Tax Increment Financing - The "TIF" Explained

Tax Increment Financing or TIF, is a financing method used for subsidizing redevelopment for infrastructure and other community related improvement programs. How this TIF program works is this: As a site increases in value, more tax revenue is generated. When there is an increase in tax revenues, the revenues are set aside to be used for these improvement programs. TIF districts are created, generally in low-income, distressed, or underdeveloped areas. There are currently thousands of TIF districts operating in the United States, with the exception of California, which discontinued it's TIF programs. Two good examples of TIF programs are: The State of Indiana and The State of Texas. Indiana. Indiana, like many other states, establishes TIF districts either as a redevelopment area or an economic area. A redevelopment commission of five members is developed and the district is then designated by the commission as either a redevelopment area or economic development area. The commission then decides the boundaries of the area and prepares a plan for development or re-development of the area. In The State of Texas, TIF's are located in Chapter 311 of the Texas Tax Code. The code states that TIF's may only be initiated by a city. If the property is located outside a city, it is not eligible for TIF. There are two ways that TIF can be initiated: The first is by a petition started by the property owners of the affected area. The second way is thru the City Council. The City Council will determine based on the area's present condition and if the area is impairing the cities growth. The City Council can determine the boundaries of the area to receive the TIF. There are ten steps involved in the process of obtaining TIF, with the last step pertaining to strict reporting by the City to the Attorney General State of Texas. TIF is not without criticism. The process is often politically charged and there have been fears that favoritism would be given to certain developers, lawyers and economic development officials. Also, districts are not the same size and can be drawn too large and capture value that would have been increased anyway. But, for all it's critics, the TIF program, with it's inception in 1952 in California, has incredible success stories, which are generally attributed to excellent government management and transparency.