Value Capture: Tax Increment Financing

Federal Highway Administration2017PDFBriefUnited States. Federal Highway Administration. Office of Innovative Program DeliveryBishop, ThayUnited States. Federal Highway Administration. Office of Innovative Program DeliveryUnited StatesValue captureImprovementsLand valuesTaxesTax Increment Financing (TIF) is a value capture revenue tool that uses taxes on future gains in real estate values to pay for new infrastructure improvements. TIFs are authorized by State law in nearly all 50 States and begin with the designation of a geographic area as a TIF district. Plans for specific improvements within the TIF district are developed. The TIF creates funding for public or private projects by borrowing against the future increase in these property-tax revenues. The intent is for the improvement to enhance the value of existing properties and encourage new development in the district. TIF districts are usually established for a period of 20 to 25 years, during which time all incremental real estate tax revenues above the base rate at the time the district is established flow into the TIF. The proceeds from the TIF can be used to repay bonds issued to cover up-front project development costs. Alternatively, they can be used on a pay-as-you-go basis to fund individual projects. In some States, private developers may self-finance infrastructure improvements, with the municipality reimbursing them from the tax increment as tax proceeds are received. In many States, areas must be blighted in order to for TIF districts to be established. The intent is for the TIF to be used to channel funding toward improvements in distressed, underdeveloped, or underutilized areas where development might otherwise not occur. Thousands of TIF districts have been established around the U.S. in cities of all sizes. The strategy is commonly used by local governments to promote housing, economic development, and redevelopment in established neighborhoods. Although TIF has not been used extensively to fund transportation infrastructure, some State laws specifically authorize the use of TIF for transport purposes.109