Tax Increment Financing

"Tax increment financing (TIF) allows cities to create special districts and to make public improvements within those districts that will generate private-sector development. During the development period, the tax base is frozen at the predevelopment level. Property taxes continue to be paid, but taxes derived from increases in assessed values (the tax increment) resulting from new development either go into a special fund created to retire bonds issued to originate the development, or leverage future growth in the district.

"A tax increment financing district is created by the adoption of a plan for redevelopment and a TIF plan. The assessed value of the property within the district is then determined according to the last tax roll and represents the "original" (pre-redevelopment) assessed value of the tax increment district. Each of the taxing jurisdictions (municipality, county, school district, and special taxing jurisdiction) continues to receive its share of the taxes collected on the assessed valuation that represents the original assessed value, just as though the district had never been created and there had been no change in the assessed valuation of the area. When the original assessed value of the district has been certified, the municipality may begin the redevelopment and the tax increment financing process.

"The tax freeze lasts for a defined period of time, as set forth in the redevelopment plan. At the end of that period, taxing jurisdictions finally enjoy the benefit of increased property values.

"Typically, a locality issues bonds to purchase or acquire by eminent domain several parcels of blighted property, clears the land, prepares it for sale by installing water and sewer improvements as needed, and sells or gives it to a developer at less than the locality's cost. This is known as a land writedown. The bonds' principal and interest are paid by the tax increments, which are dedicated to that purpose.

"...Redevelopment in a TIF district is usually required by statute to follow a comprehensive plan, and thus avoids the problem of assorted development efforts creating a patchwork quilt.

"A community using TIF financing does not lose the tax revenues that were being collected before the development program. In fact, it is possible for taxing jurisdictions to increase their millage rates during the increment period, thus increasing gross tax revenues."¹

1. Private redevelopment would not occur without the stimulative actions of the redevelopment agency. In effect, the redevelopment agency earns its revenue through planning, land assembly, and public works.
2. The tax base in the redevelopment district was in fact stagnant or declining, and the tax increase would not have occurred but for the public expenditures of the redevelopment agency. Healthy areas that grow and develop without the intervention of the TIF do not need tax revenues diverted to a redevelopment agency. Where TIF is necessary, it will cause an increment that the taxing authorities would otherwise not have realized.
3. The taxing authorities that give over their increment for a number of years will eventually receive the revenues of a larger tax base. It is not unusual for a state to limit the TIF period to 15 to 30 years.²

1. Prepare a finding of necessity, and establish the boundaries of the district. This finding is normally a very detailed study that demonstrates that the district meets the criteria contained in the state's enabling legislation.
2. A redevelopment agency is created by resolution or ordinance. This agency may be the governing body of the municipality, or it may be a new agency appointed by the governing body.
3. A development plan is prepared and approved by the agency and the city.
4. The base year is declared following adoption of the plan.
5. The redevelopment agency will solicit developers and enter development agreements.

¹ Nancy L. Minter. "Tax Increment Financing." Urban Land. May 1991. p. 38.
² From "Tax Increment Financing." Tschangho John Kim, Clyde W. Forrest and Karen A. Przypyszny. Planning Advisory Service Report Number 389, American Planning Association. 1985. p. 2.
³ Ibid.

Suggested other pages...

Revitalization Strategies	Functional Strategies