Improving Tax Increment Financing (TIF) for Economic Development

DAVID MERRIMAN

POLICY FOCUS REPORT LINCOLN INSTITUTE OF LAND POLICY

ISBN 978–1–55844–377–8 (paper)

Policy Focus Report/Code PF050

ISBN 978–1–55844–378–5 (PDF)

IMPROVING TAX INCREMENT FINANCING (TIF) FOR ECONOMIC DEVELOPMENT

DAVID MERRIMAN

ISBN 978-1-55844-377-8

Improving Tax Increment Financing (TIF)

for Economic Development

One of the main responsibilities of local government is to promote economic activity for the beneﬁt of all stakeholders,

including residents and businesses. Tax increment ﬁnancing (TIF) is one tool that cities can use to support economic

development in a designated area by earmarking property tax revenues from anticipated increases in assessed

property values resulting from investment in that district. Virtually every state allows some form of TIF, which requires

cooperation between government and the private sector.

Yet, the fundamental attributes of TIF are still poorly understood, and its effectiveness is disputed. Many states

do little to track or evaluate the use of TIF. Recent ﬁndings show that TIF does little to deliver economic growth and

sometimes simply relocates economic activity that would have occurred elsewhere without TIF. Empirical studies

suggest that communities should use TIF cautiously to avoid diverting increased property tax revenues from overlying

governments, obscuring government ﬁnancial records, and facilitating unproductive ﬁscal competition between

neighboring jurisdictions.

Written by an expert and educator in public ﬁnance, business taxation, and urban economic development, this report

presents data about TIF usage, explains how it is intended to work, notes its conceptual strengths and limitations,

reviews academic evaluations of its use, and offers the following recommendations for improving its design.

• States should track and monitor TIF use.

• States should revise statutes to allow counties,

school districts, and other overlying local govern-

ments to opt out of contributing resources to TIF

districts.

• State legislators should review their “but for”

TIF requirements to determine whether they

are effective.

• Local governments should provide extensive, easily

accessible information about TIF use, revenues, and

expenditures.

• Researchers should study, document, and explain the

different outcomes resulting from TIF use in various

geographic areas.

Improving Tax Increment Financing (TIF)

for Economic Development

Front Cover: Founded in 2002, the Cortex Innovation District

in St. Louis is the Midwest’s innovation hub of development,

bioscience and technology research, and commercialization

for start-up programs and established companies in the area.

Top: An intersection in the Cortex District after the ﬁrst stage of

development. Photo: Cortex Innovation Community.

Bottom: This view of the same St. Louis intersection in 2016 shows

the completed Commons during The Murmuration Festival, a three-

day event hosted by Cortex so the public could enjoy the site and

explore the intersection of local art, music, science, and technology.

Photo: Cortex Innovation Community. Photograph by Louis Kwok.

Back Cover: The Pritzker Pavilion, designed by renowned architect

Frank Gehry, features large in Chicago’s Millennium Park, which was

partially funded by TIF. Photo: Serge Melki/Flickr CC BY 2.0.

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ABOUT THIS REPORT

This report explains how tax increment ﬁnancing (TIF)

districts work, illustrates TIF use with case studies from

around the country, discusses the rationales for using TIF,

describes TIF’s potential beneﬁts and pitfalls, and reviews

a large body of academic work that evaluates TIF’s effects

on economic development. The author also examines

additional academic literature about the impact of TIF on

school districts and other potential unintended side effects.

The report concludes that, although results are mixed, TIF

often fails to meet its primary goal to increase real estate

development and other economic growth. Based on these

ﬁndings, the report offers recommendations to make TIF

districts more successful, equitable, and efﬁcient. David

Merriman is an expert in state and local public ﬁnance,

business taxation, and urban economic development. He

teaches and performs research in the Department of Public

Administration and the Institute of Government and Public

Affairs at the University of Illinois at Chicago. His research

has been published in many peer review journals, and he is

frequently quoted in local and national news media.

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POLICY FOCUS REPORT SERIES

The policy focus report series is published by the

Lincoln Institute of Land Policy to address timely public

policy issues relating to land use, land markets, and

property taxation. Each report is designed to bridge

the gap between theory and practice by combining

research ﬁndings, case studies, and contributions from

scholars in a variety of academic disciplines, and from

professional practitioners, local ofﬁcials, and citizens in

diverse communities.

ISBN 978-1-55844-377-8 (paper)

Policy Focus Report/Code: PF050

ISBN 978-1-55844-378-5 (PDF)

ABOUT THE LINCOLN INSTITUTE OF LAND POLICY

www.lincolninst.edu

The Lincoln Institute of Land Policy seeks to improve quality of life through

the effective use, taxation, and stewardship of land. A nonproﬁt, private

operating foundation whose origins date to 1946, the Lincoln Institute

researches and recommends creative approaches to land as a solution to

economic, social, and environmental challenges. Through education, train-

ing, publications, and events, we integrate theory and practice to inform

public policy decisions worldwide. With locations in Cambridge, Mas-

sachusetts; Washington, DC; Phoenix; and Beijing, we organize our work

in seven major areas: Planning and Urban Form, Valuation and Taxation,

International and Institute-Wide Initiatives, Latin America and the Carib-

bean, People’s Republic of China, the Babbitt Center for Land and Water

Policy, and the Center for Community Investment.

3 Executive Summary

5 Chapter 1 Introduction

6 What Is Tax Increment Financing (TIF)?

6 What Are TIF Districts and How Do They Work?

9 How Does a TIF District Work in Practice?

13 Chapter 2 Potential Benefits and Pitfalls

14 What Are the Potential Beneﬁts of TIF?

15 What Are the Potential Pitfalls of TIF?

17 Chapter 3 Case Studies

18 Case Study 1: Atlanta BeltLine Tax Allocation

District, Georgia

20 Case Study 2: Jefferson County, Montana

22 Case Study 3: St. Louis, Missouri

24 Chapter 4 Use and Implementation

25 Where Has TIF Been Used?

32 How Has TIF Been Used?

35 Chapter 5 Transparency: Intensive TIF Use in Chicago

36 Background

38 Reform Efforts

41 Chapter 6 TIF Reversal: California’s Story

42 History

42 Limitations

43 Results

Contents

44 Chapter 7 Efficacy in Economic Development

45 Assessing TIF’s Successes and Failures

47 Effects of TIF Adoption on Economic Activity

53 Effects of TIF Adoption on School Finance

53 Other Effects of TIF Adoption

56 Chapter 8 Conclusion

57 Findings

58 Recommendations

59 Appendix

62 References

67 Acknowledgments

68 About the Author

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 3

Executive Summary

Crowds in Chicago celebrate the

opening of the Bloomingdale Trail

and Park, which was partially funded

through TIF. Photo: Charles Carper/

Flickr CC BY 2.0.

Promoting economic activity is a key function of local

government and requires cooperation between the govern-

ment and the private sector. Tax increment ﬁnancing (TIF) is

one tool that cities can use to support economic development

in a designated area by earmarking property tax revenues from

anticipated increases in assessed property values resulting

from investment in that district. TIF expenditures are often debt

ﬁnanced in anticipation of these future tax revenues.

4 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Although a number of states have used TIF for more

than half a century, TIF is poorly understood and its

effectiveness is disputed. This report presents basic

data about TIF usage, explains how it is intended to

work, notes its conceptual strengths and limitations,

reviews academic evaluations of its use, and suggests

methods for improving its design.

Today, TIF is legal and employed widely in every state

except Arizona, with heavy use in the Midwest. Yet,

many states do little to track or evaluate the use of

TIF. Academic research suggests that local govern-

ments enact TIF in part to capture growth that was

already occurring and in part to stimulate further eco-

nomic development. Studies also indicate that TIF’s

impact on economic activity is mixed: Many recent

ﬁndings show that TIF does little to deliver economic

growth and sometimes simply relocates economic

activity that would have occurred elsewhere without

TIF. Empirical studies of other TIF-related effects,

including its impact on school ﬁnance, land uses, and

budgeting, suggest that communities should use it

cautiously to avoid unintended consequences, such

as diverting increased property tax revenues from

counties, school districts, and other overlying govern-

ments; obscuring government ﬁnancial records; and

facilitating unproductive ﬁscal competition between

neighboring jurisdictions.

This report lays out the following recommendations

to address these concerns and help state and local

governments improve TIF’s usefulness.

1. States should track and monitor TIF use.

Basic monitoring helps states evaluate the use of

TIF and helps state legislators better understand

whether TIF regulations are achieving their goals.

2. States should revise statutes to allow coun-

ties, school districts, and other overlying

local governments to opt out of contributing

resources to TIF districts. This measure would

diminish or eliminate the incentive for local

governments to use TIF as a device to capture

revenues that otherwise would have gone to

overlying governments.

3. State legislators should review their “but for”

TIF requirements to determine whether they

are effective. Prior to the creation of a TIF

district, some states require proof that the

planned development would not occur “but

for” the tax increment ﬁnancing. An effective

“but for” clause can prevent communities

from using TIF when other tools might be more

helpful and transparent.

4. Local governments should provide extensive,

easily accessible information about TIF use,

revenues, and expenditures. This information

would enable local elected ofﬁcials to monitor

and regulate the application of TIF, shortening

the duration of TIF arrangements, for example,

or making other adjustments to the terms of

use as needed.

5. Researchers should study, document, and

explain the different outcomes resulting from

TIF use in various geographic areas. To date,

academic studies of TIF document mixed out-

comes but do not clearly identify the factors

that explain this variation.

The basic design of TIF has signiﬁcant virtues, but

decades of experience and research from around

the United States show that often TIF is ﬂawed in

practice. This report argues that, if used properly,

TIF can be an important tool to nurture economic

development in the public interest.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 5

CHAPTER 1

Introduction

A community’s economic growth and the well-being of its

residents are inextricably linked. Indeed, an area’s prosperity

and its citizens’ quality of life of depend in no small part on

the creation and maintenance of jobs that are both materi-

ally and emotionally rewarding. A community’s success also

requires regularly revitalized commercial activity; the main-

tenance and renewal of infrastructure; and the provision

of public goods, buildings, and services like police, schools,

hospitals, and public recreation areas.

Minnesota’s state legislature speciﬁes

the requirements for establishing a

TIF district. Photo: Minnesota

Historical Society.

6 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

In the United States, a community’s economic growth

is an important government function that requires

coordination with the private sector. Motivated primarily

by economic proﬁt, the private sector is well positioned

to act rapidly and efﬁciently when customers clearly

desire goods or services. Sometimes, private-sector

investments that may otherwise be viable can face sig-

niﬁcant impediments. These obstacles might be simple

physical incompatibilities, like viaducts that are too

low to allow modern truck trafﬁc or complicated social

problems, such as a workforce plagued by inadequate

training and high crime rates. When such impediments

arise, they can often be remediated by a combination of

private-sector and governmental activity.

How can these sectors work together? While the private

sector pursues proﬁt, government aims to provide its

target population with vital goods and services that are

balanced against the costs imposed on that populace,

generally as taxes and fees. Sometimes for-proﬁt and

government organizations receive assistance from

private nonproﬁts dedicated to delivering particular

goods and services, such as healthcare or affordable

housing, to the target population. In addition, the

government can use certain powers, including laws,

regulations, and taxes, to compel private-sector actions.

But the system operates best when government and

private-sector actors work in harmony to achieve

compatible goals by using their own tools—and TIF

can provide a framework for that cooperation.

What Is Tax Increment

Financing (TIF)?

Tax increment ﬁnancing is an economic development

method designed to coordinate the actions of govern-

ment and the for-proﬁt sector. TIF funds economic

development activities in a designated area by earmark-

ing the anticipated property tax revenue increases—

often called the “increment”—that will result if the TIF

investment stimulates new development and real

estate appreciation. Core elements of TIF include:

• a designated district with narrowly deﬁned

geographic boundaries;

• a deﬁned and limited operation period;

• expenditures that encourage economic

development; and

• real estate appreciation that generates new

property tax revenues.

As implemented in most states, TIF allows city govern-

ments to divert revenues of overlying governments—such

as counties, school districts, or other special districts

that share responsibility for providing public services—

to fund economic development activities. The rationale

is that diverted revenues are produced by the same

economic development that they fund—so these reve-

nues would not exist “but for” the TIF that enabled that

development. Therefore, in theory, there is no loss to the

overlying governments. Also, since revenues accrue only

with appreciation, developers receive no subsidy unless

they create economic development.

What Are TIF Districts and

How Do They Work?

The basic principles of TIF operation are consistent and

widespread: State legislation sets the conditions under

which TIF districts may be established and, subject to

state oversight, grants cities the right to operate TIFs.

These city governments typically pass an ordinance that

creates the TIF district and speciﬁes the district’s goals,

allowed expenditures, and terms of operation.

The TIF district’s revenues are then derived from property

taxes on the appreciation, development, and redevel-

opment of real estate within its borders. In general, that

revenue comes from property taxes that would otherwise

accrue for both the creating government and overlying

governments that levy property taxes on parcels within

the TIF district. Tax increment ﬁnancing allows those

revenues to accrue for the beneﬁt of the district itself.

Figure 1 illustrates this process. The curve for assessed

value without TIF shows the hypothetical value of par-

cels in the TIF district in the absence of the TIF district.

As depicted, the value of the parcels would have grown

from about $100 to almost $200 million between 2000

and 2020, even if a TIF district had not been estab-

lished. The curve for assessed value with TIF depicts

the hypothetical value of the parcels if the TIF district

The basic principles of TIF operation

are consistent and widespread: State

legislation sets the conditions under

which TIF districts may be established

and, subject to state oversight, grants

cities the right to operate TIFs.

Figure 1

Hypothetical Example of Assessed

Value With and Without TIF

Pre-TIF

BASE VALUE

Assessed value with TIF

450

400

350

300

250

200

150

100

2000 2005 2010 2015 2020

Assessed Value (in millions $)

with TIF

without TIF

Year

Base value

Increment caused by TIF

Base value

Pre-TIF

Assessed value without TIF

Assessed value pre-TIF

was created beginning in 2006. In this scenario, real

estate values grow more rapidly and, by the end of the

period, are valued at more than $400 million rather

than nearly $200 million. The base value of the TIF dis-

trict is the value of the real estate in the district at the

time the TIF district was established (approximately

$130 million, in this example).

