A Comprehensive Approach to the Assessment of Tax Increment Financing (Tif) Projects

By Johnson, Thomas G.; Scott, James K. | Journal of Public Budgeting, Accounting & Financial Management, Fall 2004 | Go to article overview
Save to active project

A Comprehensive Approach to the Assessment of Tax Increment Financing (Tif) Projects


Johnson, Thomas G., Scott, James K., Journal of Public Budgeting, Accounting & Financial Management


ABSTRACT. One of the most popular economic development incentive tools used today is Tax Increment Financing (TIF). Proponents of TIF argue that these incentive programs have fostered new investment and increased property tax revenues in areas that would otherwise have experienced negative growth. Opponents argue that TIF is now used in non-blighted areas-on projects that could have been completed with no special government subsidies. This paper describes a number of perverse incentives that are inherent with TIF projects. It then outlines a comprehensive framework for estimating the net future fiscal impacts with and without proposed TIF projects for all affected jurisdictions. Finally, it illustrates how the framework can be used to reach better economic development policy decisions at both the state and local levels.

INTRODUCTION

Competition between states and communities for jobs, investment and economic development continues to intensify. This competition has fueled (and is fueled by) a significant increase in the use of state and local incentive programs. One of the most popular incentive tools used today is commonly known as Tax Increment Financing (TIF). First used in California to foster redevelopment in "blighted" urban areas, TIF programs have been adopted by forty states, and they are being developed in rural and affluent suburban areas (Klemanski, 1989). The use of TIF programs has long been the subject of debate and controversy.1 Proponents of TIF argue that these incentive programs have fostered new investment and increased property tax revenues in areas that would otherwise have experienced negative growth. Opponents argue that TIF is now used in non-blighted areas-on projects that could have been completed with no special government subsidies. They also argue that TIF projects proposed by cities reduce badly needed future revenues for other government jurisdictions such as school districts. Despite the controversy, political pressure to support job creation suggests that TIF projects will continue to expand in the future.

In Missouri, recent legislation allows some TIF projects to "capture" additional State revenues generated by a new development to pay for certain public development investments. This provision, known informally as "Super TIF"2 requires an assessment of the fiscal impacts that proposed TIF projects will have on the State before each project is approved. This same statute also requires that all local TIF districts formally assess the fiscal impacts of proposed TIF projects for all government jurisdictions affected.

This paper proposes a comprehensive approach to the mandated TIF impact assessments. The paper is organized in four brief sections. First, it defines TIF programs, and describes the features that are unique in Missouri statutes. Second, it describes a number of perverse incentives that TIF programs create for their proponents and administrators. Third, it develops and recommends a comprehensive assessment framework with which program administrators can assess the impact of particular TIF programs. Fourth, it illustrates how the framework can lead to better economic development policy decisions at both the state and local levels.

HOW THE TIF PROGRAM WORKS IN MISSOURI

The objective of Tax Increment Financing is to harness the power of public investments to increase the future tax base of declining localities. Future increases in tax revenues are captured and earmarked for the repayment of investments in public infrastructure and economic development incentives. TIF allows municipal governments to sell bonds and to make public investments before the tax base comes on-line. TIF programs are typically applied to blighted or economically stagnant areas.

The TIF device is designed to distribute the costs of the public investments across the various taxing authorities in proportion to the benefits (tax base increases) they realize. Once a redevelopment area is identified, the existing property tax base is identified and the tax revenues generated by all taxing jurisdictions frozen within the area.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

A Comprehensive Approach to the Assessment of Tax Increment Financing (Tif) Projects
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?