What is Tax Increment Financing?
Tax increment financing, or TIF, is a public financing tool that is used to invest in development, infrastructure, and other community improvement projects. TIF uses future gains in property taxes to subsidize current improvements, which are projected to create the conditions for projected future increases in property values. The completion of a public or private project often results in an increase in the value of that, and surrounding, real estate, which generates additional tax revenue. Sales-tax revenue may also increase, and jobs may be added, although these factors and their multipliers may or may not influence the structure of TIF.
When an increase in property value and private investment generates an increase in tax revenues within a designated Tax Increment District (TID), it is the “tax increment.” Tax Increment Financing dedicates tax increments within a defined district to finance the projects, including any borrowing. TIF was designed to channel funding toward improvements in distressed, underdeveloped, or underutilized parts of a jurisdiction where development, might otherwise not occur at the density or speed that development or redevelopment is desired. TIF creates funding for public or private projects by borrowing against the future increase in these property-tax revenues. Put succinctly, Tax Incremental Financing generates tax revenue that can only be used to fund infrastructure investment, cash development incentives, and other eligible projects that will facilitate development.
With the exception of Arizona and Wyoming, every state and the District of Columbia have enabled the use of tax increment financing. Some states, such as Illinois, have used TIF for decades, but others have only recently embraced TIF. Wisconsin enacted TIF legislation in 1975,
Cities typically use TIF to finance public infrastructure such as sewer and water system expansion, street expansion and construction, storm water, real estate acquisition and demolition, planning costs, and other improvements, including curb and sidewalk work, traffic control, street lighting, landscaping, park improvements, and environmental remediation.
TIF can also be utilized to fund grants and low interest loans for private development. The expectation is that Tax Increment Financing projects will increase taxable property value, as well as create new jobs, result in a more aesthetically pleasing area, and spur other area development.
State enabling legislation has given local governments the authority to designate Tax Incremental Districts (TID). The district usually lasts 20, or more, years, or enough time to pay back any bonds issued to fund the improvements. The life of a TID may be extended with concurrence from the Joint Review Board which includes representatives of the City of Merrill, Lincoln County, Merrill Area Public Schools, and North Central Technical College.
When a Tax Incremental District (TID) is created, the current value of all the taxable property within the defined boundaries is established. This value is the “base value” of the TID. The taxes collected on this portion of the property value are shared by the overlying taxing jurisdictions (City, County, Schools), and once the TID is created this portion of the tax collected is allocated as it always has been.
Over the life of the TID, the City, County and Schools all collect taxes from the property in the TID base. Meanwhile, new construction and investment increase the value of the property. All of the taxes collected on the growth in value of the property are turned over to the City as “tax increment” revenue. The City uses this revenue stream only to pay for the improvements that are included in the TID Plans.
Tax Increment Financing is a tool that the City of Merrill has embraced to facilitate development and redevelopment that otherwise is unlikely to occur. Blight elimination has been a priority of the Merrill Redevelopment Authority for the past several years. Recent façade improvements to 406 West Main Street and 811-813 East 1st Street have been funded through TIF development incentives and low-interest facade improvement loans.