Tax Increment Financing (TIF)
Government agencies can use tax increment financing to fund public infrastructure improvements in certain areas. This includes blighted areas that don’t have a lot of private development or investment incentives. When the value of the land increases, the additional property tax revenue can cover the redevelopment projects.
For information about the TIF process and private investment in project areas, talk to a tax increment financing lawyer.
What Is Tax Increment Financing?
Tax increment financing (TIF) is a way for cities or municipalities to generate new money to improve undeveloped areas. When a city wishes to improve or redevelop an area, it can designate it as a Tax Increment Finance Zone. It can then use the excess taxes created by the development to fund the project.
Tax increment financing allows a city to use all new property taxes over the designated area for redevelopment. Tax increment financing is a popular option for cities because individual property taxes do not increase. The city can also reinvest the money in the neighborhood.
Tax Increment Finance Zone Creation
In tax increment financing, the city surveys areas in need of development and designates those areas as TIF zones. The city planner surveys the proposed zone and determines if the area is eligible. The city, with outside consultants, determines if the TIF zones meet the standards by conducting an eligibility study.
Once the city certifies the TIF zone, the city works with consultants to write a redevelopment plan. This development plan will include all proposed projects for the TIF zone and a budget proposal. The budget proposal will outline how to spend the tax funding .
Obtaining TIF Zone Revenue
After designating and certifying the TIF zone, the plan may proceed. The city freezes current property taxes in the designated neighborhood. This ensures that the property taxes of property owners won’t rise during the redevelopment. It also ensures they use only the excess property tax directly created by the project itself
The hope is that property taxes and property values will eventually rise. In tax increment financing, new tax revenue funds the remediation projects.
The increased tax base may be in the form of redevelopment of existing property or new development of vacant land. For example, the city may decide to refurbish a historic building or park to obtain new TIF revenue. The city could also propose public improvements on mixed-use land that was vacant and blighted.
Spending Tax Increment Financing Revenue
Revenue generated from a tax increment financing district can only legally be used for certain projects and items. The city will consult with a lawyer during multiple steps of the project to ensure the money is being spent appropriately.
TIF funds go to planning expenses and consulting, including legal consultations. The city can also use it to buy land or property and prepare it for redevelopment. Sometimes, the city may own the property in question. Many times, private individuals own the land involved. Cities may use the revenue generated by the special district to purchase the property from the owners. The city can then use the revenue again to prepare the property.
Sometimes, owners will not want to sell their real estate property to the city. Lawyers may act on the city’s behalf and pursue eminent domain. Via eminent domain, the city buys the property at fair market value after the city proves that the project will serve the public’s general welfare.
Tax increment financing can pay for daycare and job training expenses for companies involved in the TIF zone. It can pay for the actual redevelopment of the land and renovation of the property. It can even pay for the financing of the project development. Initially, the local government will have to finance the project to complete it before the revenue accumulates. Then, the tax increment finance revenue will pay for all costs associated with the financing.
A lawyer is often needed to ensure that projects adhere to the tax increment financing law. The city will work with an attorney to review the project details and budget proposal. If you have questions about economic development options for TIF projects, talk to a TIF law attorney for legal advice.