval of
city council, but we don’t check with them first. . . . We make a judg-
ment about what would be appropriate [but] should [a company]
bite on the proposal, start negotiations . . . our office then acts as an ad-
vocate not for the city, but for the company.
Dani Dover, head of Prairieville’s development taskforce: Industry likes
to talk with us first and use us as a sounding board, because although
the city is our partner, in some ways our most important partner, we
represent industry in the end. And also, we have a good understanding
of what is available and what the city can live with. . . . [They’re] very
pro-growth, and we have a good working relationship with them.
[It’s rare] that we tell a business that the city is willing to do something
that then does not happen. It almost never happens.
This arrangement, wherein development professionals ‘make the promises and
the city fills them’, is one that seems to satisfy politicians. The following are typical
of such attitudes:
Mayor of Prairieville: City council should have a basic philosophy of
what kinds of growth a community should work on to develop. . . .
But then I think that the city’s [municipal development team] needs

to work with others whether it’s the [chamber’s] development task-
force, or private business, or both. [It’s] important that we all work
in tandem, because nobody wants to flounder like we did in the 1980s.
River City councilperson: Do I agree with everything [the development
corporation] thinks is important? No. [But it] is not about getting what
you want, it is about getting what you can live with. . . . When I have my
one-on-ones [with development professionals] I raise any issues that I
have but I also try to listen. . . . To go against their advice would be [like]
going against the advice of your city attorney; [one] should not do it
lightly.
In this way, TIF has co-evolved with a new ideal-typical actor within urban
growth coalitions: the development professional, who acts as porte-parole
between city government and private industry and thereby facilitates the creation
of municipal bonds backed by projected private development. Further, develop-
ment professionals’ jurisdiction over municipal budgets has also led them to play
other urban roles.
In particular, development professionals are central in coordinating efforts to
redevelop and market the city—an unsurprising role, given that they control the
resources that often fund such development. Development professionals under-
stand this coordinating role in similar terms to their relationship with the muni-
cipal bureaucracy. They do not dictate development priorities, but rather act as
‘catalysts’ or ‘brokers’ who bring together the right mix of other leaders to spear-
head particular initiatives. The following self-reports are typical:
Ben Denison, River City: [We act as] a catalyst for change in the com-
munity. [We don’t] always do the change, but [we act as] a catalyst. . . .
What we do here is foster partnerships; we act as a kind of broker,
bringing different sides together so that we can get things done.
Dani Dover, Prairieville: [We] act as a broker, because people will call
me all the time with ideas and some of them go on the back burner,
but sometimes we say, ‘Hey, that is exactly what we are looking for;
428 J. Pacewicz
let’s put the people together.’ This person will be good, because that is
what they bring to the table. So you have this constant Rolodex of
people with different interests and you bring them together.
Such self-assessments are accurate. During my fieldwork, development profes-

sionals were centrally involved in every important urban initiative. For example,
River City development professionals spearheaded an effort to leverage sales taxes
to construct a new high school, began a summer cultural festival, prepared the
application for an ‘All-American City’ competition, and sponsored a series of

citizen forums to establish 10 common development priorities. Similarly, devel-
opment professionals in Prairieville also leveraged sales taxes to build new
schools, planned a music festival, spearheaded plans for a new civic center, re-
modeled an old building to make space for a university’s branch campus and
were central in a downtown beautification initiative. Therefore, other leaders
considered development professionals to be the most important urban leaders.
The following report is typical:
Key civic leader, Prairieville: Dani [Dover] is the single most important
consensus builder in the community. [She] has the ability to look at
something and say, ‘Yeah, this can happen’, or ‘No, it won’t’, and if it
can happen she knows the right people to call. I mean, if she calls me
and says, ‘Hey, we gotta work on such and such’, it is always something
that I’m excited about. . . . There are a lot of people who have her at the
top of the Rolodex—she is a sounding board and a catalyst, consensus
builder, whatever. . . . It all has to go through [her] at some point if you
want to make it work.
TIF thrusts development professionals into the dual roles of stewards of mu-
nicipal finance and central leaders within development initiatives. In this context,
some ways that development professionals use TIF are unsurprising. Develop-
ment professionals bring together urban leaders, discuss common problems
and try to facilitate projects that bring solutions. Because their reputation as ef-
fective brokers rests on successful outcomes, they become invested in these solu-
tions, which are frequently expensive. To the degree that development
professionals see such projects as vital, they are locked in to using TIF, because
TIF—which allows cities to sell bonds at better rates and with less negative
impact on the city’s rating—is frequently the least-bad financing option. Even
if such uses of TIF result in long-term debt, development professionals argue
that funding projects they see as vital is preferable to doing nothing. ‘It is difficult
to rely upon state and federal help, [because they] are strapped in their own way’,
a Prairieville development professional once told me. ‘So we just decided to
divorce [them.] We became aggressive users of TIF . . . the kind of community