The TIF district’s tax base (increment) is the difference

between the assessed value with TIF and the base

value when the TIF district was created. The tax rate

on the TIF tax base (not shown in the ﬁgure) is the sum

of the tax rates of all overlying governments, such as

counties, school districts, and other special districts.

A given tax rate generates less revenue for overlying

governments with a TIF in place than it would in the

absence of the TIF—unless the value of real estate

parcels in the TIF district would not have grown at all

without the TIF district designation. In ﬁgure 1, the

distance between the assessed value without TIF

curve and the base value represents the tax base lost

to overlying governments through the formation of the

TIF district.

Pre-TIF

BASE VALUE

Assessed value with TIF

450

400

350

300

250

200

150

100

2000 2005 2010 2015 2020

Assessed Value (in millions $)

with TIF

without TIF

Year

Base value

Increment caused by TIF

Base value

Pre-TIF

Assessed value without TIF

Assessed value pre-TIF

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 7

8 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Often, TIF ﬁnancing involves other sources

of revenue, including state or federal

matching funds or, in some cases, other

tax revenues.

The precise way in which TIF districts are formed and

operate varies from state to state and from case to

case. There is no simple typology to classify TIF dis-

tricts, but for the purposes of this report, they can be

divided based on the statutory conditions necessary for

their formation and the sources and uses of ﬁnancing.

State-enabling legislation sometimes allows for sepa-

rate qualifying conditions for several different types of

TIF districts. For example, Minnesota’s legislation allows

for six district types: economic development, housing,

redevelopment, renewal and renovation, soil condition,

and hazardous waste substance subdivisions (Minne-

sota House of Representatives 2017). Illinois allows the

use of TIF to remediate blight, to conserve areas with

many structures older than 35 years, and to promote

industrial parks in areas of high unemployment (Illinois

Tax Increment Redevelopment Act 2014).

Once a TIF district is formed, its ﬁnances can proceed

along a number of different paths as real estate in the

area appreciates and it begins to receive property tax

revenues. Sometimes, new private investments result

from the simple announcement that a TIF district has

been formed with the promise of future economic

development revenue. Thus, property values may grow

even prior to any substantial public investment. In this

case, the TIF district may be funded on a pay-as-you-go

basis: As appreciation creates TIF property tax reve-

nues, local governments can use the funds to improve

infrastructure or to compensate private developers for

allowable costs, such as building and site rehabilitation

or repair, or professional services, such as architectural

or engineering consultation.

In other cases, the mere announcement of a TIF district

is insufﬁcient to stir private investment, meaning that

public spending may have to occur ﬁrst. In this case,

a TIF development plan, together with the assurance

of a dedicated revenue source from real estate appre-

ciation, can be sufﬁcient to attract ﬁnancing for the

TIF. Typically, state legislation will explicitly allow local

governments to pledge proceeds from TIF districts as

a source of bond ﬁnance. If the TIF district development

plan is compelling, the municipality may even be able

to create a bond-ﬁnanced TIF by selling bonds with the

promise that revenues from incremental property taxes

will service them.

In other instances, developer-ﬁnanced TIFs use

conventional loans to developers for infrastructural

improvements. Once TIF revenues become available,

the developers are reimbursed. In some cases, the

TIF district’s primary purpose is to lower private

investors’ costs; TIF funds are then used to create a

development-subsidy TIF in which payments to private

developers exceed developers’ private expenditures

on public investments.

Often, TIF ﬁnancing involves other sources of revenue,

including state or federal matching funds or, in some

cases, other tax revenues. Unfortunately, there is little

data on the relative use of these different ﬁnancing

mechanisms, but anecdotal information suggests

that both TIF bonds and pay-as-you-go ﬁnancing are

used extensively. Weber (2010) describes the some-

times-complex TIF funding mechanisms used

in Chicago.

TIF statutes commonly require a ﬁnding of “blight”

as a condition to establish some or all types of TIF

districts. For example, Maine’s statute requires that

“[at] least 25%, by area, of the real property within a

development district . . . must be blighted” or meet

one of two other possible criteria (Maine Legislature

Revised Statutes 2017). The Tax Increment Financing

Act in Texas does not require an explicit ﬁnding of

“blight,” but it does require that an area contains “a

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 9

The Case apartment building, an inﬁll

development in Dallas, has attracted

more residents to the Deep Ellum District.

Photo: City of Dallas, Ofﬁce of Economic

Development.

substantial number of substandard, slum, deteriorated,

or deteriorating structures” or that the area meets

various other conditions.

Individual states sometimes require proof prior to the

creation of a TIF district that the planned development

would not occur “but for” the establishment of a TIF dis-

trict. For example, the Wisconsin legislation (in section

66.1105(4m)(c)1.a) requires that the decision to approve

or deny a proposed TIF depends in part on “whether the

development expected in the tax incremental district

would occur without the use of tax incremental ﬁnanc-

ing” (Wisconsin State Legislature 2018). In Indiana,

allocation of TIF revenues requires “a speciﬁc ﬁnding

of fact, supported by evidence, that the adoption of the

allocation provision will result in new property taxes in

the area that would not have been generated but for the

adoption of the allocation provision” (General Assembly

of the State of Indiana 2014).

Once a TIF district is operating, revenue can be spent in

a variety of ways. For example, the City of Chicago 2016

Annual Financial Analysis reports that, between 2009

and 2015, about 60 percent of TIF expenditures went to

economic development or infrastructure. Most of the

rest was directed to city facilities for sister agencies,

such as the parks and the school district, and

about 10 percent was spent in direct support of

residential development.

How Does a TIF District Work

in Practice?

The operation of a TIF district might be more fully

understood through the example of an actual TIF

district. In June 2005, the city council of Dallas,

Texas, passed an ordinance creating the Deep Ellum

TIF District. This particular district covers a mixed

residential, commercial, and industrial area of

about 157 acres near downtown Dallas; in 2008, the

city amended the boundaries to include about ten

additional acres. At the time of its creation, the total

appraised value of taxable real property in the TIF

district was approximately $108 million.

The project was designed to facilitate 18 new real

estate projects and about $400 million in new tax-

able private investment, as well as increased transit

use and improved environmental outcomes. Planned

TIF district expenditures of more than $27 million

will be ﬁnanced by tax revenues on “incremental”

10 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

real estate value in the district. The TIF district is

scheduled to terminate after 22 years in 2027—or

sooner, if revenue sufﬁcient to fund the proposed TIF

projects accrues faster. Figure 2 shows a map of this

TIF district.

The inset map shows the location of the district within

the city of Dallas and the larger map shows detail

within the district.

The TIF project plan calls for mixed-use development

including ofﬁces, residences, stores, and hotels based

on the expectation this will generate increases in

assessed value that will then generate increases in

property tax revenue.

Table 1 is from the ofﬁcial project plan for the Deep El-

lum TIF District and shows projected taxable assessed

property values, increments of assessed value (called

“anticipated captured value”), and sources of property

tax revenue for each year of the TIF district’s projected

life. Column 2 of that table shows that actual taxable

property values were about $108 million when the

district was created in 2005. As shown in column 3,

property value grew by about $6 million in 2006 (to

about $114 million) and by an additional $10 million

dollars in 2007 (to about $124 million). Property value

is then projected to grow each year after that for the

life of the project. Columns 4 and 5 show the amount

of property tax revenue derived from the increments

of assessed value and designated for use in the TIF

district. Beginning in 2008, revenue that would oth-

erwise have gone to either the City of Dallas or Dallas

County instead went to the TIF district. That year, the

increment in assessed values of $42.9 million would

have generated about $273,000 for the TIF district,

rather than the City of Dallas (an effective tax rate of

0.6 percent). An additional $54,000 (an effective tax

rate of 0.1 percent) that would have gone to Dallas

County also became TIF district revenue.

Figure 2

Deep Ellum TIF District Map

Source: City of Dallas, Ofﬁce of Economic Development (2014).

Deep Ellum TIF Parcels

Deep Ellum TIF Boundary

Rail Station

DART Green Line

Freeway or Tollway

Highway

Arterial

Local Road

Disclaimer: This product is for informational purposes and may not have been prepared for

or be suitable for legal, engineering, or surveying purposes. It does not represent an on-the-

ground survey and represents only the approximate relative location of property boundaries.

10 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 11

Table 1

Annual Real Property Appraisals and City/County Tax to the TIF Fund (Deep Ellum TIF District)

Tax

Year

Property

Value Total

Anticipated

Captured Value

TIF Contribution

City of Dallas

TIF Contribution

Dallas County

Total TIF

Contribution

Total TIF 2006

NPV @ 4.00%

2005

$107,990,540

2006

$114,140,302 $6,149,762 $0 $0 $0 $0

2007

$124,590,053 $16,599,513 $0 $0 $0 $0

2008

$150,935,989 $42,945,449 $273,011 $53,877 $326,888 $290,602

2009

$168,506,948 $60,516,408 $384,712 $75,921 $460,633 $684,353

2010

$402,025,968 $294,035,428 $1,869,227 $368,882 $2,238,109 $2,523,916

2011

$425,967,142 $ 317,976,602 $2,021,425 $398,918 $2,420,343* $4,436,748

2012

$509,592,727 $4 01,602,187 $2,553,945 $503,830 $3,0 57,775* $6,759,722

2013

$5 31,297,766 $423,307,226 $2,691,028 $531,060 $3,222,088 $9,114,070

2014

$539,267,233 $431,276,693 $2,741,691 $541,058 $3,282,749 $11,420,485

2015

$568,993,295 $461,002,755 $2,930,664 $578,351 $3,509,015 $13,791,050

2016

$577,528,194 $469,537,654 $2,984,921 $589,058 $3,573,979* $16,112,639

2017

$586,191,117* $478,200,577 $3,039,993 $599,927 $3,639,920* $18,386,122

2018

$594,983,984 $486,993,444 $3,095,890 $610,958 $3,706,848 $20,612,359

2019

$615,253,167 $507,262,627 $3,224,745 $636,386 $ 3,861,131 $22,842,066

2020

$624,481,964 $516,491,424 $3,283,413 $647,964 $3,931,377* $25,025,020

2021

$633,849,194 $525,858,654 $3,342,962 $659,716 $4,002,678 $ 27,162,08 3

2022

$643,356,932 $535,366,392 $0 $0 $0 $27,162, 0 83

2023

$653,007,286 $545,016,746 $0 $0 $0 $ 27,162,083

2024

$662,802,395 $554,811,855 $0 $0 $0 $27,162,08 3

2025

$672,744,431 $564,753,891 $0 $0 $0 $ 27,162,083

2026

$682,835,597 $574,845,057 $0 $0 $0 $27,162, 0 83

2027

$693,078,131 $5 85 ,0 87,591 $0 $0 $0 $27,162,08 3

2028

$703,474,303 $595,483,763 $0 $0 $0 $ 27,162,0 83

2029

$714,026,418 $606,035,878 $0 $0 $0 $27,162,0 83

2030

$724,736,814 $616,746,274 $0 $0 $0 $27,162,0 83

2031

$735,607,866 $627,617,326 $0 $0 $0 $27,162, 0 83

2032

$746,641,984 $638,651,444 $0 $0 $0 $27,162,08 3

2033

$757,8 41,614 $649,851,074 $0 $0 $0 $27,162,083

2034

$769,209,238 $661,218,698 $0 $0 $0 $27,162, 0 83

2035

$780,747,377 $672,756,837 $0 $0 $0 $ 27,162,083

TOTAL

During

TIF

$34,437,627* $6,795,906 $41,233,533* $27,162,083

Assumptions:

The city of Dallas is expected to participate in the Deep Ellum TIF District for a period of 19 years beginning in 2008 at a rate of 85%. Dallas County

is expected to participate in the Deep Ellum TIF District for a period of 19 years beginning in 2008 at a rate of 55%. The tax rate is assumed constant

at 2005 rate. The actual rate will vary annually. Tax appraisals are for January 1 of the year. Levies occur by September 30 of the year. Tax receipts

generally occur 12–13 months after appraisal. Property value estimates assume 1.5% annual property appreciation and 3% annual inﬂation.

Source: City of Dallas, Ofﬁce of Economic Development (2011, 2014).

* Figures corrected by the Lincoln Institute of Land Policy.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 11

12 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

The TIF project plan assumes that the effective

property tax rates charged by Dallas City and

County remain constant (at 0.6 percent and 0.1

percent, respectively) for the life of the project and

generate each year’s revenues based on expected

increases in incremental assessed values. In these

projections, the TIF district will continue to receive

revenue until 2021, at which time sufﬁcient reve-

nues will have been raised, according to projections,

to support expenditures planned for the TIF district.

Should the TIF district generate sufﬁcient revenues

earlier, the increment would revert back to the tax

base of the overlying governments of Dallas City and

County. If effective tax rates or rates of real estate

value growth differ from those assumed in the

project plan, revenue raised by the TIF district will

also differ.

Note that the formation of the TIF district has no

impact on the property tax liabilities of real estate

owners in the TIF district. That is, TIF is neither a

property tax break nor an increase. Rather, TIF is a

method for ﬁnancing public expenditures that may

then promote economic development. Of course,

to the extent that TIF districts divert property tax

revenue that otherwise would have been available

to other areas or uses, TIF may result in higher taxes

or lower services elsewhere, depending on how

overlying governments, such as school and special

districts, respond.

TIF IS NOT ADDITIONAL

LAND VALUE CAPTURE

Land value capture is a policy approach that

enables communities to recover and reinvest

land value increases that result from public

investment and other government actions.

Since well-functioning property tax systems

base obligations on the market value of real

estate, the property tax can be an important

form of land value capture (http://www.

lincolninst.edu/key-issues/value-capture-

property-tax).

Because TIF diverts revenue from real estate

appreciation that may in part be due to public

investment, some observers may erroneously

believe that TIF is a land value capture tool

separate from the property tax.

The property tax liability of property owners

in TIF projects is the same as in projects

using other funding mechanisms. Because of

that, the general public “captures” no more

of the value created by public investments

in a TIF district than it would without the

TIF district. In fact, if some TIF revenues are

used to subsidize private activity, as is the

usual case, TIF is more properly a device that

“transfers” value to, rather than “captures”

value from, the private sector.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 13

CHAPTER 2

Potential Beneﬁts and Pitfalls

Some of the most important tools used by local governments

to shape land use and encourage economic development

are not always recognized for their direct effect on economic

growth. These tools include public expenditures to promote

physical infrastructure, such as streets, bridges, and lighting,

and social infrastructure, such as schools, job training,

police, and ﬁre services. State and local governments often

also have access to property tax–related tools, including

incentives and special assessment districts (Kenyon, Langley,

and Paquin 2012). In every state except Arizona, TIF is yet

another economic development tool available to local policy

makers who must weigh the beneﬁts and problems of TIF in

deciding how to design and apply it.

