Tax Increment Financing (TIF)
An economic development tool where the increase in property tax revenue generated by development in a designated district is captured to pay for infrastructure improvements in that district.
How It Works
Tax Increment Financing was first used in California in 1952 and is now authorized in 49 states (all except Arizona). When a TIF district is created through a redevelopment plan adopted by the city council, the current assessed value and corresponding property tax revenue are frozen as the "base." As new development increases property values, the additional ("increment") tax revenue above the base is diverted from the overlapping taxing jurisdictions (city, county, schools, special districts) to a TIF fund used for public improvements within the district, roads, utilities, site preparation, parking structures, facade improvements, or sometimes direct subsidies to developers. Most TIF districts have lifespans of 20-35 years, after which the incremental tax revenue reverts to the general tax rolls. Chicago operates more than 140 active TIF districts that collectively capture over $1 billion in annual property tax revenue, diverting it from the Chicago Public Schools and the city general fund. TIF is controversial: proponents (including the Council of Development Finance Agencies) argue it catalyzes development that would not otherwise occur (the "but for" test); critics (Good Jobs First, the Lincoln Institute of Land Policy) argue it diverts revenue from schools and other taxing bodies, often subsidizes development that would have occurred anyway, and distorts land use decisions. Illinois requires TIF districts to make formal "but for" findings, though enforcement is weak. The revenue diversion effect of TIF is captured indirectly in the CitySpend Fiscal Health Score through reduced property tax revenue available for general fund operations.
Related Terms
- Property Tax, A tax levied on real estate (land and buildings) based on assessed value. Property taxes are the single largest revenue source for most U.S. city governments.
- Assessed Value, The value assigned to a property by a government assessor for the purpose of calculating property taxes, which may differ from market value.
- Economic Development, City government efforts to attract business investment, create jobs, and grow the tax base, including incentives, infrastructure, workforce programs, and marketing.
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About This Definition
This definition is part of the CitySpend Municipal Finance Glossary, 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.