What is a TIF?
Tax Incremental Financing (TIF)
Tax Incremental Financing is a financing tool that allows cities, village and towns to invest in improvements that will lead to property value increases within an area and to share the cost of those expenditures with the other taxing jurisdictions, such as the school district, county, and vocational/technical college district, that also benefit from increased property values and tax revenues.
When a tax incremental district is created, the value of real and personal property within the District at the time of creation is established as the “base value” of the District. Any increase in the value of district property over the base value is considered “value increment”. Property tax collected on the base value is distributed to all taxing jurisdictions according to the normal distribution of tax revenue. However, all local property taxes collected on any value increment, including taxes that would otherwise be collected by the county, school district and vocational/technical college district, are “tax incremental revenue” and are used by the City for project expenditures within the District. The City may borrow funds upfront to invest in the District and use TIF revenues to repay the borrowing (“traditional financing”) or may invest TIF revenues as they are received (“pay-as-you-go”).
A tax incremental district may remain in existence for a period of 20-27 years, depending on the specific purpose of the district and the date on which it was created. Upon termination of the District, all property tax revenues generated by property within what had been the District are distributed to the taxing jurisdictions in a proportional manner according to the normal distribution of tax revenue. It is only during the existence of the tax incremental district that the tax increment revenue flows only to the City for the purpose of covering District project costs.