Local businesses like the Murray Street

Coffee Shop increase activity in the

Deep Ellum TIF District in Dallas, Texas.

Photo: City of Dallas, Ofﬁce of Economic

Development.

14 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

State legislators and local ofﬁcials alike should ﬁrst

ask how TIF would best promote public well-being and

what potential pitfalls its use might create. Careful

consideration and a review of the evidence shows that

TIF has the potential to be a constructive and positive

force—but is also vulnerable to abuse, as this report

will consider.

What Are the Potential

Beneﬁts of TIF?

TIF can promote credible commitment between

government and private parties that might not

otherwise be possible.

TIF is not a property tax break, but it represents a

deviation from the usual budgetary process. Most

noncapital government expenditures on economic

development go through an annual appropriation

cycle and must compete with other spending priorities

for the support of a city council or similar govern-

ing body. Such revenues are explicitly appropriated,

whereas TIF district revenues are tax expenditures

(i.e., tax revenues diverted before they reach overly-

ing governments) requiring no explicit appropriation

once government ofﬁcials initiate the TIF district. The

justiﬁcation for this dedicated treatment of TIF funds

is that TIF is both a self-ﬁnancing and an incentive-

compatible mechanism for funding economic devel-

opment. At least in principle, the most important and

distinctive feature of TIF is that the revenues used to

fund economic development are generated by that

same economic development.

Imagine a real estate developer negotiating with a

city government about a potential development. The

developer would like the government to make some

infrastructure investments that would increase the

value of her property and help ensure that her private

investment will be economically rewarding. The gov-

ernment would like the developer to make a private

investment ﬁrst, to increase the property tax base,

enhance the quality of life in the community, and help

ensure that the developer will not renege on or reduce

her commitment after public investments are made.

TIF provides a potential way around this dilemma: The

government can promise the developer that property

tax revenue generated by any increase in real estate

value resulting from her private investment will be

dedicated for the sole use of public investment to

enhance the project. With this promise, lenders can be

persuaded to buy bonds backed by future TIF district

tax revenues, and those bonds can be used to pay for

public investments even before private investments

are made. The key is the credible and legal commit-

ment by the government to direct all future revenues

to economic development projects within the TIF

district. If the developer fails to make the promised

private investments, property values will not appre-

ciate enough to service the bonds backing the public

investment, resulting in default or the slowing (or

halting) of public investment. Either outcome could

severely reduce the value of the private investment.

The developer’s incentive to maximize the value of

the private investment is compatible with the govern-

ment’s incentive to increase the property tax base and

improve the quality of life.

TIF ensures mutual commitment and mutual beneﬁt.

Without it, the government ofﬁcials could make a ver-

bal commitment to the developer, promising to devote

revenue from incremental taxable property to eco-

nomic development projects within a given area. But

government ofﬁcials change over time, and potential

lenders and developers might worry that the govern-

ment’s commitment will not prove totally credible or

sustainable in the longer term. This might make them

reluctant to invest in the project.

TIF may facilitate widespread political support for

public investments with localized beneﬁts.

Imagine a public investment that will beneﬁt only a

small fraction of a municipality, like infrastructure for

a small shopping mall. Under ordinary circumstances,

citywide taxpayers may oppose this investment, even

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 15

when the beneﬁt to the immediately surrounding

neighborhood is greater than the public cost, because

the increase in taxes to pay for the investment will be

greater than the beneﬁt received for residents outside

the affected neighborhood. TIF presents a potential

mechanism to circumvent this problem because it

allows the government making the investment to cap-

ture some revenues that otherwise would have gone

to overlying governments while not unduly burdening

unaffected taxpayers. In this way, Brueckner (2001)

argues, TIF may improve the allocation of resources.

That said, local governments may accomplish similar

goals with alternative tools such as special assess-

ments—where tax rates rise only in a speciﬁc area to

accomplish a speciﬁc goal.

What Are the Potential

Pitfalls of TIF?

TIF may capture revenues that would otherwise go to

overlying governments.

Most states allow cities to establish TIF districts with-

out consent from overlying governments, such as coun-

ties and school districts, that may depend on the same

tax base. Unfortunately, these rules set up potentially

perverse incentives by allowing cities to claim property

tax revenue that they might not have received in the

absence of TIF. Establishing a TIF district allows city

governments to capture property tax revenue generat-

ed by non-TIF increases in taxable assessed values—

revenue that otherwise would have gone to special

districts and other overlying governments. In this case,

even though the TIF district fails to stimulate economic

development, it still beneﬁts the city government that

established it.

To avert these perverse incentives, many states include

a “but for” clause in their TIF-enabling legislation. As a

Minnesota source explains,

[The] Tax Increment Financing Act requires that

before a city establishes a TIF district, the govern-

ing body must ﬁnd that, “the proposed devel-

opment or redevelopment, in the opinion of the

municipality, would not reasonably be expected to

occur solely through private investment within the

reasonably foreseeable future.” This requirement,

known as the “but for” test, is intended to restrict

the use of TIF. (Minnesota Ofﬁce of the Legislative

Auditor, Program Evaluation Division 1996, 71)

If it were true that no real estate appreciation would

have occurred in the TIF district “but for” the TIF activ-

ities, overlying governments, such as school districts

and other special districts, would get the same amount

of property tax revenue that they would have received

without the TIF district. In this case, the TIF designation

harms no one and potentially beneﬁts both the private

developer and the city government creating the TIF dis-

trict. Eventually, the overlying governments also beneﬁt

when the TIF district is retired and taxable appraised

values revert to their tax bases.

In practice, however, the “but for” requirement has

been interpreted in a variety of ways. At most, it has

produced only a very loose constraint on the funding of

development activities. Minnesota’s legislative auditor

found that Minnesota cities “interpret the ‘but for’

requirement in a variety of ways.” Reasons for providing

TIF-based assistance to development included:

• unusual circumstances made the project too

expensive to develop otherwise;

• even though the development would likely occur

without TIF assistance, it would not occur at a

The key is the credible and legal

commitment by the government to

direct all future revenues to economic

development projects within the

TIF district.

16 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

location consistent with the city’s development

goals absent the assistance;

• the development would occur sooner with

TIF assistance;

• the development would be bigger or better with

TIF assistance;

• a company threatened to go elsewhere if it did

not get TIF assistance; and

• TIF allowed the city to make public

improvements that would not otherwise

have happened.

The auditor concluded that “given the variety of

interpretations available, it is difﬁcult to imagine a

development that would not meet the ‘but for’ test

in some sense” (Minnesota Ofﬁce of the Legislative

Auditor, Program Evaluation Division 1996, 73).

TIF can make governments’ ﬁnancial situations and

transactions less transparent and allow evasion

of political constraints on using public funds for

private purposes.

Because TIF revenues can be used only for limited

purposes, they are usually sequestered in special

funds, which contain a mixture of money that oth-

erwise would have gone to the city that established

the TIF and overlying governments. TIF revenues are

also temporary, as the TIF district expires at some

point. TIF districts use a variety of mechanisms to

document and account for the receipt of these funds.

In the most transparent cases, TIF authorities make

publicly available the TIF plan and a record of annual

TIF district receipts and expenditures, sometimes

with a great deal of detail, perhaps even including

account balances and fund transfers. Many TIF

districts fall far short of these ideals, however, or

provide materials late.

Indeed, even in the best cases, the existence of a

separate set of funds—outside cities’ operating

accounts and generally not reﬂected in their annual

ﬁnancial reports—may obscure, delay, or prohibit a

comprehensive picture of a city’s ﬁnancial condition.

If TIF district expenditures are not documented in de-

tail, observers may also suspect misuse of funds, such

as money funneled to political allies in particularly

egregious cases. TIF district budget transparency has

been a particularly controversial issue in cities such as

Chicago, which has many TIF districts and thus large,

sometimes temporary, reserves of TIF funds. This is

discussed more in chapter 5.

TIF can facilitate unproductive ﬁscal competition

between neighboring jurisdictions.

Business tax incentives in general—and TIF in

particular—are vulnerable to overuse if potential

beneﬁciaries can stimulate a virtual or actual bid-

ding war among competing governments. A busi-

ness that is considering expansion or relocation

may use the existence of tax incentive programs to

obtain beneﬁts or threaten to leave to obtain more,

even when a location would be the business’s most

proﬁtable option even without the beneﬁts. As TIF

policies usually allow many cities to offer TIF, busi-

nesses may ﬁnd several negotiating partners.

Economic theory suggests that under some con-

ditions such negotiations can reduce economic

efﬁciency. Recent empirical research shows that

business tax incentives in general are not well

targeted and often do little to stimulate economic

activity (Bartik 2017; Florida 2017; Kenyon, Langley,

and Paquin 2012). Evidence on the speciﬁc impact

of TIF districts is discussed in chapter 7 and shows

mixed results, with some studies showing a net

stimulus but others showing little or no effects.

TIF is yet another economic development

tool available to local policy makers who

must weigh the beneﬁts and problems

of TIF in deciding how to design and

apply it.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 17

CHAPTER 3

Case Studies

This chapter presents three case studies demonstrating

TIF use in a variety of areas: a large southern city (Atlanta,

Georgia), a rural western area (Jefferson County, Montana),

and an older Midwestern city (St. Louis, Missouri). While

three cases cannot fully illustrate the vast number of ways

and situations in which TIF has been used, these examples

provide some sense of the tool’s diversity and illuminate

many of its strengths and weakness.

Cortex Innovation District in St. Louis is

the Midwest’s premier hub of bioscience

and technology, serving start-up programs

and established companies. The master

plan provides for mixed-use development

for research, ofﬁce, clinical, residential,

hospitality, and retail spaces. Photo:

Cortex Innovation Community.

18 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Case Study 1: Atlanta BeltLine

Tax Allocation District, Georgia

This case illustrates how TIF can be used to support

a community vision that requires a prolonged period

of gestation and demands substantial public and

private investment. It also shows how plans can

evolve over time.

BACKGROUND

In 1999, Ryan Gravel, a graduate student at Georgia

Tech, proposed a new transit system linking multiple

Atlanta neighborhoods along old rail corridors

surrounding the city. The idea gradually gained

grassroots support, and a steering committee study

found that a tax allocation district (TAD)—Georgia’s

name for a TIF—could cover 60 percent of project

costs without requiring a tax increase. In 2004, the

Atlanta BeltLine TAD was approved by the city council

with the support of the mayor. In 2006, Invest Atlanta,

formerly the Atlanta Development Authority, formed

the Atlanta BeltLine Inc., and a $60 million capital

campaign was launched to support the project. By

2008, the capital campaign was 50 percent complete,

and more than $60 million dollars of bonds were sold

to investors with backing of TIF revenues. Over the

next several years, the BeltLine project increasingly

emphasized environmental responsibility, equitable

development, and affordable housing. Construction

proceeded on several transportation, recreation, and

housing projects.

Though many of the Atlanta BeltLine TAD’s goals are

comparable to those of other TIF projects throughout

the country, the BeltLine is unusual for its shape and

scope: This particular district encircles the city of

Atlanta and includes a 22-mile transit system, many

miles of trails, and numerous new and affordable

housing units (ﬁgure 3).

PLANS

The original 2005 Atlanta BeltLine Redevelopment

Plan, created by Atlanta Development, aimed to

change the pattern of spotty regional growth by

attracting and organizing future growth through

creating parks, transit, and trails. The plan focused

on acquiring land, creating trails and green spaces,

building a new transit system and improving exist-

ing transportation, developing affordable workforce

housing, and contributing to Atlanta Public Schools. In

2013, Atlanta BeltLine Inc.’s board of directors unani-

mously approved the 2030 Strategic Implementation

Plan (SIP). The project was supposed to be executed

in stages. The SIP prioritized certain projects and laid

out the funding mechanisms. The majority of fund-

ing was directed toward transit improvements even

though these projects are set to begin later in the pro-

cess. Atlanta Beltline Inc. will develop trails and parks

ﬁrst, using bond money, to create the tax increment

necessary to pay for the transit projects.

Figure 3

Map of Atlanta Tax Allocation District (TAD)

Atlanta BeltLine Corridor Atlanta BeltLine Tax

Allocation District (TAD)

Source: Atlanta BeltLine, Inc. (2018).

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 19

FUNDING

The SIP projected that the plan could be completed by

2030 and would cost $4.4 billion in total. Throughout

the duration of the project, the TAD funds are expected

to be the most substantial source of funding, account-

ing for about 33 percent of the total cost. Apprecia-

tion should generate approximately $1.5 billion in tax

increment revenue—a conservative estimate with

prices pegged to inﬂation. The next largest source of

revenue is expected to come from the federal govern-

ment—especially U.S. Department of Transportation

funding—that will be used speciﬁcally for BeltLine

transit projects. The remaining funding will come from

a combination of local sources, such as a new parking

tax and private donations. According to a project web-

site, the BeltLine has already received over $40 million

from private donations and $25 million from federal

sources. During the ﬁrst ﬁve years of Atlanta BeltLine

Inc. (2006–2011), $337 million was expended, about

35 percent of which came from the tax increment.

Another 44 percent came from city funds, with the

remainder from federal funds, philanthropies, or other

sources (Atlanta BeltLine 2013).

PROJECTS

The Atlanta BeltLine 2015 and 2016 annual reports

featured a “performance dashboard” that showed

mixed results. By 2015, the project had raised $449

million out of a total target investment of $2.8 to $4.8

billion by 2030. The project’s control of trail and transit

real estate was on time, but completed transit proj-

ects, streetscape construction, and affordable housing

were all behind schedule. In November 2016, Atlanta

voters approved two new taxes designed to speed

progress on the project: an extra one-half of a cent

sales tax to provide revenues for public transportation

and an additional four-tenths of a cent local option

sales tax to provide additional revenue to purchase

easements for the Atlanta BeltLine loop.