that pulls itself up by its bootstraps.’
Development professionals equate TIF with autonomy in an era of fiscal aus-
terity, and therefore see some TIF uses as justified. However, this does not account
for the scale of TIF use, because urban leaders think that most TIF uses do not
meet a vital community need. Such attitudes are common, for example, among
politicians who approve TIF packages.
Prairieville politician: [TIF is] corporate welfare, pure and simple. But
it’s the game we are in. If you are not going to play the game, get the hell

out. [But if you] are like us, in a city and a state that has lost a lot of
population, a place that has lost a lot of its manufacturing . . . you
compete.
River City councilperson: TIF was supposed to be for resolving . . .
blight, but River City has used it for . . . basically dozens and dozens
of industries here in the last 10 years. . . . It screws the school system
worse than anything [and] public safety—we gotta hold our breath
that we don’t have a major fire in this town. [At the same time
we’re] giving one of the richest [businesses] in River City [moneys]
to remodel their foyer! [In the past] we might have helped a business
to secure a loan, [but] we never did anything like this. . . . Everybody
calls it corporate welfare, but it’s more than that: it is that they are
bribing them to come in. . . . But that’s what [Ben] Denison is doing;
if it wasn’t for money through TIF he’d be sterile and unable to have
any effect [so] I see nothing immoral about it . . . when you have a
city that has lost 9,000 jobs [since the 1980s.]
Politicians worry that TIF is unprecedented ‘corporate welfare’, that it pro-
duces unsustainable debt, and that repaying TIF debt unfairly diverts resources
from other municipal taxing agencies. Despite such reservations, however, city
council always unanimously approved TIF packages during my fieldwork.
Given the de facto jurisdiction of development professionals over municipal
budgets, it is perhaps unsurprising that politicians should also cede jurisdiction
over TIF. What is puzzling is that development professionals are often more crit-
ical of TIF than politicians: they worry about long-term fiscal consequences and
believe that most TIF-funded incentives are ineffective in promoting long-term
growth. The following attitudes are typical:
Head of Municipal Development Office in Prairieville: There’s a general
insidious notion that economic growth is ‘We are going to get an
ethanol plant here, it is going to employ 40 people [and will] require
a hundred million dollar investment. Take your lumps, because at
430 J. Pacewicz
least these are jobs.’ [But, in my experience], they play up the sunshine
and the beaches [in Florida] . . . economic development for them is
their environment, same as in California and Arizona. . . . People like
Colorado, but it is not because they are going to put in an ethanol
plant. . . . We need to develop this area in a way that improves quality
of life, talks about health, inspires younger people. That’s real economic
development. Everything apart from that is just a bunch of noise and
publicity.

