Tax Increment Financing
Tax increment financing (TIF) is an economic development tool used to promote investment in a defined area. The TIF has historically been used to finance public improvements in transitioning or underdeveloped areas identified as reinvestment zones. If a municipality determines that development or redevelopment would not occur through private investment alone, within a reasonable timeframe, a reinvestment zone may be created after a public hearing process. The public hearing allows an opportunity for property owners to contest inclusion in the reinvestment zone.
Once the zone is created, revenue from the TIF district is divided into two categories: property tax value prior to the formation of the TIF (tax base), and property tax value from new development or redevelopment and investment in the district (tax increment). Below is a graphical representation of this concept:
The difference of these two categories is deposited into a tax increment fund maintained by the city for investment in projects such as property acquisition, public right-of-way construction and repair, infrastructure development, demolition, site preparation, implementing and/or enhancing public utilities, streetscape improvements and beautification. Investment in these public improvements are important because they serve as a catalyst for private investment and development in the transitioning area.
TIF zones generally last for 15 to 30 years. The governing body of the municipality determines through a public hearing process the length of time a TIF zone actually remains in place, and the zone boundary. At the end of the TIF district’s term, all the property tax revenue, meaning the base values plus increment, is redistributed to the participating tax entities.