When rent seeking smacks you in the face: tif and motivated reasoning

This article is a substitute for the Fellows Address that I did not get to present at the 2020 Southern Regional Science Association (SRSA) Conference due to the COVID-19 pandemic Regional science research typically addresses real world problems in hopes of guiding better policy decisions Why is it, then, that economic development plans often fail to reflect best practices? What do you do when you find that your own community is about to buy into a terrible plan? In this address, I share my observations and experience with a Tax Increment Financing (TIF) development plan implemented in Norman, OK I point out how motivated reasoning leads policy makers to seek reasons to approve a plan rather than to evaluate if a plan is good To make a meaningful impact on public policy decisions, scholars will need to step out of their comfort zones and engage in – sometimes contentious – community outreach education © Southern Regional Science Association 2020


INTRODUCTION
The role of regional science scholars in guiding public choice decisions is not often discussed. Peter Schaeffer (2009) explains why we should pay more attention to ethical issues in regional economic development. Rule-making questions are ethical issues because they concern the distribution of costs and benefits of public decisions. Dan Rickman echoes this sentiment when he talks about providing "speed bumps" on the road to bad ideas (Elliot, 2013).
There are many areas in which regional scientists have the knowledge needed to inform policy. Further, regional scientists are uniquely qualified to petition policy makers and the public for change, as Michael Lahr (2020) notes when he calls for colleagues to focus attention on persistent poverty in Appalachia. Stopping bad policy proposals or changing current ineffective policies, however, is not as simple as publishing a white paper or giving testimony at a public meeting. Does advocating for research-informed policy extend beyond being a (passive) source of good information to (actively) confronting misinformation?
What if your community was going to make a major policy decision based on misinformation and faulty economic arguments? That is the question I found myself confronting. My story has to do with a tax increment financing (TIF) district created in Norman, Oklahoma. TIF is a mainstay for local governments across the country. The pitfalls of TIF are well known inside and outside the academic literature: the popular media and prominent policy organizations are prolific with their warnings. Yet, local decision makers continue to be seduced into ill-advised plans.
In 2005 I was unaware of the TIF plan in Norman, Oklahoma. A phone call from a political science colleague and my Norman City Council representative, Cindy Simon-Rosenthal, changed that. "Surely you are aware," she began as she explained the TIF plans. I was not. After a quick review, I was stunned by the glaring deficiencies in the plan (Rogers, 2007). Further, the more I understood the TIF activities, the more I realized that motivated reasoning was at play.
Motivated reasoning occurs when decision-makers seek to justify claims they antecedently find attractive. When confronted with a position they don't like, a motivated reasoner adopts a high standard of evidence: must I believe this? When considering a favorable claim, a motivated reasoner adopts the much weaker standard: can I believe this? Focusing on "can I believe this will work out?" rather than "is this a good plan?" leads to misguided policy decisions. If we seek to inform policy in a meaningful manner, then we need to be prepared to encounter and then counter motivated reasoning.

TIF PLAYS A PROMINENT ROLE IN ECONOMIC DEVELOPMENT POLICY
Virtually every local government in the country wrestles with how to promote economic growth and generate revenues to provide for desired public goods and services. Regional scientists are particularly well suited to offer analysis and guidance on economic development policy. As Peter Schaeffer (2009) notes, it is not surprising that a majority of regional science research addresses economic development concerns. The disconnect between economic development in practice and recommendations based on the academic literature is well known. Wisconsin's deal with Foxconn Technology Group (Foxconn) is a prominent example of incentives gone wild, costing an estimate $3.6 billion in tax subsidies (Mitchell et al., 2019). 1 By most accounts this deal appears to have been a complete phony. For instance, in January of 2002, Foxconn laid off the over 500 workers it had hired at the end of 2019 to qualify for maximum state capital tax credits (Murphy, 2020). Whereas the cost of this deal is huge, it is not an isolated case of a deal gone wrong.