Ben Denison, River City: I wish that economic development was more
about communities striving to be better communities and then com-
panies just evaluating that product. . . . Too often we just get to the
point where people are asking us, ‘How much money will you get us
to come and how much more to stay?’ . . . It is a fool’s game [and]
some of what is being done is kind of short-term return, long-term
loss. [I mean,] incentives are not what we do. It is just that in this com-
petitive world [companies] assume that if you don’t have the incentives
then you are a piker and are holding back. . . . We help the community
by looking for needs to be fixed. . . . The riverfront was butt-ugly [and]
everyone who [came] into this town [said,] ‘God, what an ugly river
town!’ But they don’t say that anymore, because it is not!
In the words of these development professionals, TIF spending can create ‘real
economic development’, such as River City’s harbor project, but is often fiscally
frivolous. In particular, they recognize that TIF-funded incentives are often
used to lure a company to the city, and—unlike politicians—they are dubious
about the long-term utility of such incentives. Simply ‘paying companies to
come in’, they argue, amounts to mere ‘noise and publicity’ and represents a
‘short-term return, long-term loss’.
Comparative research suggests that these beliefs about TIF are essentially
correct: although TIF districts do experience higher growth than non-TIF dis-
tricts, differences between cities that use TIF heavily and those that do not are in-
significant or marginal (Weber et al., 2003; Merriman et al., 2011). This suggests
that TIF moves capital around within the city, but does not attract significant new
investment. Similarly, development professionals believe that firms make invest-
ment decisions based on the overall quality of the community and that firms that
change their behavior purely for incentives will not likely stay for long—an atti-
tude summarized by the oft-repeated mantra: companies ‘may come for the
incentives, but they won’t stay for them.’ Accordingly, both cities’ development
professionals argue that creating incentive packages is ‘not what we do’; their
primary value for the city is their ability to ‘make the community better’.
4.2 TIF as a transformation agent

And yet development professionals engage in the type of excessive TIF spending
they themselves criticize. To account for this puzzle, I now analyze how TIF trans-
forms the career trajectories of development professionals, their professional
identities, and the way they manage the local economy, and thereby provides
them with additional incentives to use TIF.
4.2.1 Economic development as a profession TIF packages are highly technical,

but development professionals argue that the practice also requires creativity. TIF

districts with a high increment-to-base ratio are more valued by financial
markets, but in the words of development professionals, obtaining this high
ratio requires generating ‘a unique solution to a unique set of problems’. Devel-
opment professionals create unique solutions by establishing TIF districts at the
right moment, drawing the boundaries ‘creatively’ and pairing TIF with other
incentives. Because TIF contains this element of creative virtuosity, some devel-
opment professionals are more effective than others at using TIF.
Crucially, politicians and other urban leaders who hire development profes-
sionals do not understand TIF’s mechanics and are unable to directly evaluate
the technical virtuosity of development professionals. This problem is aggravated
because economic development is a new field, and most of those working today
lack formal credentials.5 Accordingly, urban leaders can evaluate development
professionals only on visible aspects of their performance: their ability to
attract employers and spearhead projects that attract outside investors. This
evaluative criteria structure the career trajectories of development professionals
in two ways.
First, development professionals can demonstrate competence to others with
big, visible initiatives, whether or not these are good for the city’s long-term fiscal
health. I have already shown that politicians put their ‘trust’ in development pro-
fessionals, and a continuous stream of initiatives is one way to revive that trust.
For example, I once asked a River City politician if city council should have more
economic development oversight. He responded, ‘[We] have absolute faith in
[development professionals]. The kinds of [business expansions] that have
been happening are remarkable, and they always have something new in the
hopper.’
Big, visible initiatives also appeal to another audience: potential future
employers. Development efforts that bear visible fruit raise the profiles of
5
The six key development professionals in this study received no formal training and entered
economic development via other fields: the chamber of commerce, municipal bureaucracy or
politics. However, some new additions to River City’s development staff were hired because they
had received degrees from a new MA program in economic development at a major university.
432 J. Pacewicz
professionals associated with them. This was particularly evident in River City,
which experienced a dramatic decline during the 1980s but attracted several note-
worthy employers in the 2000s. Early in my fieldwork, River City hired a muni-
cipal development director who was highly pursued by other cities because he had
‘turned things around’ in the small town where he previously worked. He told
me, ‘I did have other options, but River City is an up-and-coming community
. . . a rising star. [And] with the current regime, especially Ben Denison and
[the city manager], I don’t think that they will allow anything besides . . . continu-
ing to strive for another level.’ Similarly, longtime employees of River City’s de-

