TAX INCREMENTAL FINANCINGPublic Financial Management

5 May 2014 – ae847c39cbd2+

James P. Howard, IISchool of Public and International Affairs

Why Tax Incremental Financing?

◦ TIFs are a subsidy

◦ Used to fund infrastucture or redevelopment

◦ Used by public-private partnerships

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Bond Issuance

◦ Bonds are issued to pay for development

◦ Bonds are issued by the government

◦ Bonds are tax-exempt or tax-advantaged

◦ Bond proceeds are used for real estate development within TIF district

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Future Taxes

◦ Property taxes are leveled on the value of the property

◦ As property values increase, tax revenue increases

◦ Increased amount of taxes returned to government are dedicated to paying offbonds

◦ Government still collects the baseline amount

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Administrivia

◦ Usually administered by local government

◦ TIF may have its own formal management and staff

◦ Taxes are usually collected and paid by creating authority

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Types of Projects

◦ Urban renewal proejcts

◦ Transit-oriented development

◦ Redevelopment of industrial sites

◦ Development of new parks or open space

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Sustainable Bonds in Maryland

◦ Since 2013, Maryland allows TIFs to be used to fund sustainable development

◦ TIFs can pay for environmental clean up

◦ Historic preservation

◦ Affordable housing

◦ Schools and stormwater management

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More on Maryland

◦ Maryland local governments can increase borrowing

◦ MEDCO can sponsor bond issuance

◦ Debt will not count on local government’s balance sheet

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Examples

◦ National Harbor

◦ Baltimore’s Harbor Point

◦ Metro Centre in Baltimore County?

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Criticisms of TIFs

◦ Can create unaccountable slush funds

◦ Projects may not be realized

◦ Benefits tend to flow to special interests

◦ TIFs often lack transparancy

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