TIF's can only be used in conjunction with other financing; it doesn't work by itself. For example, TIF is only used when the development project meets the “But For” test or analysis. State Statues specify that Cities, Counties, or other governmental organizations cannot award a TIF to a project unless the project is not feasible on its own without financial assistance. In other words, the development project would not occur “But For” the financial subsidy and the project must be located within a TIF district. The market value of the TIF development must be higher than what would occur on the site, if TIF were not used.
So, why is the "but-for test" used? It is used to prevent excessive or unnecessary use of TIF. If a development would have been done anyway, why should TIF be used to assist it? The test is also used to protect the interests of other, overlapping governmental unite (like the County or School district), which would lose tax revenue unnecessarily if TIF funds supported developments that would be built anyway.
For more information on the use of TIF and other gap financing programs please contact Brian Beeman, Senior Advisor at IAG Commercial, your commercial real estate advisors.
Disclosure: Nothing in this blog is meant to be legal advice. Please consult with your attorney and be sure you fully understand TIF before considering using this type of financial tool.