velopment corporation reported that they are now favorably received at trade
shows, an important site for meeting prospective new employers. ‘Ewww’, was
the old reaction to development professionals from River City, according to
one informant. ‘But now everyone wants to talk with us . . . find out how we
did it.’
Because development professionals elevate their professional cache via visible
successes, their career trajectories zigzag nationally, from smaller to larger cities.
Dani Dover, head of Prairieville’s development taskforce, is typical of other devel-
opment professionals in my study. She began by working as head of the chamber
in a tiny town in the Southwest USA, a position she was able to get because ‘I did
not know what chamber work is, but neither did they!’ She then worked as part of
an economic development team in a slightly larger city. Succeeding there, she was
offered her current higher-status position in Prairieville. While in Prairieville,
Dani was credited with attracting several large employers and the kinds of
high-end retail establishments that appeal to executives. Consequently, she
received numerous offers during my fieldwork and eventually accepted a key pos-
ition within the economic development office of a mid-western metropolis.
Such career trajectories give development professional incentives to use TIF
irresponsibly. One effective way to attain a better position is to initiate a large
project or attract a large new employer—indeed, development professionals
refer to such acts as ‘reaching for the golden (or brass) ring’. TIF can leverage
moneys that allow development professionals to grab the golden ring and
move up in the short term. However, the visible consequences of irresponsible
TIF spending may not materialize for decades. In effect, the temporality and
opacity of TIF create a perverse incentive structure that is well-documented
within the sociology of finance: reward, and potential advancement, occur
within a timeframe that is shorter than that during which negative consequences
materialize (Abolafia, 1996). The development professionals in my study denied
using TIF opportunistically, and quotes in previous sections demonstrate their
criticism of development professionals elsewhere who did so. However, there
are reasons to take such reports with a grain of salt. For example, all the key
development professionals in my study denied wanting to move to a more
prestigious position, but three of the six have done so. However, professional
opportunism is only one incentive for fiscally irresponsible TIF use.
Like other professionals, development professionals are motivated by a desire
to maximize a non-instrumental professional purity, an attitude illustrated by
their tendency to distinguish frivolous TIF uses from their ‘real work’ (Abbott,
1988). Qualities related to the real development work revolved around a capacity
for aggressive and creative problem solving. For example, one development pro-
fessional described himself as ‘a swashbuckler; I come into the office every day
hoping that something will go to hell just so I can play with it and fix it.’

This professional self-understanding is unsurprising, because the jurisdiction
that development professionals exercise over TIF places them in the position of
solving problems that others cannot. Accordingly, other urban leaders often
ascribe a magical or heroic competence to development professionals. For
example, River City’s leaders often attribute its 1990s recovery to the ‘Three Mus-
keteers’: Ben Denison, the city manager, and the then-mayor of the city, who—
unlike most politicians—was deeply involved in development efforts. When I
asked the former mayor about this nickname he first described a dizzyingly
complex set of incentives that the three designed to retain heavy manufacturing
while attracting professional services. He then concluded: ‘Before long, people . . .
started calling us the Three Musketeers and that was true. We would meet every
week and just go around the room and try to see if there was anything we could
try to do to get [things] turned around. . . . The one thing you could not tell us
back then was that we couldn’t do something, because then of course we
would find a way to do it.’
In this way, their unique fiscal competence thrusts development professionals
into the role of rainmaker: an actor whose arcane expertise generates the unique
power to solve intractable problems. Accordingly, their professional identities are
linked to a capacity for creative problem solving, which gives them an additional in-
centive to use TIF in fiscally irresponsible ways. Often, TIF is the only way that de-
velopment professionals can maintain their reputation for creative problem solving.
Especially during heated negotiations with incoming employers, development
professionals became pre-occupied with this creative—but ultimately technocrat-
ic—aspect of TIF. Confronted with a problem, they obsessively searched for a so-
lution without asking whether the problem was worth solving in the first place. In
particular, I observed several cases where the desire to demonstrate creativity led
them to design a generous incentive package that they would have philosophically
opposed in other contexts. The following quote demonstrates some of the
all-encompassing creative excitement inherent in such situations:
Ben Denison, River City: If it’s a problem, we try to fix it. If it’s an
opportunity, why, then we jump on it like a big dog. And the
434 J. Pacewicz
opportunity, sometimes, is bad news. [An employer] might say: ‘Well,

