Questions Personal and Family

What is tax increment financing?


Sadhika Ravish

Conquer from within

Tax Increment Financing (TIF) is a well-known method of public financing.  Use of this method is done just like a subsidy for making redevelopment, infrastructure, besides several other community-development projects of different nations, which includes the United States. 

TIF bonds are used for funding land acquisition, water upgrades, parks, road construction, and environmental remediation, apart from many others. To understand the true meaning of TIF one must understand the advantages it offers and the important facts about TIF.

Advantages of Tax increment financing: 

•    TIF helps in the creation of new taxes, in place of simply making the redistribution of the existing revenues collected as tax.

•    TIF is one of the programs which are administered locally. It gets relative autonomy from the state and federal intervention.

•    It is one of the perfect, painless ways to make a collection of money.

•    It offers a shot-in-the-arm for the affected areas.

•    TIF acts as a good source of financing which allows governments to make significant investments in improvements without having any dependency on sources of fund, for example, capital reserves, intergovernmental transfers, or tax increases.

•    TIF can also support in self-financing of any project causing a very minimal negative impact.

Important facts about Tax increment financing:

1.    TIF mechanics- TIF uses increased values which are evolved from the redevelopment.  It captures the excess tax revenue coming from the specific area and using the same in a particular area.

2.    TIF is utilized for encouraging development as well as redevelopment which are otherwise quite difficult to occur. It retains or creates a job, makes redevelopment in blighted areas, develops affordable housing or correct polluted sites.

3. Use of TIF money needs to be done only in some specific ways.  It can be used for land acquisition, parking, demolition, utilities, financing, and also administration.

The above points clearly define what exactly is Tax increment financing and what are its associated advantages. In short, we can say that a TIF can be most appropriately used when the land uses are completely up-zoned, and there is a strong demand in the market.

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