How Tax Increment Financing Can Help Your Community

How Tax Increment Financing Can Help Your Community

By Bill R. Shelton, CEcD 

Tax increment Financing (TIF) has become a viable and forceful tool in many community economic development programs. TIFs originated in California in the early 1950s to combat what was then called urban blight. In subsequent decades every state except Arizona has adapted and used TIFs in one form or another. 

According to the Urban Land Institute (Urbanland Magazine, June 9, 2014): “Today, depending on the state, TIF supports everything from expanding housing to attracting manufacturers to industrial zones, including provisions for job training in some states. In most states, TIF must be used for public purposes, such as infrastructure; other states allow, and even encourage, TIF in supporting private development costs, such as those for rehabilitating existing buildings or subsidizing interest on loans for new construction.” 

Why do local governments use TIF?

TIFs are governed by state laws but implemented by municipal governments. However, they also may be implemented by county governments or economic development authorities. Today TIF helps local governments achieve a variety of economic development goals and has become recognized as a flexible, all-purpose financial tool. 

Unlike many other financial tools, TIFs do not require a tax rate increase, new taxes, fees or assessments. Rather TIFs use existing taxes at existing rates. 

TIFs fit easily into established economic development programs because they are market-oriented and aimed at inducing or retaining investment by the private sector.

TIFs are versatile and can be adapted to many uses. They can be created in central business districts, a few square blocks, manufacturing zones, small towns, suburbs, or decommissioned military bases. 

“By capturing future incremental revenues, the local government is able to undertake economic development activities or provide subsidies that otherwise might not be possible.” (Government Financial Officers Association, Elected Officials Guide to Tax Increment Financing) 

How are TIF generated funds used?

Since their inception, TIFs have evolved from being used for renewal or redevelopment of what was considered depressed areas to being a more generally public investment and infrastructure financing tool. 

TIFs support public infrastructure, land acquisition, site clearance, environmental remediation and other programs that generally reduce developers’ upfront capital costs. 

Marion, Indiana, a city of 31,000, is located between Indiana’s two largest cities – Indianapolis and Fort Wayne. Using three TIFs to assemble, clear land plus put in needed infrastructure including access, Marion was able to attract three retail and multi-use developers by making the market-ready sites available. 

Although state laws differ, TIF-generated funds can generally be used for these purposes:

Installation, upgrade or repair of public infrastructure 

  • Streets and sidewalks 
  • Water lines 
  • Sanitary sewer lines 
  • Electrical lines 
  • Street lights 
  • Bridges 
  • Fire protection lines and hydrants 
  • Parking lots and garages 
  • Site grading and earth works 

Paying for the following services 

  • Engineering fees 
  • Environmental remediation 
  • Construction period interest 
  • Cost of issuance 

There is no notational directory of TIF districts but both the number of districts and the uses of TIF-generated funds have proliferated and today TIFs are a crucial component in most community economic development programs. They play a vital role in the funding and operations of public-private partnership development projects.