OPPOSITION

Though much of the Atlanta BeltLine project has

met with support, some local opposition has arisen

throughout its lifetime. In the early planning stages, a

resident sued the city on constitutional grounds, claim-

ing that the use of school taxes for security on bonds

violated the educational purpose clause of Georgia’s

constitution. The Georgia Supreme Court agreed and

declared the TAD’s use of public school taxes unconsti-

tutional, dealing an early blow to the project. Following

this ruling, however, the Georgia General Assembly

amended the state constitution to strengthen the

Redevelopment Powers Law, effectively bolstering the

legitimacy of TAD funding. Now ofﬁcially constitutional,

the project was able to continue with its original main

funding source.

In 2008, the Fulton County Taxpayers Foundation ﬁled

a lawsuit against the City of Atlanta and its public

school system, seeking an injunction to again prevent

the use of school property tax revenues for the TAD.

Despite the recent amendment, the Foundation argued,

the Educational Purpose Clause remained intact. In

a unanimous vote, the Georgia Supreme Court ruled

that the use of TAD ﬁnancing for the BeltLine and other

TAD projects in the state is constitutional, technically

overturning the court’s prior decision in light of the new

constitutional amendment and allowing Georgia’s TIF

mechanism to continue funding a range of projects.

The BeltLine project, with the conﬂuence of concerns

about gentriﬁcation, government spending, and issues

of race, illustrates how a TIF mechanism can become

so closely scrutinized.

20 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Case Study 2: Jefferson

County, Montana

This case illustrates how a small county used TIF to

cushion community transition when one source of

economic activity slowed, requiring new sources of

jobs and income.

BACKGROUND

Located in southwestern Montana, Jefferson County is

home to 11,406 people who enjoy a median household

income of $60,863—well above the state median of

$46,230. The county includes Boulder, Jefferson City,

Clancy, Montana City, and Whitehall, as well as several

smaller towns. The county’s economy depends largely

on its natural resources, including agriculture, forestry,

and mining.

The Golden Sunlight Mine, a long-standing presence

in the local economy employing about 200 people from

the county, was expected to exhaust its resources and

close sometime in 2015. In 2009, anticipating this loss

of employment, Jefferson County and the Jefferson

Local Development Corporation (JLDC), in partner-

ship with mine operator Barrick Gold, proposed the

implementation of a TIFID (Tax Increment Financing

Industrial District). The mine did not close in 2015 and

is expected to continue operation into the next decade.

Economic development efforts have continued on the

land surrounding the mine.

Until 1989, Montana allowed TIF only for rehabilitation

within designated urban renewal areas. In that year, the

state legislature amended the Montana Urban Renewal

Law to allow TIFIDs to be used to develop and retain

“value-added” companies—that is, companies that

convert raw materials into more valuable products that

can be traded. With this in mind, the Jefferson

Local Development Corporation formulated and

submitted a new plan for the Sunlight District.

PLANS

The 2009 Jefferson County TIFID Plan, which proposed

the Sunlight Business Park, outlined the types of indus-

trial developments being sought and analyzed related

infrastructure needs. First, the plan identiﬁed ﬁve key

potential industries particularly suited for the economy

and the needs of both Jefferson County and Montana

as a whole. These industries included metal ore mining,

general manufacturing, food manufacturing, engineer-

ing services, and electrical power generation (except

hydroelectric, fossil fuel, and nuclear).

The plan also identiﬁed a signiﬁcant deﬁciency in

usable infrastructure. The only roads identiﬁed in the

district were described in the plan as “primitive” and

“unpaved.” The district had an electrical transmission

line and an electrical substation line but no gas or

electrical supply lines outside of the mining properties.

Additionally, there were no water supply or treatment

lines outside of the Golden Sunlight Mine. TIFID funds

would be needed to build and extend the infrastructure

for development to occur within the TIFID.

FUNDING

The proposed development projects would be funded

through annual tax increment appropriation and con-

ventional ﬁnancing through Jefferson County but man-

aged by the JLDC. The plan emphasized partnership

development including existing partnerships among

Jefferson County, the JLDC, and Barrick Gold. However,

the JLDC planned to seek additional partners, includ-

ing state and federal government funding programs, to

speed up and ease the development process.

PROGRESS

The JLDC used the dedicated local portion of revenues

from a tax on metal mining (in this case, gold) to secure

a $655,000 loan from the county to fund infrastructure

in the TIFID. The Great Recession discouraged new

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 21

In 2015, Jefferson County, Montana implemented a Tax Increment

Financing Industrial District (TIFID) to compensate for the

expected closing of the Golden Sunlight Mine. Photo: Mark Briggs,

Barrick Gold of North America, Inc.

business activity in the region, however, and during the

ﬁrst few years of operation there was little new econom-

ic activity in the Sunlight TIFID. In 2013, Jefferson Coun-

ty amended the Sunlight TIFID Plan yet again to include

a Tax Increment Financing Revolving Loan Program. The

new program was funded with incremental property tax

revenues. The JLDC intended to entice new business

development to the area. The revolving loan fund is

perpetual and can continue even after the TIFID expires.

Actual construction in the TIFID area did not commence

until May 2014, when the county broke ground on a new

business park.

In the ﬁve-year period between the original Sunlight

TIFID proposal and the 2014 groundbreaking, Jefferson

County and the JLDC recognized the increasing impor-

tance of rapid Internet access for business development

and decided to use the TIFID to reinvent and invigorate

the local economy. This caused a shift away from the

original proposal, which focused on resource-oriented

development, to a plan to attract more high-tech com-

panies and jobs, which in turn altered the original plans

of the Sunlight Business Park. By early 2017, three units,

including ofﬁce and warehouse space, had been built

in the business park and were occupied by businesses

focused on the Internet, wind energy, and medicine. One

company was a business already established within the

county, that moved to the park and expanded employ-

ment to take advantage of faster Internet service. The

wind-energy ﬁrm, LGT Advanced Technology Limited from

the United Kingdom, also moved in. By early 2017, the

companies had added only a small number of jobs, but

the JLDC remains hopeful that future growth will create

more well-paying, permanent jobs in the next few years.

CHALLENGES

Since its conception, the Sunlight TIFID was unique-

ly poised for success. Jefferson County had a built-in

organization to manage and help plan the TIFID with the

JLDC as well as the commitment and support of one of

the largest corporate entities in the area—Barrick Gold,

which operates the Sunlight Gold Mine. The company has

demonstrated its commitment to ensuring the county’s

economic stability. For example, the company leases the

land for the Sunlight Business Park to Jefferson County—

a total of 48 acres—for just $10 annually.

Loans from the county, supported by dedicated revenues

from the metals tax, were used to create the infrastruc-

ture needed to make the business park operable, as

well as to ﬁnance construction of the ofﬁce building and

warehouse. Through early 2017, development in the TIFID

was slow—perhaps because of a lack of advertising and

recruiting due to the limited resources available to the

JLDC. This illustrates the “chicken and egg” problems that

can arise with “pay-as-you-go” TIF, which must generate

revenues through new tax increments provided to the

district. The lack of advertising contributed to the slow

real estate development, and subsequent tax increments

provided insufﬁcient funds to support advertisement and

recruitment. This, along with poor economic conditions

during the time the TIFID was started, resulted in slow

initial development in the area (Harrington 2017).

Despite this, there has been some development in the

TIFID, which has beneﬁted the community beyond its geo-

graphic boundaries by making possible the expansion of

ﬁber lines to support rapid Internet service in surrounding

communities. Proponents hope that this will enhance

business opportunities in the region in the long run.

22 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Case Study 3:

St. Louis, Missouri

This case study illustrates the use of TIF in a big

city facing severe ﬁscal, economic, and competitive

challenges. Missouri’s TIF law, though similar to other

states’ in some respects, uses unusual mechanisms

and language.

BACKGROUND

In Missouri, a TIF district technically freezes property

taxes within the district but requires that property own-

ers make Payments in Lieu of Taxes (PILOTS) to a special

fund—at a rate of 100 percent. These PILOTS should not

be confused with payments of the same name some-

times made by universities and charitable organizations

that are exempt from property taxes in other states

(Langley, Kenyon, and Ballin 2012). Missouri also allows

for up to 50 percent of local income and sales tax reve-

nue generated by new economic activity to be captured

and diverted into the special-allocation fund, which is

then used to reimburse the developer or to retire debt

from bonds used to ﬁnance development.

By early 2016, there were well over 100 TIF projects in

the city of St. Louis alone, making it among the most

active TIF users in the United States. A local research

and advocacy group, Better Together St. Louis, found

that $2 billion of public tax dollars had been diverted to

developers in the region through TIF. The same group’s

2011 survey of TIFs in the St. Louis metropolitan area

found that about 80 percent of TIF projects in the region

were retail-oriented development projects; residential

development was another common use of TIF in the area

(Coleman and Murphy 2014).

With so many TIF districts in St. Louis, however, mixed

results are not surprising.

STORY OF SUCCESS: INNOVATION

DISTRICT REDEVELOPMENT AREA

Approved in 2012, the Cortex Redevelopment Plan, also

known as the Innovation District Redevelopment Area,

was one of the largest TIF-supported undertakings in

the St. Louis area. The plan included developing ofﬁces,

research facilities, stores, a healthcare facility, a recre-

ational open space, and a new public-transit station—

all on largely vacant land that had resulted in part from

the loss of jobs and population in the area. The plan is

estimated to be completed in 2024 and projected to cost

upward of $2 billion, including $158.2 million funded

by TIF.

Despite its relatively new status, Cortex is considered

one of the most successful TIF undertakings in St. Louis.

During Phase I of the project, the Cortex Innovation

District used around $10 million in TIF funds to inject

$155 million of investment and to create 955 technology

and management jobs in the area. Phase II is expected

to spur $186 million of investment within the district, as

well as 1,400 more well-paying, permanent jobs. Over

the course of the 25-year project, the Cortex Innovation

District is expected to produce an estimated 2,400 jobs.

By late 2016, the Cortex District reportedly had 4,100

people working for 260 companies and was adding

additional economic activity including new hotels,

apartments, and retailers (Barker and Bryant 2016).

Unlike many TIF projects in the city, the Cortex Innova-

tion District has managed to procure outside funding

and partners. Cortex has paired with two major universi-

ties in the area—Washington University in St. Louis and

University of Missouri—as well as private, nonproﬁt,

and government organizations. Though TIF remains inte-

gral to the district’s further development, these outside

partnerships have helped the Innovation District to

thrive. The use of TIF in St. Louis reﬂects the urgency felt

by public, private, and nonproﬁt leaders to ﬁnd a path to

regeneration after devastating losses of population and

jobs that left wide swaths of vacant and underutilized

urban land.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 23

STORIES OF FAILURE:

GRAND AND SHENANDOAH

Not all of the TIF districts in St. Louis have been as

successful as the Cortex TIF district. A 2018 summary

of St. Louis TIF districts on the city’s website lists

approximately 180 TIF districts (St. Louis Development

Corporation 2018). Most of these are still active in 2018,

so it is difﬁcult to render a ﬁnal judgment on their

success. Roughly 20 of the TIF districts were terminat-

ed before completion, and approximately 16 ultimately

failed to get approval after potential developers ﬁled

applications with the redevelopment agency.

The Grand and Shenandoah District, approved in

February 2007, was terminated before completion.

The city ordinance creating the TIF district described

a plan to use $2.5 million in TIF borrowing in addition

to other revenues to ﬁnance more than $7 million of

redevelopment on two blighted parcels at the corner

of Grand and Shenandoah Avenues. The plan called

for the demolition of a building that formerly housed

a YMCA and the construction of a new, mixed-use

commercial building with 14,000 square feet of retail

space and 16,000 square feet of ofﬁce space. The plan

also involved rehabilitating a 1895 historic building

once used as a high-end restaurant, before it fell into

disrepair. The city’s 2007 annual report on the project

ﬁled with the Missouri state auditor estimated that 125

jobs would be created (Missouri Ofﬁce of State Auditor

2018). The developer, however, could not secure the

needed preconstruction leasing commitments and,

therefore, was unable to get ﬁnancing for the project.

The TIF district was dissolved in 2016 without creating

any new jobs and with only approximately $6,000 in tax

revenues since its inception. After this TIF failed, the

city was later able to attract new developers by using

tax abatements and, by early 2018, renovation on the

historic restaurant was underway and additional con-

struction was planned at the site of the former YMCA.

Studies have found that jobs created in TIF districts

can displace jobs in competing businesses that do not

Washington University in St. Louis and the University of Missouri

among others partnered with Cortex to help launch the Innovation

District. Photo: bluepoint951/Flickr CC BY-NC-SA 2.0.

thrive or survive in surrounding neighborhoods. Thus,

one neighborhood may beneﬁt while the surrounding

areas suffer, resulting in minimal net beneﬁt to the city

as a whole (Coleman and Murphy 2014). Another study

noted the sharp decline of small retail stores employing

10 or fewer people, suggesting that large businesses

gained sales and employees at the expense of smaller

local businesses (East-West Gateway Council of Govern-

ment 2011). Coleman and Murphy (2014) argue that this

trend indicates there is less room for local entrepre-

neurs in the market and indicates an increased likeli-

hood of reduced proﬁts for the City of St. Louis.

Literature suggests that these unsuccessful projects

failed because over 80 percent of TIFs are for retail

projects that serve a local market. Unlike Cortex, these

retail jobs are not being created by TIF; they are merely

being displaced. Other projects may be less successful

due to a strong dependence on TIF ﬁnancing rather than

community partnerships that would help ensure long-

term success.

24 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

CHAPTER 4

Use and Implementation

TIF is a local government program facilitated by state-

enabling legislation with varying state involvement. Some

states, such as Maine, simply verify that proposals for

local TIF districts meet statutory requirements but do

not track or monitor TIF districts once they are created.

Others, such as Illinois, require annual reports on each

TIF district and provide state-level data about TIF use.

Nationwide, TIF has certain common elements (described

in chapter 1), but each state has its own enabling legisla-

tion and regulations for the use of TIF. States set the rules

for establishing and modifying TIF districts, the length of

time they may be in effect, the acceptable uses of funds,

the reporting requirements, and other guidelines.

In Maine, TIF was used to fund the Bath

Iron Works modernization project, which

created a dry dock launching facility.

Photo: Ted Kerwin/Flickr CC BY 2.0.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 25

Early studies documenting state TIF legislation include

Johnson and Kritz (2001), Johnson (2002), and Council

of Development Finance Authorities (2008). As of early

2018, there are two web-based resources that provide

information about TIF rules across the United States.

