“Wish I didn’t know now what I didn’t know then.” 

It was a throwaway line in Bob Seger’s 1980 ballad “Against the Wind,” a reflection on innocence and regret. Although he felt the line sounded odd and thought it was grammatically incorrect, Seger kept it in because the people around him liked it. The line has since inspired other artists to offer their own interpretations. It inspires me as an invitation to learn, providing a frame for reflection on unintended consequences and letting us imagine how we might have done things differently. It’s particularly apt in the context of our current national affordable housing crisis.  

For four decades I directed and studied the use of public, private, and philanthropic funding to produce affordable housing and provide decent shelter for low-income families since the Great Depression. Lots of big ideas were discussed, many of them implemented. Most of those implemented did not deliver the expected results, but they all delivered unintended consequences. What can we learn from these 20th-century missteps—and more to the point, what are we willing to learn?  

The federal government has struggled for more than eight decades to meet the basic commitments it made in the U.S. Housing Acts of 1937 and 1949: “a decent home and a suitable living environment for all Americans.” The acts committed significant subsidies to build new public housing and eradicate slums. They promised new jobs, modernized cities, and better housing for those who needed it. Because the Housing Acts proposed to benefit all Americans, they attracted broad public support.

When implementation time came, most public housing authorities aimed to provide housing for those in the lower half of the income distribution—a politically popular decision. To maintain the new housing stock, rents were set to cover buildings’ operating expenses. But as the buildings aged, operating expenses increased, and rents increased along with them. By the late 1960s, lower income tenants were getting priced out—paying upwards of 60 percent of their income to keep a roof over their heads.

Senator Edward Brooke (R-MA) remedied the situation by sponsoring an amendment to the Housing Acts in 1969, which capped rents at 25 percent of tenants’ incomes. The federal government covered operating shortfalls with subsidies. For reduced rents to be set, tenants had to disclose their incomes. It soon became apparent that public housing was not serving the poorest families with the greatest housing needs. In 1981, Congress acted again, reserving public housing for families earning half of the median income and reserving 40 percent of the units for families earning less than 30 percent of the median.  

The deterioration of the buildings was accelerating. This was because federal operating subsidies did not cover capital expenses and major systems (heating, lighting, elevators) began to fail. The federal fiscal austerity of the 1980s compounded problems by reducing operating subsidies. By the end of the decade the only reasonable response to the national crisis in public housing was widespread demolition.  

As the subsidies declined and our aging housing stock failed, a counternarrative emerged through which the residents themselves were blamed. The “culture of poverty” and “learned helplessness” became dominant memes. Poverty was viewed as a communicable disease rather than a symptom. The poor became convenient scapegoats bearing responsibility for the failure of their own shelter, as if any renters, poor or not, are expected to take responsibility for maintenance of their buildings. By concentrating the poor in public housing, we reinforced bad habits and transmitted values that perpetuated poverty across generations. This was supported by another dominant meme of the 1980s—the perils of big government. Big government was sloppy and inefficient, this narrative went (and still goes); the decline of public housing was the government’s fault.  

In the “HOPE” programs that followed—Homeownership and Opportunity for People Everywhere—many public housing projects were replaced with low-rise, mixed-income developments, typically replacing one affordable unit for three that were demolished. To stimulate additional rental housing production, the federal government created the low-income housing tax credit (LIHTC) in 1986. The program offered private investors a decade’s worth of tax credits in exchange for upfront equity investments—typically the hardest money to find—for housing production. States had authority over how to allocate the credits, and regulations mandated long-term affordability of the housing.

Importantly, the LIHTC program promised to overcome the two biggest failings of public housing. By attracting private investment, the efficiencies of the private sector would overcome dependence on inefficient big government. Second, location decisions could be delegated to state and local governments who could ensure that the housing production did not concentrate poverty. Moreover, competition for the tax credits would reduce their cost to taxpayers and eventually, the private sector would produce affordable housing without the need for subsidies.  

Some pundits consider the LIHTC program extraordinarily successful. Over three decades, more than 2.5 million units of housing were built. But through that period, we lost more affordable units from the national housing stock than we produced. Moreover, the promised private sector cost efficiencies never materialized. Depending on the year and the market, production of LIHTC units was estimated to cost 20 to 50 percent more than similar unsubsidized units. This does not even count the estimated $100 million spent annually to administer the program. 

Tax credits for equity from private investors came at credit card rates to taxpayers. And the costs went up when public capital was cheapest. During the Great Recession, tax credits were yielding average after-tax returns of 12 to 14 percent to investors when the federal funds rate was near zero and the 10-year Treasury yield was around 2 percent. The private sector never was weaned from subsidy dependence. Today, virtually no affordable rental production happens without tax credits. Finally, disappointingly, it is universally accepted that the production of tax credit housing exacerbated the concentration of poverty.  

