Tax Increment Financing:
What is TIF?: Tax Increment Financing, or TIF, is a public financing method that is used for subsidizing redevelopment, infrastructure, and other community-improvement projects in many countries, including the United States. TIF is a method to use future gains in taxes to subsidize current improvements, which are projected to create the conditions for said gains. The completion of a public project often results in an increase in the value of surrounding real estate, which generates additional tax revenue. Sales-tax revenue may also increase, and jobs may be added, although these factors and their multipliers usually do not influence the structure of TIF. When an increase in site value and private investment generates an increase in tax revenues, it is the "tax increment." Tax Increment Financing dedicates tax increments within a certain defined district to finance the debt that is issued to pay for the project. TIF is often designed to channel funding toward improvements in distressed, underdeveloped, or underutilized parts of a jurisdiction where development might otherwise not occur. TIF creates funding for public or private projects by borrowing against the future increase in these property-tax revenues.
Crticisms of TIF: Although politicians portray TIFs as a great way to boost the local economy, there are hidden costs they don't want taxpayers to know about. Cities generally assume they are not really giving anything up because the forgone tax revenue would not have been available in the absence of the development generated by the TIF. That assumption is often wrong.
“There is always this expectation with TIFs that the economic growth is a way to create jobs and grow the economy, but then push the costs across the public spectrum,” says Greg LeRoy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. “But what is missing here is that the cost of developing private business has some public costs. Road and sewers and schools are public costs that come from growth.” Unless spending is cut—and if a TIF really does generate economic growth, spending is likely to rise, as the local population grows—the burden of paying for these services will be shifted to other taxpayers. Adding insult to injury, those taxpayers may include small businesses facing competition from well-connected chains that enjoy TIF-related tax breaks. In effect, a TIF subsidizes big businesses at the expense of less politically influential competitors and ordinary citizens.
TIFs in Garland, Texas: In Garland, Texas, a TIF District board of directors (TIF Authority) chooses how to spend the money captured in the TIF fund. TIF funds can only pay for a specific menu of eligible projects. When the TIF expires, all assessed value revenues are paid to the respective taxing districts like before the TIF was designated. The illustration below depicts how a TIF district works.
TIF-eligible Projects in Garland:
- Project costs related to the cost of buildings, schools or other educational facilities owned by or on behalf of a school district, community college district or other state political subdivision.
- Railroad or transit facilities.
- Affordable housing.
- Remediation of conditions that contaminate public or private land and buildings.
- Preservation of the façade of a private or public building.
- Demolition of public or private buildings.
- TIF administration fees.
- Financing costs, including interest and payments to TIF bond holders.
- Land acquisition, capital costs and interest before and during construction related to the acquisition and construction of public works of public improvements (streets, streetscape enhancements, utility infrastructure, alleys, sidewalks, parking garages).
- Land assembly costs for projects listed above.