1. The Council of Development Finance Agencies

(CDFA) has an online Tax Increment Finance

Resource Center (2017) that provides a wealth of

information, though some items are available only

to paying members. The site provides an open-

access state-by-state map that allows users

to click on a U.S. state and obtain a link to that

state’s TIF statute and summary information about

requirements for district creation, eligible public

costs, ﬁnancing options, maximum length of dis-

trict, and several other items. (This data excludes

Arizona, which does not allow TIF.)

2. Signiﬁcant Features of the Property Tax Database

(2018), updated annually and produced through a

partnership of the Lincoln Institute of Land Policy

and the George Washington Institute of Public

Policy, provides a range of information on the

property tax and TIF laws in each state, including

relevant statutes, program names, geographic

requirements, descriptions of incentives, and

more. The website includes information about

TIF programs in each state. The appendix table

in this report (p. 59) is drawn from that website

and contains the most current available informa-

tion about the name of the TIF program in each

state, the allowable duration of TIF districts, the

legal requirements to create a TIF district, the

agencies that must approve TIF districts, and the

requirements for public hearings.

Where Has TIF Been Used?

Both resources focus on the legal authority for TIF, but

neither source provides data on the tool’s actual use.

National data on TIF use is extremely difﬁcult to com-

pile because many states do not monitor TIF use once

a district is authorized. The International City/County

Management Association (ICMA) has sponsored several

surveys asking local government ofﬁcials about their

economic development activities. Their 2014 survey

reports that about 42 percent of the 1,148 responding

local governments are using TIF as a source of funding.

Warner and Zheng (2013), Felix and Hines (2013), and

Greenbaum and Landers (2014) all provide analyses of

earlier ICMA surveys and ﬁnd similar percentages of

respondents offering TIF-type economic development

incentives. However, as Greenbaum and Landers point

out, the response rate to ICMA surveys is generally

relatively low—around 25 percent—and thus may not

be representative of all local governments. Greenbaum

and Landers also ﬁnd signiﬁcant regional variation

in the use of TIF by respondents to the ICMA’s 2009 sur-

vey, with 74 percent of respondents in the north-central

region reporting use of TIF, compared to only 24 percent

of respondents in the Northeast.

Table 2 (p. 26) provides information about the legal

uses of TIF revenues and estimates of the number of

TIF districts in each state. In some cases, the esti-

mates have been compiled by state authorities and

are quite precise. In other cases, where the state does

not track or report the number of TIF districts, the best

available estimates are reported. Figure 4 maps the

data in column 3 of table 2 (p. 30).

Table 2

Number of TIF Districts and Additional Authorized Uses of TIF Revenues by State

26 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Permitted Development Subsidies Other Public Uses Outside of TIF District

State Program Name

Estimated Number of TIF

Districts in State

Sell or Rent Land Below

Fair Market Value

Construct Buildings

and Facilities

Tax Subsidies

(freezes and

abatements)

Direct Financial

Subsidies (including

reimbursement

for project costs, loans,

and funds for training)

Public Expenditure to

Beneﬁt TIF District

Shared Revenue*

ALABAMA

Tax Increment Districts 10

   

ALASKA

Improvement Area Projects 1

ARIZONA

N/A N/A N/A N/A N/A N/A N/A N/A

ARKANSAS

Redevelopment Districts 9

    

CALIFORNIA

Enhanced Infrastructure Financing Districts 743

   

COLORADO

Tax Increment Financing Districts 140



CONNECTICUT

Tax Increment Financing Districts 4

   

DELAWARE

Municipal Tax Increment Financing Districts 0

   

FLORIDA

Community Development 222



GEORGIA

Tax Allocation Districts 64

   

HAWAII

Tax Increment Financing Districts 0

 

IDAHO

Revenue Allocation Areas 78

ILLINOIS

Tax Increment Allocation Redevelopment Areas 1238

  

INDIANA

Tax Increment Financing Districts 700–800

 

IOWA

Urban Renewal Areas 3340

  

KANSAS

Tax Increment Financing Districts 11

 

KENTUCKY

Tax Increment Financing Districts 23

   

LOUISIANA

Tax Increment Development 9

    

MAINE

Tax Increment Financing Districts 483

   

MARYLAND

Tax Increment Financing Districts 28



MASSACHUSETTS

District Improvement Financing 2

   

MICHIGAN

Tax Increment Financing 634

  

MINNESOTA

Tax Increment Financing 1719

 

MISSISSIPPI

Tax Increment Financing 25

  

MISSOURI

Real Property Tax Increment Allocation 468



MONTANA

Tax Increment Financing 50

 

NEBRASKA

Tax Increment Financing for Redevelopment Projects 828



Permitted Development Subsidies Other Public Uses Outside of TIF District

State Program Name

Estimated Number of TIF

Districts in State

Sell or Rent Land Below

Fair Market Value

Construct Buildings

and Facilities

Tax Subsidies

(freezes and

abatements)

Direct Financial

Subsidies (including

reimbursement

for project costs, loans,

and funds for training)

Public Expenditure to

Beneﬁt TIF District

Shared Revenue*

ALABAMA

Tax Increment Districts 10

   

ALASKA

Improvement Area Projects 1

ARIZONA

N/A N/A N/A N/A N/A N/A N/A N/A

ARKANSAS

Redevelopment Districts 9

    

CALIFORNIA

Enhanced Infrastructure Financing Districts 743

   

COLORADO

Tax Increment Financing Districts 140



CONNECTICUT

Tax Increment Financing Districts 4

   

DELAWARE

Municipal Tax Increment Financing Districts 0

   

FLORIDA

Community Development 222



GEORGIA

Tax Allocation Districts 64

   

HAWAII

Tax Increment Financing Districts 0

 

IDAHO

Revenue Allocation Areas 78

ILLINOIS

Tax Increment Allocation Redevelopment Areas 1238

  

INDIANA

Tax Increment Financing Districts 700–800

 

IOWA

Urban Renewal Areas 3340

  

KANSAS

Tax Increment Financing Districts 11

 

KENTUCKY

Tax Increment Financing Districts 23

   

LOUISIANA

Tax Increment Development 9

    

MAINE

Tax Increment Financing Districts 483

   

MARYLAND

Tax Increment Financing Districts 28



MASSACHUSETTS

District Improvement Financing 2

   

MICHIGAN

Tax Increment Financing 634

  

MINNESOTA

Tax Increment Financing 1719

 

MISSISSIPPI

Tax Increment Financing 25

  

MISSOURI

Real Property Tax Increment Allocation 468



MONTANA

Tax Increment Financing 50

 

NEBRASKA

Tax Increment Financing for Redevelopment Projects 828



MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 27

28 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Table 2, cont’d

Number of TIF Districts and Additional Authorized Uses of TIF Revenues by State

Permitted Development Subsidies Other Public Uses Outside of TIF District

State Program Name

Estimated Number of TIF

Districts in State

Sell or Rent Land

Below

Fair Market Value

Construct Buildings

and Facilities

Tax Subsidies

(freezes and

abatements)

Direct Financial

Subsidies (including

reimbursement

for project costs, loans,

and funds for training)

Public Expenditure to

Beneﬁt TIF District

Shared Revenue*

NEVADA

TIF and Redevelopment Areas 22

   

NEW HAMPSHIRE

Tax Increment Financing in Development Districts 32



NEW JERSEY

Revenue Allocation District Financing 49

  

NEW MEXICO

Tax Increment Development Districts 16

  

NEW YORK

Tax Increment Financing 2



NORTH CAROLINA

Project Development Financing (TIF) 3

   

NORTH DAKOTA

Tax Increment Financing 48



OHIO

Tax Increment Financing Districts 1278

 

OKLAHOMA

Tax Increment Financing Districts 48

  

OREGON

Urban Renewal Plans 244

 

PENNSYLVANIA

Tax Incremental Financing Districts 100

  

RHODE ISLAND

Tax Increment Financing Areas 5

  

SOUTH CAROLINA

Tax Increment Financing for Redevelopment Projects 17

 

SOUTH DAKOTA

Tax Incremental Districts 172

 

TENNESSEE

Tax Increment Financing 29



TEXAS

Tax Increment Reinvestment Zones 1378

  

UTAH

Tax Increment Financing Districts 84

    

VERMONT

Tax Increment Financing Districts 9



VIRGINIA

Tax Increment Financing Districts 9

WASHINGTON

Tax Increment Financing 38



WEST VIRGINIA

Tax Increment Financing 31

WISCONSIN

Tax Incremental Districts 1241

 

WYOMING

Tax Increment Financing 10



Table focuses on the most broadly applicable TIFs.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 29

Permitted Development Subsidies Other Public Uses Outside of TIF District

State Program Name

Estimated Number of TIF

Districts in State

Sell or Rent Land

Below

Fair Market Value

Construct Buildings

and Facilities

Tax Subsidies

(freezes and

abatements)

Direct Financial

Subsidies (including

reimbursement

for project costs, loans,

and funds for training)

Public Expenditure to

Beneﬁt TIF District

Shared Revenue*

NEVADA

TIF and Redevelopment Areas 22

   

NEW HAMPSHIRE

Tax Increment Financing in Development Districts 32



NEW JERSEY

Revenue Allocation District Financing 49

  

NEW MEXICO

Tax Increment Development Districts 16

  

NEW YORK

Tax Increment Financing 2



NORTH CAROLINA

Project Development Financing (TIF) 3

   

NORTH DAKOTA

Tax Increment Financing 48



OHIO

Tax Increment Financing Districts 1278

 

OKLAHOMA

Tax Increment Financing Districts 48

  

OREGON

Urban Renewal Plans 244

 

PENNSYLVANIA

Tax Incremental Financing Districts 100

  

RHODE ISLAND

Tax Increment Financing Areas 5

  

SOUTH CAROLINA

Tax Increment Financing for Redevelopment Projects 17

 

SOUTH DAKOTA

Tax Incremental Districts 172

 

TENNESSEE

Tax Increment Financing 29



TEXAS

Tax Increment Reinvestment Zones 1378

  

UTAH

Tax Increment Financing Districts 84

    

VERMONT

Tax Increment Financing Districts 9



VIRGINIA

Tax Increment Financing Districts 9

WASHINGTON

Tax Increment Financing 38



WEST VIRGINIA

Tax Increment Financing 31

WISCONSIN

Tax Incremental Districts 1241

 

WYOMING

Tax Increment Financing 10



MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 29

Sources: Lincoln Institute of Land Policy and the George Washington Institute of Public Policy (2018); Column 3: Merriman, Qiao, and Zhao (2018).

Shared revenue indicates either initial allocation among jurisdictions and TIF districts or that jurisdiction allows other jurisdictions to opt out. In general,

when TIF districts have sufﬁcient funds for development and debt service, excess funds are returned to the taxing jurisdictions.

30 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Figure 4

Estimated Number of TIF Districts by State

Figure 4 illustrates how the use of TIF varies dramati-

cally from state to state. Consistent with Greenbaum

and Landers’s (2014) analysis of ICMA data, nearly all

of the Midwestern states make extensive use of TIF. By

contrast, none of the New England states except Maine

use TIF to a large extent. In fact, outside of the Mid-

west, Colorado, Florida, Maine, Oregon, Pennsylvania,

and Texas have 100 or more TIF districts, and Califor-

nia greatly restricts the creation of new TIF districts.

Twelve states (not including Arizona, which prohibits

TIF) have nine or fewer TIF districts. To date, there has

been no published academic work explaining why local

governments in some states use TIF more extensively

than others.

The remainder of table 2 provides information about

acceptable use of TIF revenue. All state TIF statutes

allow TIF revenues to be used to service bonds that are

sold to fund development activities in the TIF district.

TIF funds can be used for other development subsi-

dies in some states including the below-fair-market

sale or rental of real estate to private parties in order

to promote economic development or construction of

facilities within the TIF district, etc. Roughly two-thirds

of the states allow some use of TIF funds for limited

activities outside of physical TIF boundaries.

In some cases, TIF authorities sell bonds and use funds

from property tax revenues on the TIF increment to

service the bond debt. As discussed previously, use of

TIF district-ﬁnanced debt may allow the TIF authority to

jump-start economic development in the district. Table

3 shows, in general, that states with many TIF districts

also had a large amount of TIF debt. For example, Cali-

fornia, with more than 700 TIF districts, had about $25

billion of TIF bond issues. However, the amount varies

greatly across states: Ohio has even more TIF districts

than California, but TIF districts in Ohio issued only

about $500 million of TIF debt. In fact, California issued

far more TIF debt than any other state, and the only

other states with more than $1 billion of TIF debt issued

are Illinois and Minnesota. A few states (including Iowa,

Maine, and Nebraska) have a substantial number of TIF

districts but a modest amount of TIF debt issuance.

Data source: This report, table 2, column 3.

Categories for MT, NH, SC, and TN are best

available estimates.

560–3,340

58–559

25–57

10–24

0–9

TOTAL

does not allow TIF

25,040

1,585

129

413

684

1,274

720

315

354

434

1,400

134

1,425

2010–2014

3,233

434

129

169

246

100

202

248

2005–2009

11,609

704

235

554

448

337

186

325

148

500

658

2000–2004

10,198

447

110

109

657

137

120

186

698

519

State

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 31

Table 3

TIF Borrowing by State, 2000–2014 (millions of nominal dollars)

Source: Luby and Moldogazie (2014); personal communications.

TOTAL

does not allow TIF

25,040

1,585

129

413

684

1,274

720

315

354

434

1,400

134

1,425

2010–2014

3,233

434

129

169

246

100

202

248

2005–2009

11,609

704

235

554

448

337

186

325

148

500

658

2000–2004

10,198

447

110

109

657

137

120

186

698

519

State

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

TOTAL

232

516

166

276

1,145

164

2010–2014

117

140

351

2005–2009

140

269

105

455

2000–2004

130

177

157

339

State

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

37,4665,84417,16714,455TOTAL

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 31

32 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Table 4

Determinants of TIF Adoption

How Has TIF Been Used?

Over the past quarter-century, scholars have con-

ducted numerous studies to better understand when

TIF is used. Table 4 provides some basic information

about nine empirical studies of the determinants of

TIF adoption. Each study predicts the probability of

TIF use as a function of an area’s characteristics. The

six older studies use data from a particular state or

region, ﬁve of which are located in the Midwest and

one in Maine. The more recent studies use national

data from surveys of municipal ofﬁcials. Eight of the

nine studies focus on TIF adoption at the municipal

or county level. Only Gibson (2003) predicts use at the

neighborhood level.