Why do cities continue to buy snake oil prescriptions for economic development (Fisher et al., 2012)? Clearly, willingness to make bad deals is not always from a lack of knowledge or understanding of regional economic growth and development processes. Many have recognized the political realities associated with ribbon cutting syndrome and the political clout gained from showcasing deals (Farmer, 2018). Sanders (2014) points out the role of consulting firms which produce marketing research, often with grossly inflated economic impact estimates. The availability of local financing tools, particularly TIF, has amplified these influences and contributed to the increased number and value of incentives deals.
TIF is an increasingly prominent tool used by U.S. local governments to encourage economic development. TIF plans are distinctly place-based: they target public investment in a designated geographic area, one that is supposed to be blighted or faced with impediments to development. TIF projects are justified -legally, anyway -by claims that development would not occur "but for" the public spending on infrastructure or amenities in the targeted area. Authorized project costs are financed through capturing some or all of the growth in taxes collected in the designated project area (the increment). See Dye and Merriman (2006) for technical details.
TIF is an alluring tool for local governments. TIF expenditures are commonly financed using debt backed by future increment revenues. TIF bonds are not backed by the full faith and credit of the TIF City and allows cities to incur long term debt without issuing general obligation bonds tied to local taxes. Part of the popularity of TIF in the 1980s and 1990s was attributed to rising voter opposition to new taxes (Marks, 2005). Today, TIF is a mainstay of local economic development and are authorized in 49 states and District of Columbias (Kerth and Baxandall, 2011;Council for Development Finance Agencies, 2015).
There are many concerns about the use of TIF for local economic development, including impacts on overlapping jurisdictions like school districts and other special taxing jurisdictions. School districts have little or no say in whether a TIF project diverts their school tax revenues. Negative spillovers on non-TIF areas are also a concern, particularly if TIF funds are used to subsidize activities which compete with businesses outside the TIF boundaries. Cannibalization, for instance, is a particular concern for TIF projects involving retail stores, commercial office space, and new bar or entertainment districts.
Even when completed as planned, TIF projects may fail to generate net new economic activity for the community as a whole. TIF may fail the "but for" test and be used for projects that would have been completed, or perhaps just taken longer for completion, without the public expenditure. The obvious new activity in the TIF area may mask losses in non-TIF areas. Another problem is that public investments occur up front and private partners may not be held accountable for delivering on promised jobs, new business activity, or tax base growth. Clawback protections can be difficult to enforce and may involve costly litigation.

THE UNIVERISTY NORTH PARK (UNP) TIF
With a 2019 population of about 124,880, Norman lies 10 miles south of Oklahoma City in the south central part of the Oklahoma City Combined Metropolitan Area. 2 Norman's employment is dominated by the public sector with the top three employers being the University of Oklahoma (12,941), Norman Regional Hospital (3,040), and Norman Public Schools (1,806). 3 Given its location and size, the City of Norman functions as a regional center for retail shopping for communities to the south, west, and east (Burge and Rogers, 2016;Canyon Research Southwest, INC, 2008). The City is heavily dependent on sales tax revenues for general fund expenditures due to state limitations on local revenue sources.
The University North Park (UNP) District encompasses a 580-acre tract of previously undeveloped land along Interstate 35 in northwest Norman. The area is adjacent to the Max Westheimer/University of Oklahoma airport and is subject to Federal Aviation Administration (FAA) restrictions. In 2001, the Federal Aviation Administration reclassified the airport which removed most restrictions on development. 4 The University of Oklahoma then sold the land to the OU Foundation which became the developer of the property. The City approved the UNP planned unit development for the District in August of 2002.
Following the typical developer-initiated pattern, the OU foundation approached the City of Norman in the summer of 2004 seeking financial assistance for infrastructure costs of the proposed development plan. On May 23, 2006, the City Council passed an ordinance (O-0506-66) creating the UNP TIF in a 5 to 4 vote. The UNP TIF Master Plan authorized spending of up to $54.7 million over the life of the TIF on roadways and traffic improvements ($13,475,000), a City park with a fountain and enhanced landscaping ($8,250,000), reimbursing costs for a lifestyle center with high-end retailers ($8,250,000), a conference and cultural facility ($16,500,000), and economic development incentives ($8,250,000). The master development plan was implemented through a series of amendments which detailed specifics of the components and created contractual obligations.
