Tax Increment Financing, or TIF, is back in the news.
TIF is a redevelopment tool designed to incent development in an area, or for a specific building, that is either stagnant or declining in value. The developer must submit an affidavit verifying the development could not take place without assistance.
TIF allows the developer to capture the increment in real property taxes created by redevelopment and up to 50% of the increase in economic activity taxes for example the city portion of the sales taxes. TIF protects the current revenue stream for taxing entities receiving the property taxes for the life of the TIF up to a maximum 23 years. All details are outlined in a development agreement between the developer and the governmental entity in which the TIF is located.
So let’s say a building is currently generating $5,000 per year in property taxes and post development that same building generates $15,000 per year. The increment, $10,000 per year, can be captured by the developer to reimburse costs at the level shown to be what is necessary to do so to make the project work. The developer still pays those taxes annually but then receives an agreed to portion back from the governmental entity.
And if there are sales taxes generated over and above what was generated there before, up to 50% of those can be captured as well.
When used properly, TIF is an excellent redevelopment tool.