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Tips on the Use of Tax Increment Financing

by Jim Damicis 13. May 2009 14:53
Tax Increment Financing (TIF) is a powerful economic development tool and if used with appropriate planning can benefit communities as well as businesses.  While the exact application and provisions of TIF's vary by state, TIF's typically encompass some form of capturing property taxes resulting from increases in property value due to development of a project and dedicating those revenues to support the development  as well as other activities.  This may include using dedicated revenues for infrastructure and capital improvements costs, payment of bonds and other financing mechanisms, and in some states like Maine, direct tax relief to encourage development.  To help ensure that TIF's provide their intended purpose and value, a community should consider the following tips: 
  • Fit use of TIFs into long-term economic development strategy - Know what your long-term objectives are
  • To maximize fiscal benefit from TIFs tie into community capital planning and budgeting - consider going beyond the use of TIFs for business incentives and use to fund public infrastructure to support economic development
  • Be aware that when using TIF revenues to benefit specific businesses/developers, what you provide to one will be serve as the benchmark for future requests
  • Once TIFs are used, be sure to implement system for tracking values, revenues, and expenditures throughout the life of the TIF
  • Plan for the tradeoff between TIF funds and General funds" - what you take in for TIFs can not be used for General Fund purposes
  • Downtown TIFs often will not generate sufficient revenues from new investments to pay for items in the development program - you may want to consider integrating downtown TIF objectives with other TIFs in the community
  • TIF policies can help direct decisions on when and how to use TIFs and can be tailored to meet community's long term objectives - they need not be overly restrictive
The fiscal benefit of TIF use varies by community and is driven largely by its tax rate and the state school funding formula - knowing the fiscal "breakeven point" can help a community determine how much of an incentive for a business makes fiscal sense - this breakeven point changes over time and should be periodically reexamined

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