Question

How does the Tax Increment Financing (TIF) property tax increment work? Describe in DETAIL how is the increment generated. (4-5 sentences)

Answer 1

Tax Increment Financing is basically subsidizes companies by refunding or diverting a portion of their taxes to help finance development in an area or (less frequently) on a project site. Such fund is basicaly used in improvig infrastructure or acquiring land, plying planning expenses etc.

How does TIF works:

1. TIF is authorized at the state level and administered by local governments. The local government designates an area it wants to target for redevelopment as a “TIF district”

2. State law defines the criteria for creating a TIF district. At times the critrias are expanded based on needs.

3. As businesses locate in a TIF district and the area redevelops, the property values rise. Rather than simply collecting the increased taxes from TIF district properties, the city splits the property tax revenues into two streams. The first stream is set at the original amount of the property value before redevelopment, known as the “base rate.” The second stream contains the additional tax money generated by the higher property value, or the “tax increment.”

4. The money a city invests in TIF projects is often obtained through the sale of bonds, which are then repaid over time with the annual tax increment funds