With the lifting of most FAA restrictions, there were no impediments to developing the UNP District. Located along a major north-south route on the NAFTA corridor, the UNP area was described as prime land along the fastest growing corridor in the metro area. 5 "Developers said the area would still develop if there is not a TIF for the area, but it would be over a much longer period" (Cole, 2006a). Instead, the claim was that the TIF was needed to make the development "spectacular." The strategy was to use a retail power center anchored by a Super Target store to generate traffic. The power center traffic would then make way for a magnet shopping district with high-end retailers and a unique experience for the shoppers. Available at selectnorman.com/major-employers, downloaded 11/3/2020. 4 See the City of Norman 2020 Budget (page xvi) for a discussion of the evolution of the UNP TIF plan (City of Norman, 2020) 5 Spanning from Laredo, Texas to Duluth, Minnesota, I-35 connects major cities, including San Antonio, Austin, Oklahoma City, Wichita, Kansas City and Des Moines. 6 See Canyon Research Southwest, INC (2008) for a discussion of power center and lifestyle center concepts.
Council was informed that "spectacular" was not going to happen here." 7 The recommendation from the Cititzen's TIF committee (City of Norman, 2005) notes that economic and demographic conditions in Norman do "not support creation of high-end or unique destination that is market driven (pg. 6)." Norman lacked both the density and affluence to support the top-tier retailers which the OU Foundation was dangling as an enticement. Being on the edge of the MSA further dilutes Norman's potential for high-end, large market-area retailers, which would be drawn to more central locations in the metropolitan area.
To date, not a single inch of the promised "spectacular" lifestyle center has been built. The 2008 recession was blamed for this despite continued growth in retail sector in the UNP TIF. In fact, the UNP TIF has outperformed area-specific revenue and traffic generation projections. (Cannibalization, however, is another issue -see below.) Why did Norman City Council approved a plan with the goal of creating a retail magnet despite being aware that this objective was not feasible?

A CASE OF MOTIVATED REASONING
Motivated reasoning provides a good explanation for why public servants who are basically well-intentioned are seduced to approve dubious economic development plans. There are, of course, other possible explanations for why public officials would ignore best practices: fraud and other self-serving interests come to mind. However, I would like to focus on situations where individuals believe they are making good decisions, even when evidence suggests otherwise. One sort of motivational reasoning particularly relevant for policy making involves the way individuals establish standards of evidence they apply to their belief formation processes (Gilovich, 1991). As philosopher Guy Crain explains, if someone evaluates a claim they like, they ask "can I believe this?" 8 This is a low bar for evidence in support of the thing they want to affirm. On the flip side, individuals set a high bar for evidence against what they want to be true.
In the UNP TIF case, City Council members in favor of the UNP TIF project sought some justification for believing that the TIF project would benefit the city. They repeated claims from the OU Foundation representatives -often quoting -that the development would be "spectacular" despite being advised by their own consultants that "spectacular" retail was not feasible. An OU economics professor provided projections of the UNP increment growth, projections which assumed that all the components would be completed as planned, on schedule, and without any cannibalization of existing retail in the City (Holmes, 2005). These increment revenue projections were falsely interpreted as economic impacts (net new activity) for the City as the whole. Further, there was no mention of the extensive body of research on incentives and the potential pitfalls.
Motivated reasoning also led City leaders to seek a way to believe that cannibalization was not a concern. The City contracted with Canyon Research Southwest, INC (2008) to study the impact of the UNP TIF district for the period from February 2006 through December 2008. The analysis showed the City's continue growth in sales taxes before and after the activation of the UNP TIF but failed to account for the counterfactual growth. Notably, it did not control for the growth in the regional economy as a whole. Norman's growth pattern largely falls in line with the rest of the metropolitan area, as one would suspect. Whereas TIF supporters pointed to the study as a reason to believe that cannibalization was not occurring, they ignored the study's recommendations to modifying transfer adjustment process to better account for store relocations.