we are a little concerned, because our company is looking at consolidat-
ing operations and we are one of 10 facilities.’ That’s a threat, but then
. . . you make a strategy for reaching out to corporate . . . sit down with
them, thank them for being in River City, [and then] lay out detailed
plans for what you can do for them. [Then] we do whatever we can
to make everything better, and bigger, and quicker than it would
have otherwise been. ‘[How can we] allow you to build that building
. . . this year instead of next year? Or have 20 employees instead of 10,

or do it here instead of Timbuktu?’
The desire to find creative solutions also leads development professionals to
develop new TIF-like instruments. In many states, for example, cities have
begun to securitize projected sales tax receipts and create structured bonds
backed by this revenue stream in addition to projected increases in property
taxes. Dani Dover developed one such innovation during my fieldwork, and
this quote from her demonstrates how the desire to demonstrate creativity
drove this process:
This year, we ran a very significant piece of economic development le-
gislation [that] allows companies to capture employees’ withholdings
wages, instead of sending them . . . to the state as part of their income
tax; the company then gets to keep them to reinvest in their plant ma-
chinery and equipment. So it’s a little like a TIF, because you have the
value capture element. [The] idea was borrowed, [but] like anything, it
takes on a life of its own, and is never quite the same—you have to craft
it to suit your circumstances. Add a few nuances, take a few away.
We are always bringing new ideas. . . . One of our legislators even
said, ‘I can’t help it if our community is aggressive and creative and
always bringing new ideas. . . . Why is that a problem?’ [laughing]
Dani’s report is a typical one, in that she takes obvious pride in the profession-
al expertise necessary to create a new TIF-like instrument that converts captured
state income tax receipts into a new—and potentially securitizable—revenue
stream. Doing this makes her feel creative, and therefore like a ‘true professional’,
and simultaneously drives the financialization of the city.
4.2.2 Development professionals as economic brokers Development profes-

sionals also play the role of economic information brokers by providing firms
with information about their supply, transportation, distribution and profession-
al service needs. To an extent, the need for this role is a function of broader eco-
nomic shifts, such as the acquisition of locally owned industries during the 1980s
merger movement. Whereas local owners obtained information through their
thick local ties, managers of subsidiaries are often recent transplants who are ig-
norant of local business practices (Galaskiewicz, 1985). Development profes-
sionals thus believe that corporate subsidiaries are ‘too busy making widgets’
to know how to satisfy local economic needs. This assessment is shared by corpor-
ate managers. In both cities, managers reported that development professionals
are ‘invaluable to the work that we do. . . . They tell us where to look and what
to look for.’
The jurisdiction that development professionals exercise over TIF makes them
ideally suited for this information-brokering role. Many business expansions are

accompanied by a TIF-funded incentive package. When development profes-
sionals design such packages, they develop a pre-existing store of information
and relationships with firms as they enter the economy. Further, development
professionals see themselves as creative problem solvers and are therefore
willing to engage in information brokering because this practice constitutes a cre-
ative solution to economic coordination problems.
In practice, development professionals value economic information highly.
Development organizations in both cities employed secondary staff explicitly
for the purpose of interviewing business leaders, and even development profes-
sionals who do not formally play this role devote considerable time to informa-
tion brokering. The development professional who conducts interviews with
business leaders in River City describes this process:
It is no different from customer service, dealing with people the way
you would want to be treated. . . . The door never shuts entirely; no rea-
sonable request can be denied. [The] trick is to meet with people as a
human being . . . to make relationships with top-level people and build
trust, so that if there is an opportunity or a threat, we are the first
people they call. . . . And I’ve sat down over 1,000 times in those settings
and I always learn something new. . . . In my little mind I start to
connect the dots: ‘Where have I heard that before? How is this con-
nected to other issues?’ [I’m] always surprised by the commonalities
between different companies—if raw materials are up, they are up
for all people; maybe everyone is facing a similar distribution problem.
Quality information allows development professionals to anticipate problems
with particular firms and broader trends that require collective solutions. Cru-
cially, however, obtaining quality information requires ‘building trust’ with busi-
ness leaders.
Development professionals believe the key to gaining trust is to show their re-
sponsiveness to firms’ needs; another oft-repeated mantra around the develop-
ment offices is ‘The only worse thing than not asking is asking and doing
nothing about it.’ The ability to collect quality information therefore requires
436 J. Pacewicz
development professionals to engage in ‘high-end customer service’ wherein ‘no

