Tax Increment Financing

Tax increment financing, or TIF, allows a local government to recoup the investment it makes to encourage economic development in a specified geographic area. The municipality defines the area and makes the improvements needed to encourage economic development. These improvements may include a variety of investments, such as extensions of water and sewer lines, improvements to highways, or cleanup of brownfield sites. Property taxes generated by new development in the area would be earmarked to repay the bonds (or other financing mechanisms) used to pay for the municipality's up-front investment.

There are generally two types of TIF districts – a “redevelopment area” and an “economic development area.” A redevelopment area is blighted and normal development would not occur without the creation of a TIF district. Redevelopment areas often include brownfields. An economic development area can be established to promote economic development and to create or retain jobs. Economic development areas can include traditional downtowns or new industrial parks.

This tool is one form of value capture financing (which is also included in this toolbox) in that it is based on the increase in property values in a given geographic area that resulted from a public investment.