George Laue

Tax Increment Financing

Pg.1-9

Due: 11/12/2013

The article begins by addressing what tax increment financing is. The definition I choose

was, “tax increment financing is a mechanism to finance public improvements for the purpose of

stimulating economic development” (1). To improve a public facility the TIF uses a form of

“value capture” or a type of public-private partnership in which the private sector compensates a

public agency for the cost of a facility that generates economic value. A public project such as

parking will often increase the value of surrounding real estate the increases in collected tax

revenues are the tax increment. However, a stand-alone Wal-Mart with a large parking area may

generate tax revenues but little pedestrian traffic and discourage small retail development thus

impose limits on the character of the area.

Stakeholders include the developer/entrepreneur, general taxpayer, sponsoring

jurisdiction, overlapping jurisdiction, and an urban planner. The developer/entrepreneur is often

an instigator because the sponsoring jurisdiction can make a public investment that will facilitate

their business plan and is pleased to pay more taxes because their land or business is worth more.

The general tax payer within the TIF will pay additional taxes if the value of their property

increases. But may be opposed because of increase tax and decrease cash-flow to pay it. The

Sponsoring jurisdiction hopes that the public improvement will increase net economic activity

within its boundaries but there can be a displacement because of increased service demands and

can be forced to reduce services. The overlapping jurisdiction hope that the investment in

infrastructure will result in net increased taxes when the debt is paid and all taxes are distributed

again. The urban planner is concerned about rationalizing space and resources and sees TIF as a

way of making strategic investments in infrastructure which results in coordinated development.

Looking at the issues and case studies concerning TIF it’s assumable that it’s still new

and evolving. Like, a financial discipline is required which small jurisdictions are often ill

prepared, cities need the capacity to assess the risk and be disciplined to walk away from

inappropriate risky transactions. So, there needs to be trust between public and private, informed

citizens, and a good planner, no one is perfect and the market is risky. There will always be

challenges but overall I think TIF is a good tool to use.