Tax increment financing (TIF) is a powerful tool used by municipalities to stimulate economic development and revitalize blighted areas. ICMA’s Guidebook, Tax Increment Financing: A Practical Guide for Analyzing TIF Risks, Benefits, and Outcomes provides an in-depth analysis of TIF, its benefits, risks, and outcomes, along with practical examples and case studies.

What Is TIF?

TIF is a public financing method that is used to subsidize redevelopment, infrastructure, and other community-improvement projects. The basic principle of TIF is to use the future gains in taxes to finance the current improvements that will create those gains. When a public project, such as a new road or school, 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 generates increased tax revenues. The increased tax revenues are the "tax increment."

How Does TIF Work?

The process begins with the establishment of a TIF district, which can include one or several properties. Property values within this district are locked in or frozen at a "base" level. Property taxes continue to be paid to the local taxing entities (e.g., municipal, county, school district, and other local taxing districts) based on this base level. Any increase in property tax revenues resulting from the increase in property values (the tax increment) is used to finance the redevelopment project.

Benefits of TIF

TIF offers several benefits, including:

• Stimulating Economic Development: By providing the necessary funding for infrastructure and other improvements, TIF can attract private investment and stimulate economic development.
• Revitalizing Blighted Areas: TIF can help revitalize blighted areas by funding redevelopment projects that would not be feasible without public assistance.
• Creating Jobs: TIF-funded projects can create jobs during both the construction phase and the operational phase.
• Increasing Property Values: By improving infrastructure and amenities, TIF can increase property values in the surrounding area.

Risks and Challenges of TIF

While TIF can be a powerful tool for economic development, it also comes with risks and challenges:

• Financial Risk: If the projected increase in property values does not materialize, the municipality may not be able to repay the TIF bonds.
• Equity Concerns: TIF can sometimes lead to gentrification, displacing low-income residents and small businesses.
• Complexity: TIF projects can be complex and require careful planning and management to ensure success.

Case Studies and Examples

The guidebook provides several case studies and examples of TIF projects, illustrating both successful projects and those that faced challenges. For example, the redevelopment of the Port Covington area in Baltimore is highlighted as a comprehensive redevelopment plan that incorporated several concessions to critics, including additional affordable housing minimums and a $17/hour wage floor for workers.

TIF is a valuable tool for municipalities looking to stimulate economic development and revitalize blighted areas; however, it requires careful planning and management to mitigate risks and ensure that the benefits are realized. By understanding the principles of TIF and learning from past projects, municipalities can effectively use TIF to achieve their development goals.