Motivated reasoning was also used to downplay potential transparency and accountability concerns. There was a misallocation of funds associated with the City's first TIF: funds went to the general and capital funds instead of TIF account. Supporters expressed confidence that the City's second TIF, the UNP TIF, would get careful scrutiny (Cole, 2006b). The creation of the UNP TIF oversight committee proved to be insufficient. For the ten-year period from 2008 to 2018, tax revenues were over-apportioned to the UNP TIF fund, shorting the City's capital and general funds by a little over $5.5 million (City of Norman, 2019). TIF supporters provided a reason so that they could believe that the City had adequate financial oversight in place, but the misallocation still occurred. 9

OPPOSITION TO PROPOSED ARENA PLAN
Ten years into the TIF plan, the lifestyle center was still a pipe dream and the deadline for building the lifestyle center to avoid paying an $8.3 million penalty was looming large. There was a glaring flaw in the TIF contract: the developer could build empty shells to avoid the 'clawback' if the City tried to enforce it. This lead to a contract amendment in April of 2016 which extended the deadline by an additional 5 and a half years. In return for the extension, the City added enhanced performance requirements for the developer to qualify for $8.25 million in incentives to cover the costs of building the high-end lifestyle center.
At this point the OU Foundation/UNP, LLC needed to make an alternative plan to avoid the 'clawback' penalty. In September 2017, the OU Foundation began pushing for a revised master plan that included a 10,000 seat basketball/multi-event arena, an entertainment district, parking garage, a county fairgrounds/multi-purpose facility, and additional roadway and traffic improvements. The public cost would be $124 million. The City would not own or operate the arena. OU would rent it for home basketball games and keep its aging on-campus arena for other uses. The OU Athletics department expressed support.
The OU Foundation obtained multiple reports so that a council member "could" believe that the plan was beneficial to the City. The Center for Economic Development Law, influential TIF consultant in Oklahoma City, was brought in to organize the lobbying campaign. Convention Sports & Leisure (2018) provided a feasibility study. An OU Business School Professor provided estimates of sales and property tax revenues from the proposed development (Dauffenbach, 2018). The Oklahoma Department of Commerce (2018) provided employment projections based on Dauffenbach's estimates of revenue impacts. These reports were used to promote the plan to the public using social and print media which included quotes from the mayor touting the merits of the plan.
Frustrated by the failure of the UNP developers to deliver on the promised lifestyle center, some members of the public were leery of expanding the project for a basketball arena, particularly given the growing long-term City budget imbalances. By 2018, the projected diversion of general fund revenues to the UNP TIF was over $5.6 million, which represented over 10 percent of the City's general fund revenues. 10 Two candidates ran successful City Council campaigns based on end-the-UNP-TIF platforms. One created and distributed yard signs throughout the community.
It was obvious that the scheme was being oversold and that the supporting reports were severely flawed. The projections did not account for the fact that the OU basketball games were already being played in town so any net increase in attendance and spending was likely to be significantly smaller than projected. (The proposed arena was actually smaller than the Lloyd Noble Center, where OU was and is still playing.) More importantly, the new arena would shift game-related activity away from existing restaurant/bar districts in town. The projected returns on investment were inflated with impacts from other parts of the project, including new housing developments. Motivated reasoning led to the acceptance of reports supporting the project even those these did not provided estimates of economic impact on the community as a whole.
I took an active role in educating council members and the public about the flaws in the arena proposition. Perhaps my most crucial contribution was providing a report which applied more realistic assumptions to the revenue-estimate framework provided by Dauffenbach (Rogers, 2018). I demonstrated, in particular, how allowing for some cannibalization and removing double counting of the spending impacts of new residents greatly changed the estimated revenue impacts. Further, I did some simple data trend analysis which suggested that cannibalization was a serious concern, despite protestations to the contrary (see Figure  1). I also proactively "invited" myself to present my critique to the TIF oversight committee to get my analysis in the public record. Colleagues from various disciplines as well as nonacademic City residents collaborated with me to create informatics and to strategize public messaging. I participated in several public forums, wrote letters to the editor for the local paper, and created a social medial page and a blog with information and analysis.
