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Every Village a Republic

This Tax Increment Financing (TIF) designated community in Atlanta’s Westside now boasts a $1.6 billion stadium — and a 49 percent poverty rate. 2020.

Article I, Section 10 of the US Constitution prohibits states from interfering with trade or inhibiting free commerce. But over the last half-century, we’ve witnessed the transfer of what some call tyrannical powers from the federal government to local governments.

Tyranny, large or small, is undesirable, and for all its benefits, decentralized government comes with the real danger of local tyrannies. Local special interests regularly form factions, motivating canny local legislators to work around the Constitution’s guarantee of free trade between the States.

In theory, the federal structure laid out by the Founders is designed to provide checks against state tyrannies. Historically, the federal government has acted to defend some of our most important freedoms, including freedom to move between the States and our freedom from interstate barriers to trade. But reality is always messier than theory.

Interstate barriers to trade are rampant in the United States. One of the silliest examples is the ‘60s and ‘70s Texas law (thankfully no longer active) that kept Florida-grown grapefruits out of the Lone Star State… because Florida grapefruits didn’t contain enough sugar. More harmful are labor certification and licensing laws, which raise the barriers for doctors, teachers, and other professionals to leave one state and work in another. Weaving through the Byzantine complex of administrative barriers to trade between the States brings to mind the prosperity-killing internal tariffs of early modern Europe, a phenomenon the Framers were trying to avoid.

It’s not just the States. Many communities assert their independence and erect barriers to trade by legislating protectionist policies to favor certain businesses. The most popular “urban renewal” tool in our era of decentralization exemplifies such cronyism. Tax Increment Financing (TIF) has become almost ubiquitous. Originating in response to the federal government’s shift away from direct investment in urban renewal projects during the 1950s and ‘60s, it works like this: an area of a city receives a TIF designation, and those property values get reassessed. Then, any tax revenue increases get set aside to pay for “public” development projects for the lifetime of the district. TIFs provide purportedly self-financing methods for a local government to make improvements and are incredibly popular in the United States, with more than 10,000 active districts in the country (three times the number of counties).

What do TIFs actually accomplish? Not much good. Setting aside the instances when TIFs have been used to finance morally fraught, financially disastrous projects like the New London Development Corporation’s theft of Susette Kelo’s home, TIFs provide a marvelous tool for cronyism. Economists from UIC explored the effect of TIFs on economic development and found their use often precipitates declines in economic growth. If the main effect of TIF districts is to attract and relocate investment that would have happened elsewhere in the same city, who benefits?

Researchers at the Department of Urban Planning and Policy, University of Illinois, point out numerous examples of real estate agencies working both sides of a TIF deal – consulting for the municipal planners and the developers at the same time. “Although the use of consultants is necessary to access expert knowledge, an increasing reliance on them can raise conflicts of interest – particularly when they play both sides of the deal.” Equally troubling is the pattern of politicians favoring their friends and campaign donors with handouts in the form of lucrative TIF deals.

Article I, Section 10 might protect local communities from federal abuse, as intended by the Founders, but offers no tools to simultaneously protect ourselves from local tyrannies. Our current system fails to meet a key challenge of decentralized government: the explicit protection of our rights at both federal and local levels.

We have no easy answer to that challenge, but we do have a difficult answer: constitutions. The US Constitution has been relatively successful at protecting the rights of American citizens. Imagine the US without a Federal guarantee of freedom of movement and trade between the states! Reflecting on the model laid out by Hayek in The Road to Serfdom and by Gordon and Tullock in The Calculus of Consent, we need constitutional rules for government behavior. The problems with our current federal system lie in too little enforcement of the Constitution we have, not the absence of rules to enforce. To protect us from tyranny, all three branches of the federal government need to dutifully uphold their constitutional oaths.

But constitutional protections cannot stop at the federal level. We the People, in order to defend our rights from local incursion, must limit the power of local governments with local constitutions, just as the Founders did at the Federal level.

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