The Basics of TIF

The Basics of TIF
What Is TIF? - Tax Incremental Financing (TIF) is a state program that allows cities to provide direct financial assistance for community-enhancing development projects, and to have that assistance repaid over time from the increased property taxes generated by the project.

What is a TID? - A Tax Incremental District (TID) is the actual area designated for the development projects.

The TIF Process

* A city establishes a TID by (1) deciding what properties to include in the TID and creating a boundary around them, (2) adopting a Project Plan to determine the intended scope and costs of the projects to be undertaken within the TID boundaries, and (3) determining that “but for” creation of the TID, the expected development would not occur.
* A Joint Review Board consisting of representatives from the city, the county, the local school district, any local technical college, and a member of the community then review and approve the TID and the Project Plan. The Joint Review Board’s job is to look out for the interests of all of the taxpayers affected by creation of the TID.
* After a TID is approved and created, the “base value” of the TID is determined, which is the value of the taxable property within the TID at the time the District is created.
* Taxes generated on this “base value” continue to be shared by all of the taxing jurisdictions (county, school districts, city) to fund provision of normal community services.
* The city borrows money (usually by issuing bonds) to help fund costs associated with the development project(s) that are to receive TIF assistance. The TIF assistance, along with funds from the developer, is invested in new real estate improvements within the TID.
* The new improvements increase the value of the real estate within the TID, resulting in an increase in the property tax revenues generated by that real estate.
* This increase in tax revenues generated within the TID (i.e., above the “base” level taxes), which is referred to as the “increment,” is used by the city to repay the funds borrowed to provide the TIF assistance.
* Repayment of the TIF assistance, and thus the city’s repayment of the borrowed funds, occurs over the life of the TID (typically 27 years), at the end of which the borrowed funds have been repaid in full and the TID is closed.
* Following closure of the TID, the taxes generated by the properties will be shared by all taxing jurisdictions.


A Visual Example



Graph Courtesy of WI Department of Revenue

When a TID is created, the current value of all the taxable property within the designated area is established. This total is the “base value” of the TID (the “base value” in the graph above is made up of the four stripes along the bottom). The taxes collected on this portion of the property value are shared by all the taxing jurisdictions (the county, the school district, etc). Over the life of the TID, all of the taxing jurisdictions collect taxes from the “base value” of the property in the TID. Meanwhile, new construction and investment increases the value of the property in the designated district. All of the taxes collected on the growth in value of the property (the “value increment”) go directly to the municipality as “tax increment” revenue. The city uses this revenue stream to pay for the investments made in the district. At the end of the designated TIF – or as soon as tax increments are collected to cover the approved amount of the district – the TID is closed. When this happens, the entire value of the property that was in the TID is returned to the tax rolls of all the taxing jurisdictions. In the graph above, this is shown with the band on the right side – the wider segments represent the higher dollar amounts being collected through increased property values.