With growing public opposition, City Council postponed the vote on the arena plan during the June 26, 2018 council meeting. At the study session immediately prior to the Council meeting, HVS Convention, Sports, & Entertainment Faculties Consulting consultants presented its review of the four UNP development studies submitted to the public record: Convention Sports & Leisure (2018), Dauffenbach (2018), Oklahoma Department of Commerce (2020), and Rogers (2018). HVS Convention, Sports & Entertainment Facilities Consulting (2018) concluded that none of the studies had analyzed the economic impacts or fiscal impacts of the project and validated several of the concerns I had expressed about the developer-supplied reports. When the item came back to council on July 24, 2018, the OU Foundation withdrew the plan but expressed its intent to continue to pursue the plan going forward.

A BAD ENDING
The month after the arena plan was withdrawn, City Council considered ten options to end the UNP TIF tax diversion. These ranged from eliminating projects (cultural facility) to lowering the UNP apportionment -the share of the tax revenue generated in the TIF District that goes to UNP projects. In November 2018, Council voted to convene the UNP TIF Statutory Review Committee to consider ending the TIF as soon as possible. The Committee did not meet until the following April. During the interim, the OU Foundation threatened to sue the city if it tried to end the increment early. The contours of the legal threat have never been made public -the City Council effectively 'cloaked' them by only considering them in Executive Session. They also made a new pitch to direct more public spending in the UNP TIF. This one concerned placing three Norman Forward projects in the UNP boundaries. Norman Forward is a special sales tax program which pays for quality of life amenities, including libraries, parks, and sports facilities in the community.
The City entered into a Memorandum of Understanding (MOU) with the OU Foundation and the UNP developers to negotiate in good faith to end tax apportionments to the district by June 30, 2019. The MOU included proposed terms. The City Council passed a fiscal year 2020 budget under the assumption that the TIF diversion would end as of June 30, 2019, thus, redirecting the UNP increment to the general fund. Motivated reasoning surely ©Southern Regional Science Association 2020. came into play, Council wanted the apportionment to end and the negotiations to work out amicably.
The proposed terms were extremely one sided, giving up public protections, increasing public spending on TIF infrastructure costs, and required almost no commitment for additional private investment. The developer was released from the $8.3 million 'clawback' associated with failing to build the lifestyle center. The developer was also offered $5 million in incentives to cover costs of new-to-Norman entertainment use with no performance requirements -this was an alternative to the original Master Plan's $8.3 million in incentive that required the developer to meet high (unattainable) performance requirements. Under the new terms, a qualified entertainment venue was not even required to open for business and no private spending match was needed.
I am happy to say that my Economics Department colleagues joined me in public outreach efforts. Facilitated by a local resident, three of us created a short video explaining how TIF works as well as the nature of the proposed changes to the UNP TIF. Five of us signed a letter to the City Council advising against the deal. This was published in the local paper. Three of us showed up at City Hall to comment at public meetings.
A little after midnight on November 27, 2019, Council approved the 2019 Amended and Restated UNP TIF Plan in a 5 to 4 vote. Surprisingly the two council members who were elected on end-the-TIF platforms were among the 5 who approved the plan. Some Council Members tried to argue that it was a good plan despite the testimony and input from five OU Economics faculty members which disputed this claim. Others motivated their decision by saying that the OU Foundation would sue if the City did not approve the terms outlined in the MOU.
There was plenty of doubt about whether a council member "should have believed" it was an acceptable deal. Lex Holmes, one of the four economists who joined in outreach efforts, was the State of Oklahoma Budget Director when the Local Economic Development Act was passed. He argued that the City did have legal authority to change a TIF plan. Further, Holmes' estimates were used to support the approval of the initial UNP TIF plan in 2006. Ultimately, the threat of a lawsuit by the deep-pocketed and aggressive OU Foundation lawyers provided an answer to the question: "can I believe" this is a good decision.