reasonable request can be denied’. Of course, many ‘reasonable requests’ require
additional spending.
In this way, development professionals have another incentive to use TIF in
ways that is not aligned with the need for fiscal restraint. Because TIF is so flex-
ible, development professionals can use it to fulfill virtually any request, win a
business’s trust, obtain quality information, and thereby increase their capacity
to be effective information brokers for others.
In practice, their need to engage in high-end customer service clashed

often with their desire to curtail fiscally frivolous TIF uses. The following
exchange with a development professional in River City demonstrates this
tendency:
Q: Do you think that [development] contracts should be more tightly
enforced?
A: As a taxpayer I am very glad, very much so, that the city is meeting its
responsibility to the taxpayers. If company XYZ wants to expand, then
company XYZ, to the extent that it can, should do what they say they
are going to do. But you have to be accommodating. If you can’t create
20 jobs, instead of throwing the penalty at them, you say, ‘Do you need
more time?’ I don’t have a problem with the regulations and the hoops,
I really don’t, as long as we are always maintaining the highest standards
of customer service, meaning that, if there is a challenge, we are smart
enough to recognize it, and we adjust. One size fits none. [So] there is a
gray area there.
Because firms typically receive incentives up front, firms that ‘come for the
incentives but don’t stay for them’ leave behind debt obligations that the city
must finance. Presumably, tighter state or federal regulation could alleviate
some of this problem, a scenario the development professional recognizes
when he views the situation ‘as a taxpayer’. However, TIF regulation would
render the practice less flexible, and hence less suited for high-end customer
service and creative problem solving. In a very real sense, TIF creates new roles
that development professionals must live up to, and it is also necessary for
living up to them.
5. Discussion and conclusions

I have argued that the TIF is an understudied aspect of financialization. TIF
allows urban actors to convert the city’s property tax base into a derivative—pro-
jected increases in tax revenue within subsections of the city—that they use to
create a structured bond rated as more secure than the city itself. TIF therefore
allows cities to sell unprecedented debt levels to bond market investors. The prac-
tice is similar to other financial innovations, which scholars argue drive financia-
lization by turning risky forms of debt into sound, tradable financial
commodities (Coval et al., 2009; Quinn, 2009; Fligstein and Goldstein, 2010;
Gemici, 2010).
In some respects, it is unsurprising that urban actors should be involved in this
process. Scholars have long argued that urban politics is dominated by those who
have an interest in property values and act to maximize this interest at the public’s
expense (Molotch, 1976; Logan and Molotch, 1987). Particularly as capital has

become more mobile, urban actors have become more ‘entrepreneurial’ in
such efforts (Harvey, 1989). Since financial operations are increasingly lucrative
(Krippner, 2011), it is perhaps unremarkable that urban entrepreneurs should
employ exotic instruments like TIF-backed securities to attract capital.
A standard account of financialization would likely rest content with the two
preceding paragraphs as an explanation of the expanded use of TIF-backed secur-
ities: changes within bond markets have created a demand for TIF-backed secur-
ities that urban entrepreneurs are happy to meet. While changes within bond
markets certainly are a necessary precondition for TIF-backed securities, my
analysis shows that an explanation that focuses only on the demand for these
securities is partial. The scale on which TIF is used is puzzling, because urban
leaders—development professionals in particular—argue that TIF is a ‘short-
term return, long-term loss’: it is usually ineffective at attracting and retaining
private investment and produces unsustainable debt levels. Therefore, under-
standing the urban turn toward finance requires analyzing the recursive aspects
of TIF: the way the practice transforms urban politics and structures the
roles—and hence the contextual incentives—of those with jurisdiction over TIF.
TIF packages require cities to make sophisticated projections about private
firms’ activities. This need has created a structural opportunity for development
professionals, who act as insider – outsiders and simultaneously represent the city
and are unencumbered by its formal democratic procedures. As TIF has become
more fiscally important, development professionals have assumed de facto juris-
diction over municipal budgets and become central within urban growth coali-
tions. Consequently, they are frequently the sole link between the aspirations of
urban growth advocates and the sources of funding for development projects,
which has led other urban leaders to attribute to them an arcane, near-magical
competence.
The special status of development professionals in urban politics has
co-evolved with a set of professional incentives that do not align with the city’s
long-term fiscal outlook. First, they have an incentive to fund large development
initiatives, which can allow them to move to a more prestigious position in
another city before the long-term fiscal consequences materialize. Second, they
438 J. Pacewicz
have come to identify their professional identity with the capacity to creatively
solve any problem, and this gives them an incentive to create ever-more elaborate,
and generous, financing schemes with TIF. Finally, their frequent contact with
private firms has thrust them into the role of general broker of economic infor-
mation, wherein they often create TIF-funded incentives to win the trust of busi-
nesses and glean quality information. In all these ways, TIF has thrust
development professionals into new roles that give them incentives to use TIF
in additional ways—even though they themselves recognize that many of these
TIF uses are fiscally irresponsible.

