Back To: Citizens Guide to St. Paul
Tax Increment Financing:
TIF (Tax Increment Financing)="Tax increment financing (TIF) allows cities to create special districts and to make public improvements within those districts that will generate private-sector development. During the development period, the tax base is frozen at the predevelopment level. Property taxes continue to be paid, but taxes derived from 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 future growth in the district." From - Tax Increment Financing TIF limits other taxing authorities (i.e. school districts) from benefiting from increased valuations.--Bleier 14:59, 13 Aug 2005 (PDT)
The "But For" Test - The "but-for" test is actually a funding requirement. Before creating a TIF district or subdistrict, a local government must find that in its opinion the subsidized development would not have happened "but for" the use of TIF (hence, the term "but-for" test).
More info about the "But For" test: "But For" in Minnesota
St. Paul TIF FAQ (and hopefully some answers)?
- Tax Increment Financing (TIF) in Minnesota - Minnesota House of Representatives Research
- Definition of Tax Increment Financing District in Minnesota state statue (see Subd. 9).
Arguments in Favor
- There is an opportunity cost to leaving land undeveloped (or underdeveloped), taking advantage of TIF can create positive development that has an overall net benefit for the community/city.
- TIF takes advantage of the "property tax" potential of a site help subsidize potential development on that site. If the deal has been contructed properly, then this money is only made available.
- Cities compete with one another for a limited number of development projects. The ability to use TIF financing is simply an additional tool for city officials to stimulate development.
- The strategic use of TIF on projects can stimulate additional development which does not rely on TIF financing and boosts the overall tax base for a community.
- Some developents sites have unusual problems which make it very hard or difficult to finance a good development project on the site. TIF financing can cover the extra costs of developing a site, beyond what the market is likely to cover.
- In providing TIF subsidies, the city has extra leverage over a developer to make sure that the development is friendly and meets the needs of the community.
- In the case of a site that has been polluted or damaged in some way - and its not practically possible to get the original owner to fix the damage or clean up the site, TIF is a tool for a city to make the site competitive for re-development and get it back on the tax rolls.
Concerns Or Arguments Against
- The over use of TIF financing in a market can create an office or housing surplus, which drives down rents and depresses property values. This has an overall net negative effect on property tax income for the city - which can result in long term problems.
- Overuse of TIF subsidies creates an expectation among developers that they will be able to get TIF money, whether or not the project really meets the appropriate criteria.
- There is a high incentive to misuse TIF subsidies.
- TIF subsidies give some businesses an unfair advantage over other businesses.
- Overuse of TIF subsidies creates new developments which are not paying real estate taxes, but are putting additional pressure on city infrastructure and services.
- When the city grants a TIF subsidy to a development, the effect is also felt by the local school district and county government, neither of which has a direct say in the designation of a TIF.
- The use of TIF to clean-up brown-fields or polluted sites takes the polluter off the hook and forces the public to pay for the clean-up of a mess made by an individual or corporation.
Other Notes / Disputed Points
- Some members of SPIF would like to make clear that a TIF subsidy is not FREE money. While it would appear, that no one claims that the money is "FREE," there do appear to be conflicting ideas about what kind of impact a TIF subsidy has on the budget.
- One argument is that use of TIF subsidies reduces future property tax income, while the new development funded puts additional "unfunded" burdens on city services. The "extra" cost of the new development comes at the expense of other citizens.
- A counter argument might suggest that any new expenses generated by a TIF project are offset by the long term benifits of the development on the local economy (in terms of jobs and spin-off development).
- Some opponents of TIF subsidies believe that the subsidy removes financial risk from the developer and puts it on the community. Others dispute this claim, pointing out that every development project comes with great risk and that the bulk of that risk is taken by the developer, even when a TIF subsidy is involved.
- TIF Reform: An article about TIF Reform - www.newrules.org
SPIF Discussions (about TIF)
- Chuck Repke's Definition of TIF (7/9/05) - http://forums.e-democracy.org/topic/54335
- The Coming Fiscal Crisis (9/17/05) - http://forums.e-democracy.org/topic/71047
- Clarification re: tax levy (9/23/05) - http://forums.e-democracy.org/topic/73228
- 40-story Penfield Tower (11/16/05) - http://forums.e-democracy.org/topic/80672
- More On TIF (11/17/05) - http://forums.e-democracy.org/topic/80737
- TIF Debate (11/18/05) - http://forums.e-democracy.org/topic/80830
- Developers and the City (6/20/06) - http://forums.e-democracy.org/topic/97531
- The Dream of Fiscal Responsiblity for St Paul (9/13/07) - http://forums.e-democracy.org/r/topic/3KhvULZBM7cQsTBj3BtqNv