Friday, January 8, 2010

TIF'S 101

What is Tax Increment Financing?

"Tax Increment Financing (TIF) allows cities to create special districts and to make public improvements within those districts that will generate private-sector development. During the development period, the tax base is frozen at the predevelopment level."

and from the Ohio State University Extension Fact Sheet ( I know but it also applies to Indiana)
"...the TIF program enables counties, municipalities, and townships to exempt from real property taxation the new value added to a parcel or group of parcels as a result of new property investment. Unlike the EZ program, TIF can be used with residential development. Another difference involves the exemption associated with a TIF. The EZ program abates taxes, whereas TIF does not change the taxpayer's tax liability or the valuation of the taxpayer's property. Instead, TIF enables the taxpayer to make payments to a special fund in an amount equal to the property tax liability. These payments in lieu of taxes are used by the local government to retire debt incurred for in infrastructure improvements needed to support the new real property investment."

From what I can determine it works like this: a developer purchases a plot of land, the city improves the property with roads, utilities, etc. and the developer's property taxes are put in a special fund to pay the city back for their investment.

I can see how this helps with improvements to the city and how it benefits the property owner (developer). I can also see the other side which is a decrease in the amount of property taxes collected.

So, in other words, do we help to improve property at the risk of lower taxes collected? Or do we wait and hope that the property is developed anyway and collect the whole amount of property tax based on the property after improvements have been made? hmmmmmmmmmmmm