How can the largest housing production program in the history of the nation, with broad bipartisan support, produce such disappointment? There are a lot of things I wish I didn’t know now that I (and we) didn’t know then—in 1999, in 1979, even in 1949.  

I wish I didn’t know that as good as we are at identifying big challenges and announcing ambitious responses, our commitment rarely survives economic challenges. We know now that simply building affordable housing is not sufficient for providing a decent home and a suitable living environment. One needs a sustainable model that maintains the buildings and preserves their affordability over time and builds where we need to—close to good jobs and schools.  

I wish I didn’t know that political support is evanescent, and memories are short. Ensuring that scarce subsidy reaches those who need it most is reasonable, but only if the subsidy is protected. The neediest are politically weak and not likely to marshal support to defend their entitlements. And when they try, they are easy to scapegoat.  

I wish I didn’t know that we spent tens of millions of dollars evaluating housing programs, but we haven’t learned very much. We counted units, acting as if the number produced is the only important measure of impact. Twenty years ago, one in four families who qualified for housing assistance received it. Today, it is one in five families. While the general wisdom says housing costs that exceed 30 percent of income are unsustainable for families, about half of renters pay more than 30 percent of their pretax income for rent, with 20 percent handing over more than half of their income.  

When do we take an honest reckoning of eight decades of effort to shelter our people? The complexity of housing challenges makes it impossible to learn anything from program evaluations. To learn, we need to reveal and commit to our intended outcomes, share the logic guiding our actions, and reconcile what we actually accomplish with our intentions. This is a learning model that we’ve embraced at the Lincoln Institute and I hope it can be applied more broadly to policy analysis in housing, community development, and philanthropy.  

Providing affordable housing for all is no easy task. The painful truths of eight decades of work are offered not as an indictment, but as an invitation to learn, and to think and act differently. We need to try new things and learn from them. That innovation might take the form of building apartments above public libraries, a trend we explore in this issue. It might mean forging unexpected partnerships, as public utilities and housing advocates are doing in Seattle. It might mean auctioning development rights or otherwise leveraging land value.  

We should aspire to the same ambition of the confident policymakers of 1949, committing to provide “a decent home and a suitable living environment for all Americans.” But we’ll need to try a lot of new things and learn from our mistakes. And if we commit to “searching for shelter again and again,” as Seger sings later in the same song, we just might get it done. 

Have your own example of “wish I didn’t know now what I didn’t know then”? A policy or program we could have, or should have, learned from? We hope to spotlight a few in an upcoming issue—send yours to publications@lincolninst.edu.

George W. McCarthy is the President and CEO of the Lincoln Institute of Land Policy.

Today, it’s hard to imagine the Burlington, Vermont, waterfront at its nadir as a crumbling wasteland, left for dead by the lumber and oil industries, and more likely to be frequented by rats than by residents or tourists. After a renaissance that began in the late 1980s, the neighborhood is now a civic booster’s paradise, with an expansive park, bike trails, a community marina, and science center on one side of tree-lined Lake Street, and hotels, shops, restaurants, offices, and a performing arts center on the other.

The revitalization is widely regarded as a success—Waterfront Park was the backdrop in 2015 for the presidential campaign announcement of Bernie Sanders, a former Burlington mayor who created the city’s Community and Economic Development Office—but it relied, in part, on a controversial economic development tool whose use in Vermont and across the country is being closely scrutinized. As policy makers in Vermont proceed with caution, their experience with TIF could be worth watching.

In 1985, with a nudge from Burlington city officials, Vermont’s legislature enacted a law allowing its cities and towns to use tax-increment financing (TIF), part of a wave of similar legislation in statehouses across the United States. Facing a reduction in federal aid and a citizens’ tax revolt, state and local leaders were drawn to a tool that could pay for economic development at no cost to taxpayers—at least in theory.

TIF functions by earmarking property tax revenues from increased real estate values in a defined district. Cities can use the revenue for development, whether public infrastructure or direct subsidies for private projects. However, as research has shown, TIF comes with hidden costs, from the loss of funds for schools and other local public services to a lack of accountability that can often lead to the questionable expenditure of tax dollars.

While many states have allowed TIF districts to proliferate with little constraint over the past few decades, active oversight by state policy makers has helped protect Vermont from some of the risks TIF critics have identified. However, Vermont policy makers have not yet answered a fundamental question about TIF: Does it truly stimulate new economic activity?

Bruce Seifer, who helped lead the economic development office in Burlington for three decades, believes TIF has been a tremendously useful tool. Beginning under the administration of Sanders, who was mayor from 1981 to 1989, Seifer and his colleagues worked to encourage development of locally owned businesses through loans, technical assistance, and many other programs. They also planned for the revitalization of the Lake Champlain waterfront.

In the 1990s, the city used TIF to reconstruct Lake Street and to build and expand parking garages to encourage commercial development. Since Burlington established this TIF district in 1996, the waterfront has been transformed and the value of real estate in the district has more than tripled, from $42 million to $130 million. Most tax revenues from the increased property value—everything above the original $42 million—are earmarked for waterfront and downtown infrastructure until at least 2025.

