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Tax Increment Financing. TIF : A method for funding public investments in an area slated for redevelopment by capturing for a time all or a portion of the increased property tax revenues that may result if the redevelopment stimulates private investment.
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Tax Increment Financing • TIF: A method for funding public investments in an area slated for redevelopment by capturing for a time all or a portion of the increased property tax revenues that may result if the redevelopment stimulates private investment. • State enabling legislation is required. (49 states, incl. FL) • Key principles behind the use of TIF: 1) Private redevelopment would not occur without (“but for”) public intervention. (the “but for” question) 2) The tax base in the redevelopment district is declining/stagnant and any increases would only occur through public intervention. 3) The tax authorities that give over their incremental tax increase will eventually receive a larger tax base. • TIF is the “Dot.Com model” of infrastructure financing.
Private RedevelopmentProjects (1) (2) IncreasedTax Base (3) (4) Trust Fund Revenue The TIF Redevelopment Cycle Public RedevelopmentExpenditures
The Typical TIF Procedure Step 1: A Finding of Necessity is prepared and boundaries for the redevelopment district are identified and mapped. Step 2: The Redevelopment Agency is created by resolution or ordinance. Step 3: A Redevelopment Plan is prepared and approved by the overseeing body, usually the agency and often the city. Step 4: The Base Year is declared following plan adoption. This locks in the current tax base. Step 5: The Redevelopment Agency solicits developers and enters into agreements for redevelopment projects. Step 6: Revenue Bonds are sold so that funds are available for “front-end” expenses, typically on infrastructure improvements. Step 7: Bonds are retired with the revenues deposited into the special fund in the form of incremental increases in property tax revenues.
The Allocation of Property Taxes Under TIF Base Year Assessed Value Source: Weber (2002) “Tax Incremental Financing in Theory and Practice”
Florida’s TIF Legislation • The state of Florida’s TIF enabling legislation provides thefollowing guidelines for using Tax Increment Financing in the state:General Limitations --Must prepare a “Finding of Blight/Slum Conditions” --No “But For Finding” requirement in the statute --Must delineate a Redevelopment Area --A “Public Purpose” for TIF funds must be identifiedPlanning Requirements --A CRA Redevelopment Plan is required --Linkages to Comprehensive Plan must be identified --Relocation Feasibility Study required --No CRA-specific CIP is required Procedures --No Public Vote required (Elected officials can establish) --A Redevelopment Agency required --No state participation required --No direct state oversight --A Special Deposit Fund must be established
Tallahassee’s CRA • The city has a redevelopment agency that oversees a “community redevelopment area” (CRA), generally made up of areas north of FSU and areas to the east and west of FAMU. (see map) • A Community Redevelopment Plan (prepared as part of a DURP Studio) estimated that over thirty years --Approximately 2,900 housing units will be constructed --1.1 Mil. Sq Ft of commercial/office space will be constructed --$316 million will be added to the tax base over this period --TIF revenues will total approximately $106 million • These revenues are borrowed against and infrastructure and urban design improvements can be made with this money. The common practice is to invest in capital improvements early in the process and repay these funds using the TIF revenue stream. • The city and county are currently fighting (like very angry cats and dogs!) over a proposed “Downtown CRA”.
Assessing TIF • TIF is a growing source of infrastructure funding. Most states have in place enabling legislation and TIF is a financing mechanism that is here to stay. But how good an infrastructure financing mechanism is it? • Advantages • 1) A new, “innovative” source source of infrastructure funding2) Essentially a special district Users pay, Users benefit3) Can finance infrastructure improvements/additions in blighted areas 4) Potentially a very useful redevelopment tool5) There is a infrastructure development relationship • Disadvantages • 1) Often misused or poorly applied financing mechanism2) Often very optimistic in terms of expected revenues & development3) “Takes” money from other governments4) A “risky” approach to redevelopment (borrowing against anticipated future revenue streams to fund needed capital improvements)5) Quasi-government, no direct public accountability
