TAX INCREMENTAL FINANCING

Tax Incremental Finance, or TIF, is a financing tool that allows municipalities to invest in infrastructure and other improvements,

and to pay for those investments by capturing property tax revenue from the newly developed property.

 

Typically, property tax revenue is shared by four major shareholders:  the municipality, the county, the school district and the area

vocational/technical college.  When an area is designated as a TIF District, all taxing authorities apart from the municipality agree to

freeze their share of the tax revenue at is current level for the life of the district.  This is called the base value of the TIF District, and

each of the taxing authorities will receive their share of the district’s base tax value for the life of the TIF District.

Base Value Graph

 

As the municipality and private developers make improvements to the district, property values increase and tax revenues follow upward.  

This additional revenue is called the district’s incremental revenue, and during the life of the district, all incremental revenue is surrendered

to the municipality. 

Incremental Revenue Graph

 

The municipality can use the additional revenue in its entirety to pay off any debt associated with infrastructural improvements within

the TIF District.  The municipality may also share that revenue with the private developers who have shared the cost of

infrastructural improvements.  This arrangement is accomplished through written development agreements between the developer

and the municipality.  Development agreements last for the life of the TIF District or until the developer's related debt is satisfied,

whichever occurs first.  Under the terms of a development agreement, property owners pay their full tax bill when due, and then receive

cash payments equalling a percentage of the incremental revenue in the months that follow.

At the end of a district's life, the higher level of tax revenue is then shared by all taxing authorities, as it was before the district was formed.

Now, however, each of the authorities enjoys a much higher level of revenue, thanks to the development that occured during the life of .the

TIF District.

TID Final Graph