TIF District

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Tax Increment Financing, or TIF, is a tool which has been used for redevelopment and community improvement projects throughout the United States for more than half a century. With federal and state sources for redevelopment generally less available, TIF has become an often-used financing mechanism for municipalities. Similar or related approaches are used elsewhere in the world. See for example, Value capture.

What is tax increment financing?

TIF is a tool to use future gains in taxes to finance the current improvements that will create those gains. When a public project such as a road, school, or hazardous waste cleanup is carried out, there is an increase in the value of surrounding real estate, and often new investment (new or rehabilitated buildings, for example). This increased site value and investment creates more taxable property, which increases tax revenues. The increased tax revenues are the "tax increment." Tax Increment Financing dedicates that increased revenue to finance debt issued to pay for the project. TIF is designed to channel funding toward improvements in distressed or underdeveloped areas where development would not otherwise occur. TIF creates funding for public projects that may otherwise be unaffordable to localities.

Today 49 states and the District of Columbia have enabling legislation for tax increment financing. Arizona is now the only state without a tax increment financing law. While some states, such as California and Illinois, have used TIF for decades, many others have only recently passed or amended state laws that allow them to use this tool.

Since the 1970s, a reduction in federal funding for redevelopment-related activities including spending cuts, restrictions on tax-exempt bonds and an administrative transference of urban policy to local, lower-level governments, has led many cities to consider tax increment financing. State-imposed caps on municipal property tax collections and limits on the amounts and types of city expenditures have also caused local governments to adopt funding strategies like this.

The tax increment financing dispute

TIF districts are not without criticism. Although tax increment financing is one mechanism for local governments that does not rely on federal funds or an overall increase in municipal taxes, many question whether TIF districts actually serve their resident populations. TIF districts are often implemented in blighted, lower-rent, areas. As investment in an area increases, it is not uncommon for real-estate values to rise and for gentrification to occur.[1]

Currently, thousands of districts operate nationwide in the US, from small and mid-sized cities, such as Kenosha, Wisconsin, and Akron, Ohio to the State of California, which invented tax increment financing in 1952. California maintains hundreds of TIF districts and leads the nation in debt issued through tax increment financing.

The city of Chicago is a major urban area which has a significant number of TIF districts and has become a prime location for examining the benefits and disadvantages of TIF districts. The city runs 131 districts with tax receipts totaling upwards of $325 million per year, or about one-third of the city's total property tax revenue. Lori Healey, appointed commissioner of the city's Planning and Development department in 2005, was instrumental in this process. [April 23, 2007, Mayor Daley of Chicago named Healey to be his eleventh chief of staff.]

Given the influence and power held by Mayor Daley of Chicago, various elected officials have been unwilling to seem critical of the city's tax increment financing program due to the mayor's unwavering support for these districts. Cook County Commissioner Michael Quigley has been the exception, questioning the wisdom of expanding tax increment financing districts, calling for substantive reforms, and putting accountability into the governance of such districts. His office recently released a report on TIFs titled: "A Tale of Two Cities: Reinventing Tax Increment Financing."

The Neighborhood Capital Budget Group, a non-profit organization (that consisted of various member organizations and employed outreach and research staff), advocated for area resident participation in capital programs. The group also researched and analyzed the expansion of Chicago's TIF districts. Though the organization closed on February 1, 2007, their research will be available on their website for six months. [2]

The Chicago Reader, a Chicago alternative newspaper published weekly, has published articles regarding tax increment financing districts in Chicago and in Cook County, Illinois written by staff writer Ben Joravsky. Joravsky's articles are critical of tax increment financing districts as implemented in Chicago.

For examples of academic or interest group reports or papers on tax increment financing districts, see this entry's External Links

Applications and administration

Cities use TIF to finance public infrastructure, land acquisition, demolition, utilities and planning costs, and other improvements including:

  • Sewer expansion and repair
  • Curb and sidewalk work
  • Storm drainage
  • Traffic control
  • Street construction & expansion
  • Street lighting
  • Water supply
  • Landscaping
  • Park improvements
  • Environmental remediation
  • Bridge construction & repair
  • Parking structures
  • Land Acquisition

State enabling legislation gives local governments the authority to designate tax increment financing districts. The district usually lasts 20 years, or enough time to pay back the bonds issued to fund the improvements. While structures vary, it is common to have a city government assuming the administrative role. This entity is governed by a city council which makes decisions about how and where the tool is applied.

External links

Academic Books

Search Engine or Board Links:

Interest Group Links:

Groups Advocating Public Engagement and Transparency or TIF Reform

Governmental Websites

Newsletters, Opinion Websites, and Short Policy Briefs or Papers

Academic Papers or Reports

Other Reports:

This article was taken from Wikipedia, the free encyclopedia