This was not the end of the UNP TIF story or my involvement. With a lot of encouragement from upset and frustrated residents, Stephen Ellis, an OU Philosophy professor and my husband, filed a referendum petition with the City Clerk on December 6, 2019. This was my first step into direct action policy making. With the help of 50 neighbors, we collected over 4,000 signatures in 17 days. This met the threshold to get the Amended UNP TIF plan up for a vote. The referendum was challenged by four former mayors as being deficient on technical terms. The District judge ruled that the gist, the short statement of the purpose of the referendum included with the signature packet, was not adequate. Ellis appealed the decision. The appeal was delayed due to COVID-19. On June 15, 2019 the State Supreme Court rejected the petition on the grounds of an insufficient gist statement. 11 This still, however, was not the end of the UNP TIF story. The 2019 Amended and Restated UNP TIF Plan called for constructing a multisport (basketball/volleyball) gym and indoor competitive pool complex in the UNP District to serve as a regional draw (in place of the developer built lifestyle center). The gym and pool groups were not satisfied with the $22.5 million in the Norman Forward fund budget and requested a budget of $59 million. Other community groups wanted expanded project budgets as well. City Council put four general obligation bonds up for vote on August 25, 2020, during the COVID-19 pandemic. Proposition one was for an $85.6 million expansion in Norman Forward projects, including an extra $37 million for the multisport gym and pool to be located in the UNP TIF District. Voters rejected all four bond propositions put on the ballot.
As of June 30, 2019, the City stopped appropriating tax revenues to the UNP TIF Fund. The TIF will remain active until all of the funds are spent. It remains to be seen, however, if the OU Foundation will approach the City yet again seeking more public spending in the UNP area. You can bet that residents remain vigilant.

CONCLUSION
In this essay I have argued that to effectively influence policy, regional scientists need to recognize how motivated reasoning can lead to bad policy outcomes. Answering the question, "can I believe this is a good decision?" is a far cry from answering the question, "should I believe this is a good decision.' It is no surprise that TIF backed local economic development deals are susceptible to inflated promises and bait-and-switch tactics as occurred in the UNP TIF experience.
Local economic development plans funded with TIF circumvent public scrutiny by allowing cities to borrow without a public vote, without reporting requirements of grants or matching programs, and without a framework for auditing revenue and expenditure flows. The parties involved in creating and implementing TIF contracts face no consequences for ill-conceived deals. Local elected officials are not likely to remain in office for the life of TIF projects. Paid consultants face no recourse if estimates turn out to be wildly inflated (Sanders, 2014). Similarly, TIF bond lawyers have an incentive to broker deals but face no repercussions if projects do not work out as planned. Requiring a public vote on TIF plans would lead to increased transparency and allow for more public scrutiny.
In other work, my co-authors and I have suggested an approach for confronting the political economy influences of economic incentive giveaways (Ellis et al., 2014). Specifically, we suggest that the duty of care standard used in corporate governance could be applied to the public decision-making regarding economic development incentives. Using this frame, public officials would be legally required ask the right questions and look at the right sort of evidence when evaluating a TIF plan (or other economic development incentives). This would pressure decision-makers to focus on the question, "have I done my due diligence?" Regional scientists, might ask the same of ourselves as scholars with relevant knowledge and skills about a wide range of economic development policies. Have I done my due diligence to engage policy makers and the public about a policy? Engagement can come in many forms, but no matter the form it requires appealing to general audiences. Messaging using infographics and visually appealing materials are vital for impact. Letters to the editor need ©Southern Regional Science Association 2020.
to be written for lay audiences. It is essential to find community collaborators to help with outreach and messaging.
If you decide that you are willing to assume an advocacy role, be prepared for backlash. Advocates for special interest projects do not play by the usual academic rules of peer review, evidence backed arguments, and keeping it civil. "If you don't like the message, shoot the messenger" is a common strategy. Those of us with tenure are in a unique position to advocate for research-informed policy. We are protected from some of the backlash in ways that local business owners and non-academic employees are not. This privilege also creates an obligation to speak up.