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Tax Increment Financing

Local Governments can Induce Economic Development Through TIFs

Jun 6, 2008

TIFs can spur downtown development, Gina Hannah

Tax-increment finance districts, which create a means to pay for city infrastructure improvements, can induce economic development and improve blighted areas.

Leveraging public money to incite commercial development has paid off for some U.S. cities.

Tax increment financing has become a popular way for cities and counties around the nation to leverage growth. TIF funds have paid for better streets, parking and sidewalks in blighted downtown areas. The money has also been used to build access roads and parking areas for new shopping malls in suburbia. Such improvements can be considered economic incentives to developer interested in retail, manufacturing and other projects.

How TIFs Work

Government leaders designate an area slated for improvement.
As improvements are made, a portion of the real estate taxes generated by a project is placed into a fund used to pay back infrastructure costs and public improvements that make the project happen.
In theory, the property and infrastructure improvements will cause property values, and taxes, to rise, accelerating the repayment of the improvements’ costs.

Laws governing TIFs vary state-to-state. Some forbid TIF financing for retail projects, allowing them only for office or industrial development. Other states have introduced legislation that would prohibit TIF incentives for projects that would relocate a store or business from a neighboring community.

The first TIF, or tax-increment financing district, was created in the 1952 to provide matching funds for federal urban-renewal funds. About 35 states have TIF laws today.

In 1979, Lakeland, Fla., located some 30 miles east of Tampa, formed a tax-increment financing district, or TIF, a tool that helps pay for redevelopment projects with future taxes generated by those projects.

Through tax increment financing, or TIF, Lakeland had money to market its downtown, pay for street-side landscaping improvements and buy property for development. The money also helped some businesses lease parking spaces used by their customers.

The investment paid off. Where a once-desolate downtown harbored vagrants and empty storefronts, residents and tourists now venture regularly to the area's many shops, restaurants and concerts held in nearby Munn Park.

Huntsville, Ala. has also formed TIF districts to encourage the redevelopment of a declining shopping mall, lure industry, improve roads and build schools. The increased property tax collections due to increased values have allowed the city to pay off financing used to launch those development projects.

Sometimes Controversial

Tax increment financing is not without controversy, particularly if the financing isn't for a blighted downtown core. Some residents don't like the idea of government spending money to benefit some businesses, possibly at the expense of others. Some consumer groups consider TIFs a form of corporate welfare.

In many cases, the very developers opposing TIF in one community benefited from it in another. In Columbus, Ohio, residents didn't oppose a proposed TIF, but a competing mall owner did, on the grounds the new mall would pull anchor stores and customers from the existing mall. The issue was put on a ballot several years ago, and voters said they wanted two malls - the TIF was upheld. But the developers filed lawsuits against each other, charging defamation of character.

TIF districts are usually used to revitalize blighted downtown areas. Districts drawn in Birmingham, Ala. and Mobile, Ala. have had community support. Those districts were developed to revitalize downtown areas.

The copyright of the article Tax Increment Financing in American Affairs is owned by Gina Hannah. Permission to republish Tax Increment Financing in print or online must be granted by the author in writing.