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Tax Incremental Finance (TIF)

Tax incremental financing (TIF) is a economic development / budgetary tool that allows cities and other municipalities to use the future tax revenues generated by a development project to finance the project's upfront costs.

How does TIF work?

A municipality establishes a TIF district around a specific area or development project. The municipality diverts from the various taxing bodies the future tax revenues generated by the development project (incremental tax revenues) to finance the upfront costs of the project. The school district, technical college, county, and even the city all lose tax revenue to fund unbudgeted projects including things like infrastructure improvements, building construction, and other expenses.

The municipality pays back the upfront costs of the project with the incremental tax revenues generated by the project. This can be done through a variety of means, such as issuing bonds or setting aside a portion of the tax revenues for repayment. Once the upfront costs of the project have been repaid, the incremental tax revenues are returned to the municipality's general fund to be used for other purposes.

TIF is often used to stimulate economic development and revitalize distressed areas by providing financing for projects that may not otherwise be economically feasible. However, TIF has also been the subject of controversy, with some arguing that it can create inequities, shift the burden of financing development from developers to taxpayers, and create long-term debt for the municipality. Alternatively, it can be argued TIF is often used as a budgetary tool working around levy limits.

What are 10 commonly advanced arguments in support of tax incremental finance?

1. TIF can stimulate economic development: TIF can help to stimulate economic development by providing financing for projects that may not otherwise be economically feasible. This can create jobs and increase economic activity in the area.

2. TIF can attract new businesses: TIF can be used to attract new businesses to an area, which can bring new revenue and economic opportunities to the community.

3. TIF can help to revitalize distressed areas: TIF can be used to help revitalize distressed areas by providing funding for projects that can help to stimulate economic activity and improve the quality of life in the community.

4. TIF can increase property values: TIF projects can increase property values in the area, which can lead to increased tax revenues for the municipality.

5. TIF can increase tax revenues: TIF projects can increase tax revenues by generating new economic activity and increasing the value of property in the area.

6. TIF can provide a return on investment: TIF projects can provide a return on investment for the municipality, as the upfront costs of the project are financed with the future tax revenues generated by the project.

7. TIF can be a flexible tool: TIF can be a flexible tool that can be tailored to the specific needs of a community.

8. TIF can be used in conjunction with other financing tools: TIF can be used in conjunction with other financing tools, such as grants or loans, to maximize the potential benefits of a development project.

9. TIF can encourage private investment: TIF can encourage private investment by providing a source of financing for projects that may not otherwise be economically feasible.

10. TIF can create a positive legacy: TIF projects can create a positive legacy for the community, providing long-term benefits and improving the quality of life for residents.

What are 10 commonly advanced arguments in opposition to tax incremental finance?

1. TIF can shift the burden of financing development from developers to taxpayers: Critics argue that TIF essentially allows developers to receive a subsidy from taxpayers, as the future tax revenues used to finance the project would not have been generated without the development.

2. TIF can distort the market: TIF can create an uneven playing field, as some projects may receive funding through TIF while others do not. This can lead to a distorted market, with some projects receiving an unfair advantage over others.

3. TIF can create inequities: TIF can also lead to inequities, as the benefits of the funded projects may not be evenly distributed among all members of the community.

4. TIF can lead to overdevelopment: TIF can create an incentive for developers to build more projects than would be economically feasible without the subsidy, leading to overdevelopment in some areas.

5. TIF can be difficult to evaluate: TIF can be complex and difficult to evaluate, making it challenging for policymakers and the public to assess the costs and benefits of a TIF project. This can lead to a lack of transparency and accountability in the use of TIF.

6. TIF can divert resources from other projects: Some critics argue that the use of TIF can divert resources away from other projects that may be more worthy of funding.

7. TIF can create long-term debt: TIF projects can create long-term debt for the municipality, as the upfront costs of the project are financed with the future tax revenues generated by the project.

8. TIF can discourage private investment: Some argue that TIF can discourage private investment, as investors may be less likely to invest in a project if they believe that the municipality will provide a subsidy through TIF.

9. TIF can be vulnerable to corruption: TIF can be vulnerable to corruption, as the allocation of TIF funding can be influenced by political considerations.

10. TIF can be difficult to terminate: Once a TIF district is established, it can be difficult to terminate, even if the project is no longer viable or the TIF district is no longer needed. This can lead to long-term financial obligations for the municipality.

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The Central Wisconsin Economy