Tax increment financing

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.

• Arkansas (2000)
• Washington (2001)
• New Jersey (2002)
• Delaware (2003)
• Louisiana (2003)
• North Carolina (2005)
• New Mexico (2006)

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 of Chicago, Illinois, 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.

Currently, the largest TIF project in America is located in Albuquerque, New Mexico: the $500 million Mesa del Sol development. Mesa del Sol is controversial in that the proposed development would be built upon a "green field" that presently generates little tax revenue and any increase in tax revenue would be diverted into a tax increment financing fund. This "increment" thus would leave governmental bodies without funding from the developed area that is necessary for the governmental bodies' operation.

For examples of academic books and articles on tax increment financing 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.

See also

• Public finance

External links

A Proposed Development Project

• Forest City Covington's Mesa del Sol website (Albuquerque, New Mexico).

Academic Books

• Johnson & Man edited Tax Increment Financing and Economic Development: Uses, Structures, and Impact (State University of New York Press, 2001)

Search Engine or Board Links:

• Google Scholar Search using phrase "Tax Increment Financing", using Recent Articles setting. For a specific type of article or book, use additional phrases or words in the Google Scholar search engine; one may press All Articles setting to view all found articles or books.
• Cyurbia's forum on Tax increment financing and special improvement districts (1998) with mentions of professional group articles on these two topics.

Interest Group Links:

• More information about tax increment financing is available through the Tax Increment Finance Coalition (TIFC), a national initiative dedicated to professionals and organizations working in the tax increment finance industry.
• National Association of Realtors's "TIF Primer"--which is quite comprehensive (2002)
• Press Release for National Education Association's Research Working Paper Protecting Public Education From Tax Giveaways to Corporations: Property Tax Abatements, Tax Increment Financing, and Funding for Schools (2003) with links.

Groups Advocating Public Engagement and Transparency or TIF Reform

• The New Rules Project's TIF Reform website, with links to several publications about TIFs (see More)
• Neighborhood Capital Budget Group's explanation on TIF in Chicago and their research
• The Sam Adams Alliance

Governmental Websites

• Massachusetts's Smart Growth website on District Improvement Financing (DIF) and Tax Increment Financing (TIF) districts
• How TIF Works: Basic Mechanics Minnesota House of Representatives Research Department.
• Calgary's report The U.S. Experience with Tax Increment Financing (TIF): A Survey of Selected U.S. Cities (2005)

Newsletters, Opinion Websites, and Short Policy Briefs or Papers

• Debt is Debt: Taxpayers on hook for TIFs despite rhetoric, Joseph Coletti, John Locke Foundation, November 2007.
• Tax Increment Financing: A Bad Bargain for Taxpayers, Daniel McGraw, Reason Magazine, Jan. 2006.
• Greg LeRoy's article Wal-Mart's Tax On Us
• 1000 Friends of Wisconsin's report Tax Incremental Finance [sic] Law: Lending a Hand to Blighted Areas of [sic] Turning Cornfields into Parking Lots?
• Heartland Institute PolicyBot on TIFs
• PRAGmatics (a newsletter published by PRAG--a consortium of Chicago academics, research & advocacy organizations, and community non-profits based at Loyola University Chicago) issue with articles on TIFs (1999), see also PRAGmatics Looking into Tax Increment Financing (2002)
• University of Illinois' Institute of Government and Public Affairs Policy Forum paper by Dye & Merriman titled TIF districts hinder growth: Study finds that cities without TIFs grow faster (2000) See also The Effects of Tax Increment Financing on Economic Development, a working paper (1999).
• Healey & McCormick's Urban Revitalization and Tax Increment Financing in Chicago (1999), an idealized paper regarding TIFs by two City of Chicago officials.
• Eisinger's Financing Economic Development: A Survey of Techniques (2002)
• Sam Casella's paper Tax Increment Financing: A Tool for Rebuilding New York from the AIGA's New York New Visions website
• "At the Tipping Point: Has tax increment become too much of a good thing? by James Krohe, Jr., Planning Magazine, March 2007, American Planning Association. Information on article at www.planning.org website; member or non-member registration required.

Academic Papers or Reports

• Weber, Dev Bhatta & Merriman's Spillovers from tax increment financing districts: Implications for housing price appreciation (2007). In March, 2007, Regional Science and Urban Economics, pages 259-281. (No link)
• Nathan A. Benefield's academic paper titled The Effects of Tax Increment Financing on Home Values in the City of Chicago (2003). Benefield's paper was prepared for presentation at the annual meeting of the Midwest Political Science Association.
• Swenson & Eathington's Do Tax Increment Finance Districts in Iowa Spur Regional Economic and Demographic Growth? (2002)
• Weber's paper titled Making Tax Increment Financing (TIF) Work for Workforce Development: The Case of Chicago (1999)
• An abstract of Weber's Equity and Entrepreneurialism: The Impact of Tax Increment Financing on School Finance (2003).
• An abstract of Weber, et al's Does Tax Increment Financing Raise Urban Industrial Property Values? (2003)
• An abstract of Robinson's Hunger Discipline and Social Parasites: The Political Economy of the Living Wage (2004).
• An abstract of Man's Fiscal Pressure, Tax Competition and the Adoption of Tax Increment Financing (1999).
• Hubbell & Eaton's Tax Increment Financing in the State of Missouri (University of Missouri-Kansas City, 1997)
• Wood & Hughes' report for Center on Wisconsin Strategy (at University of Wisconsin-Madison) titled From Stumps to Dumps: Wisconsin's Anti-Environmental Subsidies (2001)
• Matthew Mayrl's report for Center on Wisconsin Strategy (at University of Wisconsin-Madison) titled Refocusing Wisconsin’s TIF System On Urban Redevelopment: Three Reforms (2005) and theExecutive Summary

Other Reports:

• The Allegheny Institute's report A Primer on Tax Increment Financing in Pittsburgh by Haulk and Montarti (1999)
• Good Jobs First's report Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth (2004)
• Good Jobs First's report Subsidizing the Low Road: Economic Development in Baltimore (2002)