These empirical analyses focus on two fundamen-

tal questions. First, do municipal ofﬁcials adopt TIF

because growth is slow and they wish to stimulate

growth or because growth is rapid and they wish to

capture growth in a tax base that would otherwise go

to overlying governments, such as counties, school

districts, or other special districts? Second, do com-

munities use TIF to gain a competitive advantage over

neighboring areas?

On the ﬁrst question, the evidence is mixed. Ander-

son’s evidence “strongly suggests that prior growth

is responsible for TIF adoption,” while Man “ﬁnds no

empirical evidence to support the contention that

growing cities are more likely to adopt TIF” (Anderson

1990, 160; Man 1999a, 1151). Gibson (2003) ﬁnds that

moderately economically distressed neighborhoods,

which experience moderate growth, are most likely to

be included in TIF districts. There is little point in using

TIF in an area that is not growing at all, but municipal-

ities may also be reluctant to use TIF in an area that is

growing rapidly already.

Article Area Data

Time

Period

Dependent

Variable(s)

Reasons for Increases

in the Probability of TIF

Adoption

Notes

Anderson, John E. (1990) Michigan 255 cities

1985–

1986

Probability of TIF

adoption

City growth

TIF adoption and

property value

growth estimated

simultaneously

Man, Joyce Y. (1999) Indiana

150 cities with a population

above 2,500

1985–

1991

Probability of TIF

adoption

Fiscal stress, lower share

of property taxes, and if

neighboring areas adopt TIF

TIF adoption and

property value

growth estimated

simultaneously

LaPlante, Josephine M. (2001) Maine

86 larger municipalities

(42 of which adopted TIF)

1989–

1998

Probability of TIF

adoption at the time

analyses were done

Nonmunicipal tax burden,

business share of property tax,

and percentage elderly

Predictive discriminant

analyses used without

correction for

simultaneity

Gibson, Diane (2003) Chicago 866 census tracts

1990–

2000

Time until census

tract became part of

a TIF district

Neighborhood distress and the

presence of an Empowerment

Zone, but probability falls with

the tenure of alderman

Study ﬁnds that mod-

erately disadvantaged

neighborhoods are most

likely to get TIF

Byrne, Paul F. (2005)

Chicago Metropolitan

Area

255 municipalities 2000

Probability of TIF

adoption

Neighboring areas adopt TIF,

percent of overlap with school

district, and municipal tax rate

None

Mason, Susan, and Kenneth P. Thomas (2010) Missouri 171 cities

Spring

2008

Approval of a TIF and

approval of a retail TIF

Use other economic develop-

ment tools, and neighboring

areas adopt TIF

No correction

for simultaneity

Warner, Mildred E., and Lingwen Zheng (2013) United States

800 chief municipal

administrative ofﬁcers

2004 and

2009

Use of business

development incen-

tives that reduce

costs to business

Accountability, competition, and

unemployment, but falls with

citizen opposition and low per

capita property taxes

Two other non-TIF

types of development

incentives also studied

Felix, R. Alison, and James R. Hines (2013) United States

1,022 chief municipal

development ofﬁcers

1999

Use of TIF alone or

in combination with

other business devel-

opment incentives

Share of low-income residents,

proximity to state borders, and

political corruption

Poorest communities

less likely to use TIF

Greenbaum, Robert T., and Jim Landers (2014) United States

844 municipal and

county governments

2009 Use of TIF

Government size,

low-income residents,

and suburban location

Study ﬁnds signiﬁcant

regional differences

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 33

Article Area Data

Time

Period

Dependent

Variable(s)

Reasons for Increases

in the Probability of TIF

Adoption

Notes

Anderson, John E. (1990) Michigan 255 cities

1985–

1986

Probability of TIF

adoption

City growth

TIF adoption and

property value

growth estimated

simultaneously

Man, Joyce Y. (1999) Indiana

150 cities with a population

above 2,500

1985–

1991

Probability of TIF

adoption

Fiscal stress, lower share

of property taxes, and if

neighboring areas adopt TIF

TIF adoption and

property value

growth estimated

simultaneously

LaPlante, Josephine M. (2001) Maine

86 larger municipalities

(42 of which adopted TIF)

1989–

1998

Probability of TIF

adoption at the time

analyses were done

Nonmunicipal tax burden,

business share of property tax,

and percentage elderly

Predictive discriminant

analyses used without

correction for

simultaneity

Gibson, Diane (2003) Chicago 866 census tracts

1990–

2000

Time until census

tract became part of

a TIF district

Neighborhood distress and the

presence of an Empowerment

Zone, but probability falls with

the tenure of alderman

Study ﬁnds that mod-

erately disadvantaged

neighborhoods are most

likely to get TIF

Byrne, Paul F. (2005)

Chicago Metropolitan

Area

255 municipalities 2000

Probability of TIF

adoption

Neighboring areas adopt TIF,

percent of overlap with school

district, and municipal tax rate

None

Mason, Susan, and Kenneth P. Thomas (2010) Missouri 171 cities

Spring

2008

Approval of a TIF and

approval of a retail TIF

Use other economic develop-

ment tools, and neighboring

areas adopt TIF

No correction

for simultaneity

Warner, Mildred E., and Lingwen Zheng (2013) United States

800 chief municipal

administrative ofﬁcers

2004 and

2009

Use of business

development incen-

tives that reduce

costs to business

Accountability, competition, and

unemployment, but falls with

citizen opposition and low per

capita property taxes

Two other non-TIF

types of development

incentives also studied

Felix, R. Alison, and James R. Hines (2013) United States

1,022 chief municipal

development ofﬁcers

1999

Use of TIF alone or

in combination with

other business devel-

opment incentives

Share of low-income residents,

proximity to state borders, and

political corruption

Poorest communities

less likely to use TIF

Greenbaum, Robert T., and Jim Landers (2014) United States

844 municipal and

county governments

2009 Use of TIF

Government size,

low-income residents,

and suburban location

Study ﬁnds signiﬁcant

regional differences

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 33

34 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

If nonmunicipal governments, such as school districts,

are responsible for the majority of the property tax

burden in an area, a municipality-initiated TIF district

can capture tax revenue for economic development at

a relatively low cost to the municipality. For example,

suppose that 10 cents of each dollar paid in property

taxes goes to the municipality, 65 cents goes to the

school district, and 25 cents goes to the county or

other local governments, such as park and transpor-

tation districts. Municipalities might be more likely to

use TIF since they bear only a small share of the cost

for redirected property tax dollars. Anderson (1990,

161) studied this but found “the proportion of the tax

rate attributed to the city government has no impact”

on TIF adoption, suggesting that towns do not act stra-

tegically to capture TIF revenue. LaPlante (2001, 91)

ﬁnds that “a town with a heavy municipal tax burden

is likely to embrace TIF,” but her results are difﬁcult to

compare with Anderson’s (1990), as she did not control

simultaneously for the tax share of overlying govern-

ments. Both Byrne (2005) and Mason and Thomas

(2010) found that towns are more likely to adopt TIF

when their neighboring towns use it. This suggests

strategic, or at least competitive, behavior.

Studies that use survey data have the virtue of

covering a much broader geographic area, but survey

respondents’ answers may be subjective, and thus the

analyses may be less revealing compared to studies

using administrative data collected to implement or

monitor government programs. Warner and Zheng

(2013), Felix and Hines (2013), and Greenbaum and

Landers (2014) all ﬁnd evidence that economic dis-

tress promotes the use of TIF. Warner and Zheng ﬁnd

more use of TIF-type incentives when there is more

accountability for results, while Felix and Hines ﬁnd

evidence that TIF is used to compete with neighboring

jurisdictions and is possibly associated with political

corruption. Greenbaum and Landers emphasize that

the determinants of TIF use in the north-central region

are somewhat different from factors in the rest of the

country. In particular, higher property taxes are associ-

ated with more TIF use in the north-central region, but

not in other regions.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 35

CHAPTER 5

Transparency: Intensive TIF Use in Chicago

Some have called for more transparent use of TIF revenues.

Once a municipality establishes a TIF district and begins to

receive revenues and make expenditures, it can account for

them separately—and sometimes obscurely—compared to

other governmental funds. Some argue that municipalities

could achieve transparency by including TIF-funded activi-

ties as part of a city’s regular operating budget. Cities could

also document property tax dollars from TIF districts in

capital plans and in regular city ﬁnancial reports.

Morgan Station in Chicago, funded almost

fully through TIF, accelerated the redevel-

opment of the area. Photo: Steven Vance/

Flickr CC BY-NC-SA 2.0.

36 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Background

Chicago has used TIF since the late 1980s, and

the lack of TIF transparency has been a particu-

larly salient issue there (Reingold 2001). By 1997,

Chicago had 41 TIF districts, and TIF use was rapidly

expanding (Youngman 2016). By the mid-2000s, TIF

use in Chicago was extremely controversial (Quigley

2007), and that controversy continues to the pres-

ent (Youngman 2016).

Chicago is worthy of special focus because of its

extensive and controversial use of TIF. By 2014—

after years of municipal ﬁscal distress—Chicago

used TIF more than any big city in the United States.

As shown in table 5, Chicago had as many TIF

districts (149) as the other nine largest U.S. cities

combined. In 2015 alone, Chicago TIFs collected

about $461 million in property tax revenues (Ofﬁce

of the Cook County Clerk 2016).

More than $4.5 million in TIF funds were used to rebuild Cermak

Station in Chicago adjacent to the McCormick Place Convention

Center. Photo: Steven Vance/Flickr CC BY-NC-SA 2.0.

In August 2015, the Governmental Accounting Standards

Board (GASB) issued Statement No. 77 (GASB 77). The new

policy requires governments to disclose the amount of

tax revenues forgone through tax abatements, including

at least some of those made through TIF (Knezevic 2017),

for reporting periods that begin after December 15, 2015.

GASB establishes accounting and ﬁnancial reporting

standards for U.S. governments that follow Generally

Accepted Accounting Principles (GAAP). GASB periodically

issues statements about how particular accounting issues

should be dealt with in government ﬁnancial reports.

GASB 77’s potential to increase TIF transparency is

unclear. Because TIF, as generally implemented, does

GASB 77 AND TIF

not reduce tax payments but rather redirects the

expenditure of public funds, its status as a tax

abatement is sometimes unclear and disputed

(LeRoy 2017). Also, GASB 77 allows individual

governments discretion to disclose abatements

either individually or in aggregate, and aggregated

disclosure is less likely to provide information about

individual TIF districts within a government.

Careful analysis of GASB 77’s impact on ﬁnancial

reporting probably won’t be available until at least

late 2018. For many governments, the ﬁrst required

disclosure involved a ﬁscal year that began in the

calendar year 2016 and ended in the calendar year

2017, and ﬁnancial reports generally do not appear

until several months after the ﬁscal year ends.

36 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Table 5

Population and TIF Use in Largest U.S. Cities

Source: U.S. Census Bureau; city websites.

City

Population,

2016

(in millions)

Districts, 2017

(except where noted)

New York, NY 8.54 0

Phoenix, AZ 1.62 0

Philadelphia, PA 1.57 13 (2013)

San Diego, CA 1.40

(in ﬂux due to changes in

California law)

Dallas, TX 1.32 18

San Antonio, TX 1.49 19

San Jose, CA 1.02

(in ﬂux due to changes in

California law)

Los Angeles, CA 3.98

(in ﬂux due to changes in

California law)

Houston, TX 2.30 27

Chicago, IL 2.70 149

Total TIF Districts 285

Many aspects of TIF use in Chicago have been contro-

versial, but the central theme of these controversies

has revolved around the questions of who gets to decide

about the use of property tax dollars and how Chicago’s

city government tracks and reports the collection and

dispersal of TIF tax dollars.

Spending TIF district dollars is fundamentally different

from other government spending. TIF dollars are raised

by a general property tax but must be spent to beneﬁt

economic development in designated areas. In most

cases, TIF revenues derive from taxes levied by all over-

lying governments, such as counties, school districts, or

other special districts. Spending of TIF funds, unlike other

earmarked revenues, is not authorized, appropriated,

accounted for, or voted on during the normal budget cycle

of any elected government. Once a TIF district is created,

funds generated by the district do not compete with

non-TIF district priorities. Furthermore, TIF projects often

combine resources of private, and sometimes for-proﬁt,

institutions with public money. Thus, TIF districts often

persist for decades without being subject to ordinary

democratic controls.

These sets of circumstances suggest that TIF districts

should be created only after careful study, deliberation,

and debate. Once created, TIF district activities should be

documented carefully and monitored by local government

ofﬁcials to assure that they fulﬁll their stated missions.

The appendix table (p. 59) lists some of the conditions

mandated by state laws in order to create a TIF district.

Most states require a detailed application and public

hearings to solicit citizen input. State review of the appli-

cation is common, and usually the governing body of the

city must take a formal vote to approve the project.

While many states mandate well-articulated procedures

for creating TIF districts, state laws often require little

reporting or monitoring of TIF districts once they are

established. Without reporting, there can be little over-

sight, increasing the potential for misallocation—or even

abuse—of TIF spending. Because of this, demands for

TIF transparency have been loud and sometimes strident.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 37

38 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

One particularly persistent reporter, Ben Joravsky,

published dozens of mostly critical articles in the

Chicago Reader, a local newspaper, documenting the

lack of transparency in TIF and the frequency of polit-

ically inﬂuenced decision making in Chicago. Joravsky

alleged that then-Mayor Richard Daley used TIF dollars

as a “shadow budget,” which could be allocated with

minimal oversight from the elected city council or the

general public.

Reform Efforts

Joravsky’s reporting and some academic studies stim-

ulated additional interest in TIF, and in 2007, then-Cook

County Commissioner (and later U.S. Representative)

Mike Quigley published a report that found

[t]he near-total lack of public information readily

available on Chicago’s TIFs is, in a word, inexcus-

able. Reams of documentation are produced—with

taxpayer dollars—every time a TIF is proposed

or created. Redevelopment agreements . . . [and]

compliance reports are submitted to the Comptrol-

ler annually. All . . . are produced electronically. Not

a single one is available from the City’s website.