This account is partially consistent with previous studies of financial insti-
tutions. Abolafia (1996), for example, has shown that the social organization
of financial institutions can reduce—or indeed reward—opportunism and
other behaviors not conducive to long-term stability. However, the dynamics
surrounding TIF are significant because they occur within the political bureau-
cracy of Rust Belt cities, far from the financial centers analyzed in previous
studies. I have argued that a full accounting of TIF’s significance therefore
requires focusing on an understudied aspect of financialization: the trajectory
of commodities into financial markets, which I have compared with a financial
commodity chain. The chain of activities that moves financial commodities to
financial centers can be complex and move through economic institutions like
the professionalized urban bureaucracies in this study, which are thoroughly
intertwined with politics. Causal relationships within this chain are recursive
in the sense that the institutions that move commodities to financial centers,
and the broader set of political relationships in which they are embedded, are
transformed by their connection to financial centers. Urban political leaders
first turned to development professionals to leverage financial capital, but
such efforts created a new set of development institutions within which devel-
opment professionals create TIF-backed securities to live up to their own pro-
fessional identities. In effect, a political and professional calculus is responsible
for ever-higher rates of TIF spending, even though the actors involved recog-
nize that the long-term consequences of this ratchet effect are fiscally
unsustainable.
Acknowledgements
I am grateful to Paolo Parigi, Mark Granovetter, Dan Menchik, Iddo Tavory,
Diana Dakhlallah, Warner Henson, Susan Olzak, Andy Walder, Andy Isaacson,
Lis Clemens, Jean Rattle, Rob Jansen, Patricia Young, Cristobal Young,
Paki Reid-Brossard, Maria Czyzewska, Kristen Romanowski, Rachel Weber,
Damian Williams, Kurtulus Gemici and three wonderful reviewers for feedback.
Some of the paper’s arguments also benefited from feedback received at the 2010
ASA Panel on Economic Regulation, the 2011 SSHA Fiscal Sociology Panel, Stan-
ford’s Political Sociology and Social Movement Workshop, and presentations at
Harvard’s Business School, UC-Davis and UCSD. The typical disclaimers apply.
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Socio-Economic Review (2013) 11, 413–440 doi:10.

Tax increment financing, economic

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2009). Some have therefore suggested that TIF is an underexplored aspect of

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2. Financialization and the state

debt—mortgages, auto loans or credit card debt—whereas consumer debt was

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At the same time, my analysis also illustrates a new, recursive mechanism of

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3. Data and methods

promoting TIF via an ethnographic study of development professionals in River

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of economic development and periodically redefined the boundaries of my study

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3.1 What is tax increment financing?

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Figure 1 The prototypical TIF usage.

First, discretionary federal development grants declined in the 1970s, and

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4.1 The co-evolution of TIF and the economic development profession

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Such self-assessments are accurate. During my fieldwork, development profes-

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divorce [them.] We became aggressive users of TIF . . . the kind of community

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4.2 TIF as a transformation agent

4.2.1 Economic development as a profession TIF packages are highly technical,

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opportunity, sometimes, is bad news. [An employer] might say: ‘Well,

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4.2.2 Development professionals as economic brokers Development profes-

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development professionals to engage in ‘high-end customer service’ wherein ‘no

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5. Discussion and conclusions

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Galaskiewicz, J. (1985) Social Organization of an Urban Grants Economy: A Study of Busi-

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