Tips for TIFs: Policies for Neighborhood Tax Increment Financing Districts
Sands, Gary, Reese, Laura A., Trudeau, Katherine, Community Development: Journal of the Community Development Society
The research team investigated Tax Increment Financing (TIF), which can often help cities address critical needs to revitalize neighborhoods. Nevertheless, how planners and policy-makers define "neighborhood," how they construct state-enabling statutes, and how local governments actually apply TIF may determine the success of Tax Increment Financing. A TIF designation should attract growth, it should be used in limited areas' for limited durations, and it must include citizen-based planning. If a neighborhood is to receive a TIF designation, slow growth in taxable values might be more appropriate than designating the neighborhood as "physical blight." Determining which revenue streams are eligible .for capture is perhaps the most significant issue in financing. If a TIF district captures all property tax increments, schools and other public associations will be disadvantaged. In contrast, limiting a TIF district's tax base to the general revenues of municipal government will substantially limit the outcomes of a TIF designation. In designating TIF districts, planners and policy-makers must balance assessments' of need with investment potential Finally, the success of neighborhood TIFs depends on planners to anticipate private investment increases on property values to generate funds for planned improvements'. The initial characteristics of a TIF district often influence the amount of investment attracted. Municipal planners and policymakers' must balance citywide and neighborhood needs to avoid creating multiple tax jurisdictions as "have" and "have not" neighborhoods.
Key-words: Tax Increment Financing, TIE property tax, citizen-based planning, neighborhood, urban planning, taxable values', municipal government revenues', multiple tax jurisdictions
Tax Increment Financing (TIF) districts have been widely used throughout the United States as an economic development tool. The TIF mechanism is relatively straightforward. When the TIF district is established, the total value of taxable property within the area is calculated. (1) Taxes generated from this base property tax assessment continue to be paid as before to existing taxing jurisdictions. Tax revenues generated by growth in the tax base within the TIF district, however, are "captured" and used for allowable purposes within the district. The increased value may come from new development or appreciation in value of existing properties.
Initially employed to offset declining federal assistance for urban redevelopment projects, TIF districts are now commonly used in distressed urban areas across the United States (Goshorn, 1999, p. 924). Most states enabled local governments to use TIFs by the year 2000 (Johnson & Man, 2001); the majority of states allows the use of TIF districts for either commercial or industrial projects, (2) and 30 states allow TIFs for residential uses. TIF is increasingly used to fund brownfield remediation. Over time, then, TIF became one of the most popular economic development tools, with steadily increasing use since the 1970s (Forgey, 1993; Johnson & Man, 2001). In part, its popularity lies in the presumptive development benefits: municipalities do not have to pay for improvements via increased taxes. TIF creates the potential for increased revenue growth without increased taxes; for business owners in the TIF higher levels, services can be provided without paying higher taxes; and, they can aid redevelopment in targeted areas of blight or financial need (Weber, 2003).
These benefits are widely accepted among local developers, business owners, and public officials, and they explain largely the popularity of TIE However, the use of TIF remains controversial in both the academic literature and among some policy audiences in states and cities where use is frequent and widespread. Criticisms of TIF fall into several categories.
* The additional burden on taxpayers lies outside of the TIF district. …