Tax Allocation Districts and Tax Increment Financing
Local and state governments throughout the nation use numerous tools to encourage quality development in economically challenged, underutilized and distressed areas. Tax increment financing (“TIF”) and tax allocation districts (“TADs”) are leading tools used for this purpose.
What is TIF?
TIF is a public financing method of utilizing future increases in the property tax revenues that will be created by development and redevelopment projects within certain areas to finance current improvements and present costs associated with the projects. By completing the projects, the value of surrounding real estate will increase, which will generate additional tax revenue. An increase in the site value that results in an increase in tax revenues is known as the “tax increment.” TIF uses tax increments within certain designated areas to finance the debt issued to pay for the costs of current development or redevelopment projects, including, without limitation, costs for land acquisition, public infrastructure, demolition, utilities, debt service, sewer expansion, water supply, park improvements, bridge construction, curb and sidewalk work, street lighting, landscaping, parking, and environmental remediation. Thus, TIF creates funding for current public or private projects by permitting debt to be issued secured by a pledge of repayment from the future increases in property-tax revenues in the improved district (see TADs).