Does TIF work?
Analysis of most localities using TIF programs indicate that it is a successful method for generating revenues for blighted areas.
One problem with TIF programs has been the ability to commit a community to debt liability outside the normal structure of decision-making. Although not a big problem in most cases, the legal and financial uncertainties resulting from a default could create serious problems for a community.
Advantages and disadvantages of tax increment financing
- Tax increment financing may create new taxes, rather than simply redistribute existing tax revenues.
- TIF is a locally administered program that has relative autonomy from state and federal intervention.
- It provides a relatively painless way to raise money.
- It provides a shot-in-the-arm for blighted areas.
TIF programs are seen advantageously or disadvantageously by various groups. Therefore, the concept could be explained in different ways to different groups. For instance:
- It can lead to interjurisdictional conflict, with municipal government fighting with school boards for local property tax share.
- TIF financing removes local elected officials from making decisions about use of public funds, and may unnecessarily insulate them from decision-making.
- TIF financing needs a project to initially raise tax revenues in the TIF district and "prime the pump."
- The TIF district creates another level of local bureaucracy.
- Power through TIF funding may be given to the administering board, and, if successful, may create a financing monster not easily controlled by local government.
- Borrowing against projected TIF revenues may be overly optimistic, and may lead to financial chaos if growth doesn't match projections.
Elected officials: a way to raise money for redevelopment painlessly, without having to deplete general revenues
Developers: a way for the city to make a commitment to redevelopment through public improvements or through write-down of the cost of land
Residents and homeowners: a way of funding redevelopment from taxes collected in the redevelopment district itself, without raising their taxes.