(Quigley 2007, 41)

As pressure for reform grew, Mayor Rahm Emanuel

responded in 2011, just three days after his inaugura-

tion, by announcing the TIF Reform Task Force, charged

with recommending concrete steps for increasing TIF

transparency. Three months later, the task force issued

a report that proclaimed:

Information about TIF districts . . . has been limit-

ed since TIF was ﬁrst used in 1983. However, more

comprehensive information . . . has been available

. . . since City Council passed the TIF Sunshine Ordi-

nance in 2009. The . . . website includes:

“Redevelopment plans and approval ordinan-

ces . . . [b]asic annual ﬁnancial reports for each

TIF district . . . web pages for every TIF district

aggregating relevant information . . . [r]edevel-

opment agreements (RDAs) for private projects

. . . [t]hree-year district-level projections about

collections.”

Although there has been a signiﬁcant increase in

the amount of publicly available TIF information in

recent years, there is signiﬁcant room to improve.

(City of Chicago, TIF Reform Panel 2011, 32)

To increase transparency, the task force recommended

that Chicago develop a multiyear capital budget incor-

porating TIF district spending and submit this capital

budget to the city council for consideration. The task

force further stated that TIF resources should undergo

the same scrutiny as other resources, and it recom-

mended a number of transparency measures, including

public disclosure of all intergovernmental agreements

related to TIF and publication on the city’s website of

the newly created capital budget as well as TIF district

and project data to track performance.

As of March 2018, the City of Chicago has an open data

portal with extensive information about TIF districts

and the projects they house (City of Chicago 2018).

The website contains a map of each TIF district with

its boundaries overlaid on a map of city streets. The

map indicates each project within the TIF district and

speciﬁes redevelopment agreements and total TIF and

non-TIF planned investments. Figure 5 shows, for ex-

ample, the Greater Southwest Industrial Corridor (East)

TIF district on Chicago’s southwest side. This district

encompasses portions of several communities, includ-

ing the predominantly low-income, African American

communities of Ashburn and Auburn-Gresham. The

website says that the TIF district is intended to encour-

age land uses that strengthen the appeal of the area

for industrial, commercial, institutional, and residential

uses. A few speciﬁc targeted projects include the

redevelopment of an abandoned theater and aban-

doned railroad right-of-way.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 39

Figure 5

Greater Southwest Industrial Corridor (East) TIF District

Source: City of Chicago, Department of Planning and Development (2018).

According to Chicago’s 2014 annual report, the TIF

district housed a single redevelopment project, which

was designed to facilitate cleanup and remediation

of a 62-acre industrial site. The project also includ-

ed construction of a 660,000-square-foot industrial

space for StyleMaster and other tenants. A direct link

from Chicago’s mapping portal allows users to access

the associated 111-page redevelopment agreement,

amendments to that agreement, a Department of

Planning and Development staff report on the project,

and several other related documents. These reports

detail the legal basis for the project, projected costs,

and time lines. As of early 2017, total projected costs

were about $28 million, split about evenly between

public and private investments.

Chicago’s TIF portal also provides separate access

to data about beginning and ending balances, reve-

nues, and expenditures in the TIF district. The Greater

Southwest Industrial Corridor (East) began in 2001

with balances of about $320,000 and ended in 2014

with balances of $2.5 million. In 2014, revenues for

40 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Concern about transparency in the use of

TIF extends beyond Chicago.

this TIF district included about $9,000 of interest and

about $500,000 of property tax revenues; expenditures

that year totaled $1.2 million, and the vast majority was

spent on site assembly and preparation ($370,000) and

public improvements ($733,000).

Because property taxes in Illinois are assessed, billed,

and collected at the county level, counties are intri-

cately involved in the administration of TIF districts.

The Cook County Clerk has a separate county-level

website with additional information about each TIF

district, including maps and lists of the total and frozen

assessed value and revenue distribution for each dis-

trict. Additionally, information about property tax rev-

enue that goes to TIF districts has been added to Cook

County tax bills sent to owners of real estate parcels.

Even though information about TIF districts in Chicago

and Cook County is signiﬁcantly more available than it

was in 2011 when Mayor Emanuel’s task force issued

its report, there continues to be signiﬁcant vocal and

organized opposition to Cook County’s use of TIF, such

as from the TIF Illumination Project.

More data about TIF is unquestionably available in

Chicago today, but some of the speciﬁc recommenda-

tions of Mayor Emanuel’s 2011 task force have not been

fully implemented and monitored. Recommendations

included, for example, formally establishing the city’s

TIF goals and metrics to monitor the performance of TIF

districts. The City of Chicago Department of Planning

and Development, however, failed to produce documen-

tation of formal implementation or monitoring based on

these recommendations after repeated inquiries.

Concern about transparency in the use of TIF extends

beyond Chicago. In an analysis looking at national

patterns of TIF use, Kirth and Baxandall (2011, 2) argue

that “TIF often lacks transparency.” They note that

some states do not publish TIF budgets for public

review at all. The authors further express concern

that in some states TIF money can be used as a

“slush fund” for entrenched local ofﬁcials and that

recipients of aid through TIF are not always held

accountable for results.

Despite continued controversy over the use of

“conventional” TIF districts, Illinois state legislators

authorized Chicago to establish a new kind of TIF dis-

trict in June 2016. These “transit TIFs” were designed

to help the city designate a source of matching funds

to secure $800 million in federal funding to improve

its commuter-rail system. The legislation allows the

city to create long, narrow TIF districts within a half-

mile radius of a rail station, irrespective of the usual

blight requirement. Unlike conventional TIF districts,

which generally capture all incremental property tax

revenue on real estate, the transit TIF does not cap-

ture revenue accruing to the City of Chicago School

District. Other overlying governments, such as the

county or park district, will give up only 20 percent

of the revenue they otherwise would have received

from the increment. Also, transit TIF districts can last

35 years, rather than the 23-year duration of most

conventional TIF districts (Vance 2016).

Chicago’s experience demonstrates both the allure

of TIF and the potential for governmental misuse and

public mistrust of it. Although the city and county

government reforms have increased accountability

and transparency, TIF remains a very controversial

tool, especially as its uses continue to evolve. This

suggests that transparency and monitoring efforts

should continue and should themselves be evaluated

on a regular basis.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 41

CHAPTER 6

TIF Reversal: California’s Story

California was the ﬁrst state to make extensive use of tax

increment ﬁnancing—and recently became the ﬁrst state

to reverse course and drastically reduce its use of TIF.

California may thus provide an instructive case study for

other states wishing to avoid some of the pitfalls of TIF.

The Hammer Theatre, a venue for perfor-

mances and cultural activities, is owned

by the city and operated by San Jose

State University. It was funded in large

part by the San Jose Redevelopment

Agency. Photo: Allie_Caulﬁeld/Flickr CC

BY 2.0.

42 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

History

California began using TIF in the early 1950s and was

one of the heaviest users outside of the Midwest re-

gion in the last several decades. California TIF districts

are housed in redevelopment areas (RDAs) and, by

2008, California had over 400 RDAs with more than

$10 billion in annual revenue, $28 billion in debt, and

more than $674 billion in aggregate assessed values

(Swenson 2015).

California’s legal structure for TIF had been in place for

decades prior to the passage of Proposition 13 in 1978,

which fundamentally changed the California property

tax system by both limiting the property tax rate to 1

percent of market value and by dramatically limiting

the rate at which real estate assessments could rise,

except in the event of ownership transfers. According

to Lefcoe and Swenson,

Proposition 13 cut local government property tax

revenues in half and diminished school funding by

60 percent. . . . Redevelopment in California would

never have become so widespread but for Proposi-

tion 13. Desperate for replacement revenues, cities

(and a few counties) saw an opportunity to ﬁll their

depleted property tax coffers by culling property

taxes from other taxing entities. (2014, 723)

TIF allowed California general purpose governments—

mostly cities, but also some counties—to garner

property tax revenues that otherwise would have gone

to school districts and other overlying governments.

The number of redevelopment agencies—and cor-

responding TIF districts—exploded in the 1970s and

1980s as local governments used every conceivable

tool to overcome the revenue shortfalls resulting from

Proposition 13. The state government was constitu-

tionally obligated to make up at least some of school

districts’ lost property tax revenues, so this prolifera-

tion of TIF districts also imposed a ﬁscal burden at the

state level.

Limitations

In the years after the passage of Proposition 13, the

California legislature enacted rules to restrain and

restrict the use of TIF, including a strict deﬁnition of

blight required for the establishment of a TIF district.

The rules required that 20 percent of overlying govern-

ments’ contributions to TIF revenue be passed back

to those governments. Despite these requirements,

TIF continued to drain a large share of revenues from

school districts and other overlying governments. A

legal battle ensued, and the California state govern-

ment attempted to redirect funds from RDAs. This was

ﬁnally settled in 2010, when a ballot initiative called

Proposition 22 passed, preventing the state government

from raiding RDA funds and putting increased ﬁnancial

pressure on the state. According to Lefcoe and Swenson

(2014, 732), the passage of Proposition 22 “left the per-

manent dissolution of redevelopment as the state’s only

remaining option for re-directing property taxes away

from RDAs to more urgent public needs.”

Like most states, California faced intense ﬁscal pres-

sure during and after the Great Recession, which began

in 2008. In this environment, the dissolution of RDAs

presented the state with an attractive potential ﬁscal

windfall. During the legislative debate, Governor Jerry

Brown said the state would get $1.7 billion immediately

and $400 million in each following ﬁscal year if RDAs

were abolished (Herr, Clark, and Levin 2012).

Despite its heavy investment in TIF, the California

legislature ultimately passed legislation in 2010,

known locally as AB-26, which dissolved the RDAs that

housed TIF districts under California law (Lefoce and

Swenson 2014). Passage of AB-26, companion legisla-

tion AB-27, and subsequent court rulings would allow

local governments to keep RDAs and TIF districts in

existence—for a price. California’s local governments,

however, have not pursued this or other options to con-

tinue the use of TIF. Given that California’s current

requirements for the use of TIF include affordable

housing mandates and prohibit capturing revenues

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 43

Swenson concludes that California’s decision to end

TIF may have been wise because evidence showed

that TIF did not stimulate economic development and

signiﬁcantly diverted resources from both the state and

overlying local governments. The use of California TIF

also did not conform to the “but for” requirement.

In October 2015, the California legislature approved

and Governor Brown signed AB-2 (California Legislative

Information 2015), which once again gave local gov-

ernments the authority to create TIF districts in some

circumstances. Compared to previous California TIF

legislation, AB-2 imposed many limits on TIF-creating

governments. Most importantly:

• TIF districts are restricted to low-income or

high-crime areas;

• school entities are prohibited from participating;

• other overlying governments (nonschool) must

consent to use their tax revenues for the TIF;

• extensive reporting and transparency provisions

are required;

• extensive public input is required, including

provisions under which a popular vote could

prevent further action on the plan;

• twenty-ﬁve percent of property tax increment

revenues must be used to increase, improve, and

preserve affordable housing; and

• issuance of bonds by TIF districts now requires

55 percent voter approval. (League of California

Cities 2016)

The above conditions appear to restrict the use of TIF

in California to a narrow set of circumstances and thus

prevent future overuse or abuse. It should be noted,

however, that there is a tendency for TIF legislation to

be modiﬁed gradually to allow for more expansive uses.

In fact, AB-2 was soon modiﬁed by legislation that

took effect January 1, 2017 (Torres 2016). While these

changes seem to be innocuous, vigilance will be

required to assure that TIF legislation serves its

stated purpose.

from overlying governments, such as schools or special

districts, TIF has been rendered unattractive to local gov-

ernments compared to other economic development tools.

AB-26 set up an extensive and careful protocol to wind

down existing RDAs and make payments to “enforce

obligations” previously made by RDAs. Revenue in

excess of the amount needed to cover these obligations

was overseen by the State Department of Finance Tax

and returned to overlying governments (Herr, Clark, and

Levin 2012).

Results

Swenson (2015) asks whether California’s defunct TIF

program was successful. This study provides an excellent

follow-up to Dardia’s (1998) very early study of a similar

question. Dardia found that, although Californian TIF

districts grew faster than his comparison group, the

beneﬁts ultimately did not justify the costs because

public revenues diverted to economic development

were less than the revenues eventually generated by

increased property values.

Swenson (2015) developed a unique data set that allowed

precise geographic comparisons. Using this information,

Swenson compared economic activity in California RDAs

to adjacent areas without RDAs. He showed that, during

the 1980s, census tracts adjacent to RDAs had econom-

ic growth rates very similar to those that would later be

within the RDA. Using appropriate statistical methods

and controls, Swenson studied whether the formation of

the RDA had caused a relative improvement in economic

growth in the tracts housed within RDAs. He concluded,

The results show that in the 1990s there was little

measurable impact of RDAs on RDA area employment,

poverty rates, family incomes, rental vacancy rates,

and average residential rental rates. There was also

little measurable business growth in such areas during

the 2000–2009 decade in terms of job creation or busi-

ness revenues. (2015, 211)

44 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

CHAPTER 7

Efﬁcacy in Economic Development

As previously discussed, TIF should promote economic

development. In particular, TIF is designed to promote real

estate investments that raise the market and assessed

values of real estate parcels in a given area. So, does TIF

work? Does the establishment of a TIF district result in

higher real estate value beyond increases that would have

occurred without the TIF designation?

In one sense, the answer should almost certainly be yes,

if all stakeholders strictly adhered to the legal dictates of

TIF. Generally, the relevant legislation requires that TIF can

be used only if the planned development would not have

occurred “but for” the TIF district. Yet, TIF often fails in both

obvious and subtle ways. Flaws in TIF result more often

from poor execution than from conceptual design.

One study found that TIF designation had

no impact on employment, establishment

counts, or building permits in Chicago.

Photo: Dan Perry/Flickr CC BY 2.0.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 45

Assessing TIF’s Successes

and Failures

Compared to other methods of public funding to pro-

mote economic development, TIF has several virtues.

First, TIF funding is designed so that, if used as in-

tended, economic development funds will not displace

other public spending because the revenue generated

by TIF would not have been available “but for” that TIF.

In contrast, some government programs designed to

stimulate economic development, such as advertising

campaigns, require up-front expenditures despite

uncertain returns. Unlike such appropriated economic

development expenditures, TIF design allows expen-

ditures of public funds only out of revenues that are

themselves the product of increases in the tax base.

