In a TIF, the company or developer continues to pay the current property tax base of the TIF district and the local property tax rates. As the capacity of the district increases , the property taxes, (tax increment) paid by this increase in value is dedicated and paid to the development authority. The authority uses the increment to pay qualifying costs that are incurred for the TIF project. In other words, the City, County, School District continue to get paid on the current tax base. After the TIF district term is complete the current tax base plus the increment in the district or full tax value is applied to arrive at the full tax rate and paid to the appropriate entities.
The tax increment can be used as an up-front deposit towards the project that must be paid back over time. The increment can normally be used for infrastructure like water/waste water, and other utilities and can even be applied to roads, trails, and other special uses. It is highly recommended that the developer read and thoroughly understand how the funds can be used. As, statutes often change. Once the term of the TIF district has expired, the TIF district is decertified and the company/developer can no longer benefit from the tax increment. The increment is essentially redirected from the project back to the governmental agencies.
Normally governmental agencies have a formal application and due diligence period with deposits to be used for financial and legal consultants etc. If going through a City, the City Council must approved the TIF District and amounts and Public Hearings are required as per State Statute. The County and School District and any resident may voice their concerns or praise for the project, but the decision ultimately is decided by the City Council. If developers/companies are not able to finance a project on their own, then TIF may be an option. The concept of TIF is fairly simple, however it is a complex yet effective tool for assisting development. Statutes have complicated the use of TIF and the process can be daunting if you are unfamiliar with its use.
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.