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    Tax increment financing (TIF) is a relatively new economic development tool. This tool allows districts to capture the increase on property taxes. Instead of all tax monies going back into the state, the district would be allowed to keep the money that is based on the percent increase. For example if there were a 1% increase in property taxes from year A to B, the district would capture that 1% increase for their district fund instead of it going back to the the general state fund.

    The process works like this: a redevelopment agency or authority decides the boundaries for a TIF district. The agency or authority is a group of people that is either approved by the local government (City Council) or appointed by the mayor. The agency then decides the boundaries for the TIF (street to street) and then sets a time limit for which the TIF will remain in place (i.e. 5 years, 20 years). During this time the tax base is frozen at the level before the TIF was in place. "Property taxes continue to be paid but taxes derived from the increases in assessed values (the tax increment) resulting from new development either go into a special fund created to retire bonds issued to originate the development, or leverage further growth in the district." (Emich.edu) The assessed value of the property is determined by the last tax roll in the district before the TIF is in place.

     

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    The idea is to capture the increase on property values each year and put them back into specific projects for the district - beautification, to recruit businesses, ect. in hopes that eventually the district will become viable enough to hold its own. Additionally, it is thought that this tool will later benefit not only the TIF district but the entire state, because that district will bring in an increased revenue (after the TIF time limit is complete that will go into the general state fund).

    But, does it work? Although most would not argue that TIFs have no positive contributions to their districts, there are several variables that affect HOW much the TIF actually helps its district and its state. Some of these variables are:

    - The area the TIF district covers. If a TIF district is very large it is likely that the redistribution of economic activity will be ineffective.
    - The length of time the TIF is in place.
    - How the TIF district affects the rest of the city in which it is. Some studies have found that TIF districts negatively affect the larger municipalities in which they are a part of because instead of creating capital they only move it around for short periods of time. It is argued that the TIF district ends up slowing down the growth of its neighboring non TIF districts. (UIllinois.edu)

    Although these are only limited variables to consider when analyzing the effectiveness of a TIF it is also important to remember that this is a new economic development tool that has been around for less than twenity years. Most TIFs have not been in place for long enough to analyze their affect on both the TIF district itself as well as the rest of the surrounding districts and the state as a whole.

    Sources:
    http://www.emich.edu/public/geo/557book/d232.tif.html
    http://www.igpa.uillinois.edu/system/files/WP75-TIF.pdf

     

     

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