TIFs are redevelopment strategy that cities and counties use to develop an underused area, or assist with urban decay. The city or county designates an area as “blighted” and in need of reinvestment. The city then turns the rights to the expected additional tax income into a tradable asset. A developer will apply for funding from the city, and the city will grant it to them as a “TIF allocation” which is to be paid back in the future by the increase in property taxes which is expected to be generated by the investment into the area.
So once a city identifies a part of town that meets the criteria and would benefit from a TIF, how does it work?
A TIF district essentially reallocates funds from property taxes to encourage investment within the district. An important thing for property owners within the TIF to understand is that their property tax rates do not automatically go up with the creation of a TIF.
As the city invests in the area and private investors begin to be attracted by the city’s efforts to revitalize the community, a snowball effect occurs. More TIF investments by the city lead to more investments by private developers, both of which lead to higher property values, and therefore, more TIF revenue that can be reinvested in the TIF district, starting the cycle all over again.
As for the taxing bodies within the district, while their revenues are frozen with regard to properties within the TIF, it’s not unusual for them to see increased revenues overall because TIFs often have spillover effects that cause property values to rise in the areas surrounding them, which benefits the taxing bodies Once the period of the TIF expires, the taxing bodies are entitled to their full share of the tax revenue from within the TIF.
When used properly, a TIF can revitalize a community
So why should you care about TIF districts? If you care about your city’s progression, you should know that your government has a tool at its disposal to help impact economic growth.