Tapping the Power of Tax Incremental Financing
The City of Medford relied on Tax Incremental Financing ( TIF ) to reduce the impact of the cost of the community ’ s newest water tower . TIF is an economic development tool available in nearly all states that municipalities can use to help pay for public improvements within a designated area . The extra money comes from future tax revenue realized through increased property values as a result of those public works improvements .
In Medford , for example , the designated area – called a Tax Incremental District ( TID ) – included land where the new water tower could be constructed . The water tower increased the water pressure in a portion of the community , allowing development and improvements that will increase property values and , therefore , property taxes .
A cooperative effort
Key to the process is cooperation from entities that receive property tax-generated funds from properties within the TID . Before a TID can be created , affected school districts , the technical college district , county , and municipality agree to freeze the level of tax revenue they receive from the designated area at a set level , and a base assessed value of the district is established . The municipality borrows funds for the improvements within the TID , and as development occurs , the value of properties in the TID increases . For up to 27 years the increased taxes from properties within the TID are used to repay the cost of the public improvement projects . It ’ s the “ increment ” – the difference between the set level of tax income from the TID and the actual property tax revenue received – that pays for the improvements .
TIF can be used to pay for demolition of buildings that are a blight on the landscape or to clean / remove contaminated soil , or to finance streets , sidewalks , sewer lines , water towers , and other public works .
States regulate their TIF programs and determine what entities are eligible to create districts . Most states give that power to cities and towns ; a few also allow counties to establish districts .
– Kay Kruse-Stanton
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