What is a TIF District?
TIF stands for Tax Increment Financing. The popular tool designed to boost economic development was originated in California in the 1950s. Instead of a municipality planning ahead to save money or asking taxpayers for a referendum to fund public infrastructure or requiring developers to put in the infrastructure for their project, TIF districts became a way for municipalities to capture property tax dollars in order to grow their city by establishing a base tax and placing property tax dollars above the base tax into a TIF fund.
A TIF District is a designated area a municipality wants to target for redevelopment. A municipality must ask, “Will the same kind of private investment occur here without an incentive?”
The answer must be no, but for the incentive provided by the TIF, the development would not occur in the designated area.
While each state establishes the requirement for local TIF districts, the State of Illinois requires that a TIF district must meet the conditions for qualifying areas as TIFs: blighted conditions. conservation conditions. industrial park conservation conditions.
The TIF Act states 65 ILCS 5/11-74.4-2(a):
….; that as a result of the existence of blighted areas and areas requiring conservation, there is an excessive and disproportionate expenditure of public funds, inadequate public and private investment, unmarketability of property, growth in delinquencies and crime, and housing and zoning law violations in such areas together with an abnormal exodus of families and businesses so that the decline of these areas impairs the value of private investments and threatens the sound growth and the tax base of taxing districts in such areas, and threatens the health, safety, morals, and welfare of the public….
Where are TIF Districts?
Today, TIF Districts are used in every state, except Arizona and Wyoming. Illinois passed the Illinois Tax Increment Allocation Redevelopment Act in 1977, making way for more than 250 municipalities to create hundreds of TIF districts throughout the state.
How Does a TIF District Work?
Once a TIF district is designated and approved, the property values in the year of the approval continue to flow to all taxing bodies as they normally would.
The base EAV (equalized assessed value) of a property in 2000 is established. That amount is frozen, and continues to go to the taxing bodies as it did before.
Then, a second fund, a TIF fund, is established. Funds for the TIF fund come from increases in property values, whether through inflation or because of development in the area. This stream does not go to the taxing bodies, schools, library and fire, but instead is kept separate to pay for redevelopment.
Who approves a TIF District?
Once physical and economic deficiencies are identified, a joint review board made up of local taxing bodies must review the plan for redevelopment within the TIF district. Residents and businesses within the TIF district have to be notified, and a public hearing must be held.
Before a TIF district is created, the Redevelopment Plan must be available for public review at least 45 days prior to the public hearing.
The TIF district proposal must pass through vote by the municipal governing board. Once established, a TIF district can last for 23 years, unless the TIF is dissolved by vote of the municipal board.
A TIF district extension works differently, though. Boards of taxing bodies are encouraged to provide letters of support to extend a TIF. While the letters are not necessary, they are provided with the TIF extension request, and must be passed through the State legislature.
What Input Does the Public Have?
Prior to the TIF being established, the municipality must provide a Redevelopment Plan for public review at least 45 days prior to a public hearing. The community can ask questions and state their point-of-view during this time.
A member of the community must also sit on the Joint Review Board with the other taxing bodies. A registry of interested residents and organizations must be created for each TIF and notice of important TIF activities shall be sent to those registered.
The public can review annual TIF documents on the Illinois Comptroller’s website. The previous three years’ data can be found here and older reports can be found here.
Who Controls TIF Funds?
The local municipality controls TIF fund spending. Unlike other municipal funds that are earmarked for salaries, water, road maintenance or transportation, municipal officials control the allocation and disbursement of funds within the TIF district.
The TIF Joint Review board is required to meet annually 180 days after the close of the municipal fiscal year or as soon as the redevelopment project audit for that fiscal year becomes available, to review the effectiveness and status of the redevelopment project area up to that date.
What Can Money in a TIF be used for?
State legislation states that TIF funds can be used within the TIF district for property acquisition, rehabilitation or renovation of existing public or private buildings, construction of public works or improvements, job retraining programs, relocation, financing costs, including interest assistance, studies, survey and plans, professional services such as architectural, engineering, legal, property marketing and financial planning, demolition and site preparation, day care services.
At times, TIF money has been used to incentivize or subsidize private developments. Claims that city leaders have “hand-picked” developments or projects occur often, and sometimes people question whether the boost of incentives for big corporations come at the expense of small, locally-owned businesses, both in increased taxes and market competition.
What Effects Do TIFs have on taxing bodies?
Taxing bodies continue to operate on the base rate established for 23 years. When more residents fall under their jurisdiction or when new developments come in, the local taxing bodies have to absorb the additional costs associated with services until the TIF district expires. TIF agreements usually don’t account for inflation, either.
After the 23-year period or 35-year period, if a TIF district is extended, the taxing bodies should see additional tax dollars on the back of the increased property value.
Are TIF Districts Effective?
It probably depends on who you talk to or what you read.
The Illinois Tax Increment Association says that TIF Districts help communities with 100 people to those with 2.8 million. As reported by the Illinois Tax Increment Finance Association, “A 1992 survey of TIF municipalities found that the average TIF project produced four dollars of new private investment for every dollar of tax increment investment.”
Proponents of Tax Increment Financing will say that the investments made within a TIF district spur growth that all taxing bodies will benefit from in the future decades.
TIF adversaries usually argue that TIF districts divert tax dollars from local taxing bodies when they are most needed.
Those funds, some say, belong with the local taxing bodies, especially in the hands of school districts.
While there are many examples of school districts asking local municipalities to find other ways to fund infrastructure for growth, a May 2018 article in WGLT.org quotes District 87 Superintendent Barry Reilly as saying, “The idea that we are not hurt—we being District 87—by a TIF because it will still be receiving the same amount of revenue as before the TIF is simply wrong,” said Reilly. “To the extent that the District 87’s levy goes to the developer, it’s not going to the students.”
While the Illinois Tax Increment Association reports that Illinois has one of the most stringent “but for” requirements, a Lincoln Institute of Land Policy report found, meaning that TIF districts can often be created just about anywhere. Some say that all TIF funds should only be used for public infrastructure while others call on developers to pay back all or part of their subsidy if they fail to produce what was promised.
In some cases, the “but if” clause has been called into question, citing that developments would naturally happen within an area, especially when the areas noted as “blighted” are within affluent areas of town.
In some cases, those who oversee TIF districts have been called out for allocating money to “pet projects” or “hand-picking” where TIF funds are allocated.
