What About Tax Increment Financing?

I’ve been writing posts for Rural Resurrection for nearly seven years now. Through the posts I’ve tried to relay information on a variety of tools to assist communities. However, there’s one tool I’ve generally stayed away from for a few reasons. That tool is Tax Increment Financing (TIF), one of the widest used and most effective ways to incentivize redevelopment. Discussing TIF is a tough tackle for me as state regulations regarding TIF vary from state to state. Also, if the city that I work for were to be sued over our redevelopment activities, opposing attorneys would be all over this blog, trying to twist my words for their benefit. But I still feel a general post on Tax Increment Financing is important to have if you are talking about tools to help improve your community as TIF cannot be left out of that conversation.

The Basics of TIF

In general, TIF creates a special tax district over a specific redevelopment area where future tax revenues are diverted to assist in the financing of infrastructure improvements and/or development. TIF is such an effective tool that it is utilized in 49 states and the District of Columbia. Arizona is the only state that doesn’t utilize TIF as a tool to incentivize redevelopment.

As a visual person, I feel it is good to learn about subjects through pictures and videos. After all, “a picture is worth 1,000 words”. So, I’m going to hand this topic off to a couple of YouTube presentations to help explain the subject. The first video from Tri-Land Properties is a good, simple explanation of Tax Increment Financing with the help of animations.

But for those who want a little more, check out the following video from Minnesota OSA. It gets a little more into the details of TIF, including example projects to show how the numbers work. This video is, of course, more state-specific for Minnesota, but the generalities of it apply to TIF in most other states.

Not an Open and Shut Case

Over the years TIF has become a popular incentive to promote redevelopment. Unlike other economic incentives that utilize taxes from other sources, TIF is considered more of a “self-financing” tool where the development essentially pays for itself through the taxes it generates.

But, unfortunately, TIF also has its detractors as well. One of the main complaints is the temporary negative impacts on a city’s budget. Each new development has an impact on the services provided by a community. The costs to a city for police, fire, and other services increase post-development without a corresponding increase in taxes to cover those increased costs (until the TIF financing period ends).

Local schools are also impacted by the lack of increase in tax funds due to the new development. This is especially concerning for housing developments with TIF included as part of their project’s capital stack. Schools don’t typically have a say in the approval process. However, they have to take on additional students without a corresponding increase in taxes.

There are also some naysayers who believe TIF doesn’t stimulate new development; it just moves about existing development. Existing businesses take advantage of the financial benefits of TIF to relocate to new areas. However, supporters attest that local businesses are more likely to move out to other communities without offering this incentive. The businesses that do relocate to redevelopment areas will vacate existing structures that provide lower-rent opportunities to new or growing businesses.

However, one of the best aspects is that city councils typically control who receives TIF. Not the state or other entity. With enough information from staff, they are able to make the right decisions about what potential developments or businesses they want to move into their community.

Check out for More

For a deeper dive into the subject, check out Tax Increment Financing: A Practical Guide for Analyzing TIF Risks, Benefits, and Outcomes. Produced by the International City/County Management Association (@ICMA), the ebook provides over 180 pages of additional information on Tax Increment Financing. I highly recommend reading through this resource. If your community is considering using this incentive, it is best to be as educated as possible about it.

For more tools to help your community, check out Rural Resurrection’s Tool Kit page.