Seifer was wary of using TIF because of the inherent tradeoff it demands—every dollar earmarked for downtown infrastructure is a dollar that’s unavailable for schools, police and fire protection, or other public services.

“The last thing I wanted to do was use TIF money, because I wanted to rebuild the tax base,” Seifer said.

The city aggressively sought state and federal grants and used these funds for many projects.  But the city needed more funding and TIF was the best option on the table, Seifer said.

“If there are other funding mechanisms I’d rather use them, but if not, use the tool that you’ve got,” he said.

He believes the waterfront and downtown revitalization would simply not have been possible without the initial TIF investment, and says the new development has paid off for the city with other revenues, like hotel and restaurant taxes.

Research Raises Questions About TIF

Was TIF a make-or-break tool, without which the Burlington waterfront revitalization simply would not have happened?

It’s difficult to answer this question for any single project. But researchers have studied the overall effectiveness of TIF on a larger scale, by comparing economic activity in places with TIF to places that haven’t used the tool.

Last fall, in the largest evaluation of TIF’s economic impacts to date, University of Illinois at Chicago Professor David Merriman reviewed more than 30 studies that evaluated how thousands of TIF districts across a dozen states performed over many decades.

“Taken together, this review of the rigorous evaluation literature suggests that in most cases, TIF has not accomplished the goal of promoting economic development,” Merriman wrote in the study.

Last year, at the direction of the legislature, Vermont’s Legislative Joint Fiscal Office published a study that examined the performance of the state’s 10 active TIF districts. Comparing projected TIF revenues against revenues under a hypothetical scenario with no TIF, the study projects that from 2017 to 2030 TIF will cost the state about $68 million in school revenue (Vermont has an unusual statewide funding system for schools), and cost municipal general funds a total of $43 million, although it didn’t account for non-property tax revenues. It concluded that the economic benefits of TIF are uncertain.

The Vermont Economic Progress Council, which oversees TIF in the state, disputes the findings, arguing that the study underestimates how much development occurs because of TIF. But Tom Kavet, the state economist for the Vermont Legislature, argued the opposite—that all the development in question would have occurred somewhere in Vermont, even without TIF.

Graham Campbell, lead author of the Joint Fiscal Office study, presented the results at the Lincoln Institute conference Economic Perspectives on State and Local Taxes this spring. In an interview, he said the study would have had to be exceedingly optimistic about TIF to show a positive impact on state and local budgets.

“Whether or not the study’s numbers are dead-on, you essentially have to go to the extreme to get TIF to be a benefit, at least fiscally,” Campbell said.

Vermont Shows What Strong Guardrails for TIF Look Like

Despite the recent findings, Vermont’s cities and towns are still bullish about TIF. But the state is hedging its bets by enforcing some of the strictest limitations on TIF in the country.

First, the state limits the number of TIF districts that can be created and the length of time they can exist, and it requires each new district to be approved by the Vermont Economic Progress Council. Today, fewer than a dozen TIF districts have formed in Vermont, although the legislature recently authorized a half dozen more. By contrast, North Dakota, which has a similarly sized population, has created more than four times as many districts.

Second, Vermont restricts the use of TIF revenue to public infrastructure in downtown areas only, unlike many other states that allow TIF to subsidize private development, without geographic restrictions. Third, it requires TIF districts to deliver at least one of three specific public benefits—affordable housing, cleanup of a brownfield site, or new transportation capacity. Fourth, unlike many states, Vermont requires approval from voters for a TIF district to borrow against future tax revenues.
                                                                     
Finally, the state posts background information and annual updates on every TIF district online, in contrast with many states where there is no information available to state agencies—let alone the public—about where TIF districts are located, how many there are, or how the funds are being spent. These state laws will at least allow Vermont policy makers to monitor TIF over time, limit its use, and make adjustments.

“Vermont has a very well set-out program compared to other states,” Campbell said. “But with TIF, it’s a low bar.”

Vermont’s TIF laws are the result of compromise. Many cities would like the state to loosen its restrictions on TIF, but some policy makers worry that TIF simply transfers development from one part of the state to another, at the expense of Vermont’s public schools. In the most recent major update to the state’s TIF laws in 2017, the Legislature voted nearly unanimously to allow the six new TIF districts, while at the same time tightening restrictions on where and how TIF can be used and requiring ongoing evaluation and reporting by the Joint Fiscal Office and other state agencies.

Three cities have already laid claim to new TIF districts, leaving room for only three more.

Campbell and others will be keeping a close eye on what comes next. “Once we get to the point where other municipalities are pushing for TIF beyond those three,” Campbell said, “it will be a much more intense discussion about whether the program itself is doing what it seeks to achieve.”

Will Jason is associate director of communications at the Lincoln Institute. 

Photograph Credit: Splash at the Boathouse