Tax Increment Financing (TIF)

Tax Increment Financing, or TIF, is a financial tool used to assist a municipality in redevelopment of a specific area.  In order to establish a TIF district, a municipality must determine if the area is eligible as outlined in State Statute. Certain criteria must be met to designate an area as a TIF district. The area must be blighted or it must show signs of becoming blighted. The concept is such that development in the TIF would not occur “but for” the use of TIF funds. Also, the municipality must develop a redevelopment plan for the TIF District, which contains goals and objectives, as well as a budget for expected redevelopment costs. The municipality must hold a public hearing of the Redevelopment Commission to hear testimony from the public.

When an area is designated a TIF district, the amount of property tax the area generates is set as a base EAV (Equalized Assessed Valuation) amount. The EAV is the county Assessor’s way of assigning similar taxes to similar structures and spreading the property tax burden equally. As property values increase, all property tax growth above that amount can be used to fund redevelopment projects within that TIF designated district. The increase, or increment, can be used to pay back bonds issued to pay upfront costs, or can be used on a pay-as-you-go basis for individual projects. At the conclusion of the 23-year period, all property taxes are collected at the increased levels and the increment is no longer collected.

For example if a TIF district is designated and the total EAV is 100,000, then after a few years of redevelopment and investment, the total EAV is 175,000. The property tax paid on the incremental EAV of 75,000 goes into a TIF fund that can be used to pay eligible costs of the redevelopment. The base year amount of property taxes is still distributed to the many taxing bodies. Essentially, that amount is frozen and is paid to the taxing bodies for the life of the TIF, or 23 years.