Tax increment financing (TIF) is one of the most widely used economic development tools in local government. It allows municipalities to stimulate growth through targeted public investments financed by future tax revenues. However, its implementation can present challenges, from equity concerns to fiscal risks. As municipalities face increasing demands for transparency, sustainability, and inclusivity, TIF must evolve to meet modern policy priorities.

This article explores TIF’s applications and challenges, using Milwaukee and Cook County case studies to highlight successes and shortcomings. It offers actionable recommendations for local government managers to refine TIF practices, align them with community goals, and navigate today’s fiscal and social landscape.

Key Takeaways for Local Government Managers

Mandate transparency: Establish public reporting on TIF performance to enhance accountability and trust.

Promote equity: Prioritize projects that include affordable housing, workforce development, and benefit underserved communities.

Mitigate fiscal risks: Standardize revenue projections and conduct robust feasibility studies.

Advance sustainability: Use TIF to fund green infrastructure and climate resilience projects.

Foster Collaboration: Develop regional task forces and revenue-sharing mechanisms to coordinate overlapping jurisdictions.

The Evolution of TIF: From Urban Blight to Broader Applications

Introduced in California in 1952 to combat urban decline, TIF originally focused on addressing blight in urban cores. Over the decades, its applications have broadened significantly, encompassing projects like industrial parks, mixed-use developments, and environmental remediation. In Wisconsin, TIF is a critical tool for municipalities operating under strict levy limits, enabling investment without raising property taxes.

However, this flexibility has also created challenges. Critics argue that TIF’s broad applicability sometimes prioritizes politically motivated projects over those targeting areas of greatest economic need. As municipalities rely more heavily on TIF amid declining state and federal support, questions about its long-term sustainability persist.

Mechanics of TIF: A Double-Edged Sword

TIF works by freezing property tax values within a designated tax increment district (TID). New taxes generated from increased property values—the “increment”—are reinvested into development projects. While this mechanism can drive significant growth, it also carries risks:

Fiscal Risks

Municipalities often issue bonds to finance projects upfront, relying on future increments for repayment. If projected revenues fall short, local budgets can become strained.

Equity Concerns

Benefits are not always evenly distributed, and some TIF projects may exacerbate disparities rather than alleviate them.

Effective governance and rigorous feasibility studies are essential to mitigate these risks and ensure TIF achieves its goals.

Empirical Evidence: Successes and Shortcomings

Milwaukee’s Menomonee Valley

Between 2002 and 2011, Milwaukee transformed the Menomonee Valley from an industrial wasteland into a thriving commercial and recreational hub. The project attracted 49 businesses, created over 3,200 jobs, and increased property values by 94%. Investments in environmental remediation and infrastructure upgrades showcased TIF’s potential to integrate economic, social, and environmental goals.

However, limited spillover benefits to nearby low-income neighborhoods highlighted the need for equity-focused planning. Future projects must incorporate strategies to ensure development benefits extend beyond the immediate TID.

Cook County’s Overlapping Districts

Suburban Cook County, Illinois, effectively leveraged TIF to attract new businesses and revitalize infrastructure. Conversely, overlapping special districts in Chicago created competition for limited resources, diluting program benefits and straining essential services like schools. These governance challenges underscore the importance of regional collaboration and oversight.

Aligning TIF with Modern Priorities

As community expectations evolve, municipalities can leverage TIF to address broader challenges such as climate change, social inequities, and fiscal constraints. Practical recommendations for local government managers include:

1. Promote Equity

- Require affordable housing quotas in TIF-funded projects.

- Prioritize workforce development initiatives targeting underserved populations.

- Use equity-focused evaluations to ensure marginalized communities benefit.

2. Advance Sustainability

- Fund renewable energy installations, flood mitigation, and green infrastructure through TIF.

- Incorporate environmental performance metrics into TIF project evaluations.

3. Enhance Transparency

- Mandate public reporting on TIF performance, including financial, social, and environmental outcomes.

- Engage community stakeholders in planning to build trust and align projects with local priorities.

4. Foster Regional Collaboration

- Develop task forces to coordinate overlapping jurisdictions and mitigate resource competition.

- Implement revenue-sharing mechanisms to ensure fiscal equity among municipalities.

Barriers to Reform

Efforts to reform TIF face resistance from stakeholders who fear increased oversight could delay projects or reduce revenue streams. Developers, municipal officials, and overlapping jurisdictions often have conflicting interests, complicating reform initiatives. To overcome these barriers, state-level mandates for standardized reporting and evaluations can provide a foundation for equitable and effective TIF implementation.

The Path Forward

TIF remains a powerful yet complex tool for local governments. By prioritizing transparency, equity, and sustainability, municipalities can unlock TIF’s full potential to drive inclusive growth. Local government managers are pivotal in shaping TIF strategies that meet community needs while addressing broader policy challenges.

JOHN S. WEIDL is city manager of Whitewater, Wisconsin, and a doctoral candidate in business administration at the University of Wisconsin-Whitewater.

References

Briffault, R. (2010). The most popular tool: Tax increment financing and the political economy of local government. University of Chicago Law Review, 77(1), 65-95.

Eagon, B. (2017). TIF-for-tax: Upholding TIF’s original purpose and maximizing its use as a catalyst for community economic development. Wisconsin Law Review, 180-224.

Johnson, C. L., & Kriz, K. A. (2019). Tax increment financing and economic development: Uses, structures, and impact (2nd ed.). State University of New York Press.

Kim, G. (2024). The dynamic and persistent effects of tax increment financing as an example of place-based policy: Evidence from Cook County, Illinois. Regional Studies, 58(6), 1339-1355. https://doi.org/10.1080/00343404.2023.2242401

Lefcoe, G. (2011). Competing for the next hundred million Americans: The uses and abuses of tax increment financing. The Urban Lawyer, 43(2), 427-482.

Merriman, D., Skidmore, M., & Kashian, R. (2011). Do tax increment finance districts stimulate growth in real estate values? Real Estate Economics, 39(2), 221-250. https://doi.org/10.1111/j.1540-6229.2010.00294.x

Merriman, D. (2019). Improving tax increment financing (TIF) for economic development. Lincoln Institute of Land Policy. Retrieved from https://www.lincolninst.edu/publications

Skidmore, M., Merriman, D., & Kashian, R. (2009). The relationship between tax increment finance and municipal land annexation. Land Economics, 85(4), 598-613.

Tosun, M. S., & Yakovlev, P. (2002). Tax increment financing and local economic development. West Virginia Public Finance Program.

Wisconsin Department of Revenue. (2017). Tax incremental financing (TIF) information. Retrieved from https://www.revenue.wi.gov/Pages/SLF/tif.aspx

Further Reading

Briffault, R. (2010). The most popular tool: Tax increment financing and the political economy of local government. University of Chicago Law Review, 77(1), 65–95.

Eagon, B. (2017). TIF-for-tax: Upholding TIF’s original purpose and maximizing its use as a catalyst for community economic development. Wisconsin Law Review, 180–224.

Merriman, D. (2019). Improving tax increment financing (TIF) for economic development. Lincoln Institute of Land Policy.