Tax increment financing

From Wikipedia, the free encyclopedia

The tone or style of this article or section may not be appropriate for Wikipedia.
Specific concerns may be found on the talk page. See Wikipedia's guide to writing better articles for suggestions.(May 2008)

This article or section needs to be wikified to meet Wikipedia's quality standards.
Please help improve this article with relevant internal links. (May 2008)

Tax Increment Financing, or TIF, is a tool which has been used for redevelopment and community improvement projects throughout the United States for more than half a century. With federal and state sources for redevelopment generally less available, TIF has become an often-used financing mechanism for municipalities. Similar or related approaches are used elsewhere in the world. See for example, Value capture.

1 What is tax increment financing?
2 The tax increment financing dispute
3 Applications and administration
4 See also
5 References
6 External links

[edit] What is tax increment financing?

TIF is a tool to use future gains in taxes to finance the current improvements that will create those gains. When a public project such as a road, school, or hazardous waste cleanup is carried out, there is an increase in the value of surrounding real estate, and often new investment (new or rehabilitated buildings, for example). This increased site value and investment creates more taxable property, which increases tax revenues. The increased tax revenues are the "tax increment." Tax Increment Financing dedicates that increased revenue to finance debt issued to pay for the project. TIF is designed to channel funding toward improvements in distressed or underdeveloped areas where development would not otherwise occur. TIF creates funding for public projects that may otherwise be unaffordable to localities.

Today 49 states and the District of Columbia have enabling legislation for tax increment financing. Arizona is now the only state without a tax increment financing law. While some states, such as California and Illinois, have used TIF for decades, many others have only recently passed or amended state laws that allow them to use this tool.

Arkansas (2000)
Washington (2001)
New Jersey (2002)
Delaware (2003)
Louisiana (2003)
North Carolina (2005)
New Mexico (2006)

Since the 1970s, a reduction in federal funding for redevelopment-related activities including spending cuts, restrictions on tax-exempt bonds and an administrative transference of urban policy to local, lower-level governments, has led many cities to consider tax increment financing. State-imposed caps on municipal property tax collections and limits on the amounts and types of city expenditures have also caused local governments to adopt funding strategies like this.

[edit] The tax increment financing dispute

TIF districts are not without criticism. Although tax increment financing is one mechanism for local governments that does not rely on federal funds or an overall increase in municipal taxes, many question whether TIF districts actually serve their resident populations. TIF districts are often implemented in blighted, lower-rent, areas. As investment in an area increases, it is not uncommon for real-estate values to rise and for gentrification to occur.

Currently, thousands of districts operate nationwide in the US, from small and mid-sized cities, such as Kenosha, Wisconsin, and Akron, Ohio to the State of California, which invented tax increment financing in 1952. California maintains hundreds of TIF districts and leads the nation in debt issued through tax increment financing.^{[citation needed]}

The city of Chicago, Illinois, is a major urban area in the Midwestern United States, and it has a significant number of TIF districts and has become a prime location for examining the benefits and disadvantages of TIF districts. The city runs 131 districts with tax receipts totaling upwards of $500 million for 2006.^[1] Lori Healey, appointed commissioner of the city's Planning and Development department in 2005, was instrumental in the process of approving TIF districts as first deputy commissioner.

Given the influence and power held by Mayor Daley of Chicago, local, elected officials have been unwilling to criticize the Chicago's tax increment financing program due Mayor Daley's unwavering support for these districts. Cook County Commissioner Michael Quigley has been the exception, questioning the wisdom of expanding tax increment financing districts, calling for substantive reforms, and putting accountability into the governance of such districts. His office recently released a report on TIFs.^[2]

Cook County Clerk David Orr, in order to bring transparency to Chicago and Cook County tax increment financing districts, began to feature information regarding Chicago and Cook County TIF districts on his office's website.^[3] The information featured includes City of Chicago TIF revenue by year, maps of Chicago and Cook County suburban municipalities' TIF districts.

The Neighborhood Capital Budget Group of Chicago, Illinois, a non-profit organization (that consisted of various member organizations and employed outreach and research staff), advocated for area resident participation in capital programs. The group also researched and analyzed the expansion of Chicago's TIF districts. Though the organization closed on February 1, 2007, their research will be available on their website for six months.^[4]

The Chicago Reader, a Chicago alternative newspaper published weekly, has published articles regarding tax increment financing districts in Chicago and in Cook County, Illinois written by staff writer Ben Joravsky. Joravsky's articles are critical of tax increment financing districts as implemented in Chicago.^[5]

Currently, the largest TIF project in America is located in Albuquerque, New Mexico: the $500 million Mesa del Sol development. Mesa del Sol is controversial in that the proposed development would be built upon a "green field" that presently generates little tax revenue and any increase in tax revenue would be diverted into a tax increment financing fund. This "increment" thus would leave governmental bodies without funding from the developed area that is necessary for the governmental bodies' operation.

[edit] Applications and administration

Cities use TIF to finance public infrastructure, land acquisition, demolition, utilities and planning costs, and other improvements including:

Sewer expansion and repair
Curb and sidewalk work
Storm drainage
Traffic control
Street construction & expansion
Street lighting
Water supply
Landscaping
Park improvements
Environmental remediation
Bridge construction & repair
Parking structures
Land Acquisition

State enabling legislation gives local governments the authority to designate tax increment financing districts. The district usually lasts 20 years, or enough time to pay back the bonds issued to fund the improvements. While structures vary, it is common to have a city government assuming the administrative role. This entity is governed by a city council which makes decisions about how and where the tool is applied.