What is TIF and why should we care?
By Tori Jennings, Ald. First District
What is TIF? Tax Increment Financing (TIF) was first implemented in California in 1952 and today 49 states have enacted TIF legislation. The purpose of TIF is to draw development into neglected areas of a city often deemed “blighted” according to state statute. In principle, TIF promotes economic development within the Tax Incremental District (TID) by “earmarking increases in future property tax revenues that result from increases in real estate values in the district.” 1
How does TIF work? Once a TIF district is designated, property values within the TID are assessed to establish a “baseline value.” Taxes on this baseline value continue to be used for government goods and services such as roads, schools, sewer/water, police, fire, etc. Meanwhile, as new construction and private investment increase the value of properties within the TID above the baseline value (known as “value increment”), the city gains a revenue stream or “tax increment” it reinvests back into the TID to pay for improvements it made to property (for example, constructing streets and utility infrastructure). In addition, municipalities may borrow against the projected value increases in order to assist in paying for development projects. Once a TID is terminated, all overlying taxing jurisdictions (city, county, school district, and technical college) share in the much larger tax base generated by improvements to the TID. As a result, “tax rates can be lowered to generate the same amount of revenue for the jurisdiction.” 2, 3
It’s not a silver bullet – TIF is a policy tool, and like any tool must be appropriately used. Ideally, TIFs are “self-financing” meaning the project itself creates the value that pays for it. However, many researchers point out that TIF is not a silver bullet and TIFs do not always spur private investment and therefore can fail to create enough increment to pay back the bonds used to fund TIF projects. Others explain that TIFs create a “tax gap” as inflationary forces increase the cost of government goods and services and revenues generated within the TID are limited to the baseline value. Even so, Professor David Merriman at the University of Illinois at Chicago says that TIF “can be a valuable mechanism…but deserves a lot scrutiny because public sector dollars are being re-routed into a different task, away from general purpose funds.” 4 Officials must carefully evaluate the costs and benefits of TIF.
TIF in Stevens Point – The City of Stevens Point currently has 5 TIDs in commercial and industrial zones. Most of the City’s growth is occurring in these TIF districts. TIF can be used to incentivize developers to bring projects into areas of the City that pose financial risks to the developer, often because comparable projects do not exist. Lenders use comparable properties when evaluating financial loan applications. In order to spur the type of development that is most beneficial, in the areas that are most appropriate, TIF becomes an important tool in this process. Otherwise, developers may choose to do the development in other communities in order to receive the needed return on investment.
The Division Street and Downtown TIF districts (TID V & VI) were created to remove blight and revitalize the core of the City. Currently the City is looking to expand the Downtown TID. Contrary to what some believe, the City does not have money squirreled away for TIF that would be better spent on underfunded areas of the City, such as road repair or schools. Another misconception suggests that TIFs will automatically raise taxes. Such misconceptions do not align with TIF legislation or the realities of the City budget.
TIF is neither all good nor all bad. Proponents of TIF argue that used judiciously and for high value projects, TIF can be an effective and sometimes necessary tool to redevelop the core of our city, strengthen our local economy, and attract new businesses and workers to the area. Detractors contend that TIF generally fails to deliver as promised and municipalities should find other ways to finance spending. However, both sides generally agree on two points: TIF works well for public infrastructure projects; and alternative financing options for large development projects may not exist. The City is left with difficult choices and few options when deciding how to grow in order to maintain and improve services.
1 Merriman, David 2018. “Improving Tax Increment Financing (TIF) for Economic Development.”
2 Millsap, Adam 2016. “Does Tax Increment Financing (TIF) generate economic development?”
3 State of Wisconsin 2012. “How does TIF work?” Wisconsin Tax Incremental Finance Manual.
4 Misra, Tanui 2018. “The Trouble with TIF.” CityLab. www.citylab.com.