Second, TIF provides beneﬁts to private developers

only when the tax base appreciates, so private devel-

opers only receive revenue derived from appreciation

that otherwise would not have occurred in the absence

of their investment. This makes it difﬁcult for private

developers to get something for nothing, as long as the

TIF is appropriately designed.

Despite TIF’s conceptual strengths, it remains vulner-

able to abuse and often falls short in execution. First,

TIF can fail simply if planned developments do not

materialize. Generally, TIF districts are established

based on a plan that may specify both public and

private investments. The public investment sometimes

precedes the private investment and may be funded

with public debt to be serviced by a revenue stream

from taxes on the increment. If the public investment

occurs but the planned private investment does not

follow, or if it follows too slowly, revenue to service

the bonds may be insufﬁcient, and the government

could either default on the TIF debt or have to service

it through other revenues. We know that complete

failures of this type are relatively rare, as defaults on

TIF debt are quite rare (Lemov 2010; Moody’s Inves-

tor Service 2012). However, it is not uncommon for

public or private investment to lag, even years after

a TIF district is initiated, or drastically underperform

relative to the amount speciﬁed in the TIF plan.

A second potential hazard in the use of TIF is

caused by a design ﬂaw in many states’ TIF stat-

utes discussed in chapter 2. In a number of states,

TIF statutes direct to the TIF district all incremental

property tax revenues generated by appreciation

above the frozen base value. This overestimates the

ﬁscal beneﬁt of TIF, as some appreciation of land and

structures occurs in most areas, even in the absence

of investment. Appreciation could result either from

inﬂation or because regional growth raises demand

for all ﬁxed assets. Crediting TIF districts with reve-

nue they did not earn may be especially problematic

because part of the unearned TIF revenue would oth-

erwise have been directed to overlying governments,

like school districts, in the absence of TIF. These

governments typically have little say in the establish-

ment of TIF districts. Municipalities that establish

TIF may regard these unearned funds as a windfall

and tend to use TIF even when the total costs are less

than the beneﬁts.

A third potential pitfall for TIF is that, even though

development may occur within the district, the devel-

opment may not be worth the costs that it imposes

on the community. For example, a TIF district might

generate a new commercial business—for instance, a

theater—that would not have been built “but for” the

TIF district. The theater may even generate sufﬁ-

cient tax revenues to pay for the public investments

that were necessary to attract private investments.

Despite this ﬁscal success, the TIF district may fail if

the new development imposes negative externalities

like trafﬁc, crime, or noise pollution that lowers the

value of nearby houses or businesses.

46 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

A fourth, subtler, and more common problem is when

a TIF district fails to adhere strictly to the “but for”

requirement. Adherence requires a prediction about

what would happen in the absence of TIF. Thus, strictly

speaking, we can never know with certainty whether a

TIF district adhered to the “but for” requirement.

Although state statutes and regulations generally

require speciﬁc criteria that must be documented prior

to the establishment of a TIF district, these criteria

are vague enough that almost any project with strong

political support can satisfy the “but for” requirement.

In particular, TIF projects may be approved even

though the development that occurs in the TIF district

is offset by a loss of similar development in a nearby

location, would likely have occurred at the location

of the TIF district at a later time, or is offset by the

loss of a different but similarly valued development

that would have occurred even if the TIF project had

not been approved. Wisconsin’s TIF manual has a

section devoted to the “but for” clause. It advises

local ofﬁcials that the “but for” clause requires that

“the proposed development would not happen unless

ﬁnancial support is available from TIF” (Wisconsin

Department of Revenue 2017a, chapter 5.1).

Research suggests that TIF often displaces economic activity that would have happened anyway in economically vibrant areas.

In Kansas City, Missouri, eight times as many TIF deals were approved in low-poverty areas such as Country Club Plaza (left) than

in areas like East Kansas City (right), with poverty rates above 30 percent despite the fact that high poverty often impedes economic

activity. Photo: Eric Bowers.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 47

Although state statutes and regulations

generally require speciﬁc criteria that must

be documented prior to the establishment

of a TIF district, these criteria are vague

enough that almost any project with

strong political support can satisfy the

“but for” requirement.

This interpretation of “but for” might allow TIF use even

when it would displace other potential development;

however, the Wisconsin law also requires that:

1. the economic beneﬁts of the TIF district compen-

sate for the cost of improvements; and

2. the anticipated tax increments outweigh the costs

to overlapping taxing districts.

These criteria are laudable. If interpreted strictly, crite-

rion 1 would require any development displaced by the

TIF district to count as a cost of the TIF project. Criterion

2 would require that future gains offset costs to over-

lapping taxing districts. The challenge for Wisconsin

and other states is to adhere strictly to these criteria

during implementation.

Effects of TIF Adoption on

Economic Activity

As discussed, TIF has both conceptual strengths and

potential weaknesses. Numerous empirical studies have

attempted to sort this out and determine whether, on

average, TIF delivers what it promises. Like any empir-

ical study of a policy regime, evaluation requires the

analyst to separate the data into “treated” and “control”

areas. Treated areas receive TIF districts, while control

areas do not. As TIF treatments cannot be assigned

randomly, the main empirical challenge is to ﬁnd control

areas that are similar to areas that receive TIF, so that

data from control areas might predict what would have

occurred in the treated areas in TIF’s absence. In es-

sence, this measure is designed to answer the question

of whether the “but for” criterion has been met. Studies

must also wrestle with the question of whether the ob-

served development in the TIF district might have come

at the expense of development that otherwise would

have occurred in nearby venues.

Table 6 (p.48) provides some basic information

about 31 empirical studies, listed in chronological

order by publication date, that have attempted to

answer these questions in a methodical way. All the

studies use some measure of economic activity as

the variable to be explained—often a dependent

variable in a regression equation—and all include an

independent variable that measures TIF use or TIF

intensity. Perhaps unsurprisingly, the studies draw

primarily from data in Midwestern (or north-central)

states where TIF is most widely used. Twenty-two of

the studies use data from Illinois, Indiana, Michigan,

Minnesota, or Wisconsin. California and Texas have

two studies each; Iowa, Florida, Georgia, Maryland,

and Missouri each have one.

The dependent (or outcome) variables include

employment, retail sales, assessed values, growth

in median house value, median household income,

and value of building permits, among others.

Many studies report results about more than

one dependent variable.

48 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Article City, State, or Region Data Time Dependent Variable(s) Finding(s) Notes

Summary

Finding

Wassmer, Robert W. (1994) Detroit Metropolitan Area 25 cities 1947–1987 Employment or retail sales

TIF increased retail employment, but had no signiﬁcant effect

on retail sales or service receipts.

Controls for a number of other economic development incentives Positive

Dardia, Michael (1998) California

47,000 parcels in 38

redevelopment projects and

matched-pair areas

1978–1996 Assessed values

TIF did not generate enough extra tax revenue to compensate

overlying governments for loss of revenue during TIF period.

Matched-pair methodology Negative

Man, Joyce Y., and Mark S. Rosentraub

(1998)

Indiana 151 cities 1990

Real growth in value of

median valued house

TIF increased median owner-occupied housing value by 11.4 %. TIF adoption treated as endogenous Positive

Man, Joyce Y. (1999b) Indiana

53 cities with populations

greater than 10,000

1985–1992 Employment

Cities with TIF have about 4.5% more jobs than cities without TIF. TIF adoption treated as exogenous Positive

Dye, Richard F., and David F. Merriman

(2000)

Chicago Metropolitan Area 235 municipalities 1980–1995

Growth in municipal property

value, 1992–1995

Cities that adopt TIF grow between 0.78% and

2.18% slower than those that do not.

Revenue shifting not a determinant of TIF adoption Negative

Wassmer, Robert W., and

John E. Anderson (2001)

Detroit Metropolitan Area 112 municipalities 1977–1992 Commercial property value

TIF increased commercial property value by 12%. TIF adoption treated as endogenous Positive

Kriz, Kenneth A. (2001) Minneapolis, MN

Simulated data based on

observed values

Parameters based

on data available

around 2000

Net present value (NPV)

of TIF project

The net present value of a typical TIF district will be

negative under most plausible assumptions.

Simulation results limited to the ﬁnancial effects of TIF Negative

Dye, Richard F., and David F. Merriman

(2003)

Illinois 1,242 municipalities 1980–1998

Growth in non-TIF municipal

property value, 1995–1998

Non-TIF municipal property values grow slower in cities with TIF.

Similar negative results with sample of Chicago Metropolitan Area

communities; TIF adoption estimated simultaneously

Negative

Weber, Rachel, Saurav Dev Bhatta, and

David Merriman (2003)

Chicago, IL

154 sales of vacant industrial

parcels

1999–2002 Natural log of parcel price

Value of parcels in industrial TIF districts

fall by 40% to 66%.

Value of parcels in mixed-use TIF rise by 15% to 115%.

TIF adoption estimated simultaneously;

similar results obtained with much larger sample of

industrial parcels with structures

Mixed

Rogers, Cynthia L., and Jill L. Tao (2004) Florida 31 small cities 1980–1990

Population, unemployment-

to-population ratio, median

property value, and median

household income

TIF had no signiﬁcant effect on any of the dependent variables.

Considers both TIF and enterprise zones;

quasi-experimental methods and regression analyses used

Neutral

Ingraham, Allan T., Hal J. Singer, and

Thomas G. Thibodeau (2005)

Dallas, TX

Case study of a proposed retail

TIF district

1990–2003

Share of newly TIF-generated

retail sales that cannibalize

sales of neighbors

Less than 34% of growth in TIF cannibalizes

non-TIF development.

Argues that Dallas beneﬁts whenever cannibalization

rate is less than 93%

Positive

Carroll, Deborah A., and Robert J. Eger

(2006)

Milwaukee, WI 17 aldermanic districts 1993–2000

Real assessed property value

within aldermanic district

Each dollar of TIF ﬁnancing generates a $3.50 increase

in property value.

TIF adoption not estimated simultaneously Positive

Byrne, Paul F. (2006) Chicago Metropolitan Area

89 TIF districts in

67 municipalities

1990–1993

Annualized property value

growth

Industrial, blighted, and centrally located TIF districts grow

faster than the municipalities that house them.

Lagged demographic independent variables used to

reduce endogeneity concerns

Positive

Smith, Brent C. (2006) Chicago, IL 36,158 multifamily units 1992–2000

Natural log of sale price

per square foot

Price of units within a TIF district grew slightly faster

than those outside TIF districts.

TIF adoption not estimated simultaneously Positive

Weber, Rachel, Saurav Dev Bhatta, and

David Merriman (2007)

Chicago, IL

5,852 single-family homes

that sold more than once

1993–1999

Sale price of single-family

homes sold more than once

during the time period

Houses near mixed-use TIF districts appreciated faster than those

farther away, but units near industrial or commercial TIF districts

appreciated slower.

Three sets of data used; results do not support hypothesis Mixed

Table 6

Empirical Studies of Effect of TIF on Economic Activity

48 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 49

Article City, State, or Region Data Time Dependent Variable(s) Finding(s) Notes

Summary

Finding

Wassmer, Robert W. (1994) Detroit Metropolitan Area 25 cities 1947–1987 Employment or retail sales

TIF increased retail employment, but had no signiﬁcant effect

on retail sales or service receipts.

Controls for a number of other economic development incentives Positive

Dardia, Michael (1998) California

47,000 parcels in 38

redevelopment projects and

matched-pair areas

1978–1996 Assessed values

TIF did not generate enough extra tax revenue to compensate

overlying governments for loss of revenue during TIF period.

Matched-pair methodology Negative

Man, Joyce Y., and Mark S. Rosentraub

(1998)

Indiana 151 cities 1990

Real growth in value of

median valued house

TIF increased median owner-occupied housing value by 11.4 %. TIF adoption treated as endogenous Positive

Man, Joyce Y. (1999b) Indiana

53 cities with populations

greater than 10,000

1985–1992 Employment

Cities with TIF have about 4.5% more jobs than cities without TIF. TIF adoption treated as exogenous Positive

Dye, Richard F., and David F. Merriman

(2000)

Chicago Metropolitan Area 235 municipalities 1980–1995

Growth in municipal property

value, 1992–1995

Cities that adopt TIF grow between 0.78% and

2.18% slower than those that do not.

Revenue shifting not a determinant of TIF adoption Negative

Wassmer, Robert W., and

John E. Anderson (2001)

Detroit Metropolitan Area 112 municipalities 1977–1992 Commercial property value

TIF increased commercial property value by 12%. TIF adoption treated as endogenous Positive

Kriz, Kenneth A. (2001) Minneapolis, MN

Simulated data based on

observed values

Parameters based

on data available

around 2000

Net present value (NPV)

of TIF project

The net present value of a typical TIF district will be

negative under most plausible assumptions.

Simulation results limited to the ﬁnancial effects of TIF Negative

Dye, Richard F., and David F. Merriman

(2003)

Illinois 1,242 municipalities 1980–1998

Growth in non-TIF municipal

property value, 1995–1998

Non-TIF municipal property values grow slower in cities with TIF.

Similar negative results with sample of Chicago Metropolitan Area

communities; TIF adoption estimated simultaneously

Negative

Weber, Rachel, Saurav Dev Bhatta, and

David Merriman (2003)

Chicago, IL

154 sales of vacant industrial

parcels

1999–2002 Natural log of parcel price

Value of parcels in industrial TIF districts

fall by 40% to 66%.

Value of parcels in mixed-use TIF rise by 15% to 115%.

TIF adoption estimated simultaneously;

similar results obtained with much larger sample of

industrial parcels with structures

Mixed

Rogers, Cynthia L., and Jill L. Tao (2004) Florida 31 small cities 1980–1990

Population, unemployment-

to-population ratio, median

property value, and median

household income

TIF had no signiﬁcant effect on any of the dependent variables.

Considers both TIF and enterprise zones;

quasi-experimental methods and regression analyses used

Neutral

Ingraham, Allan T., Hal J. Singer, and

Thomas G. Thibodeau (2005)

Dallas, TX

Case study of a proposed retail

TIF district

1990–2003

Share of newly TIF-generated

retail sales that cannibalize

sales of neighbors

Less than 34% of growth in TIF cannibalizes

non-TIF development.

Argues that Dallas beneﬁts whenever cannibalization

rate is less than 93%

Positive

Carroll, Deborah A., and Robert J. Eger

(2006)

Milwaukee, WI 17 aldermanic districts 1993–2000

Real assessed property value

within aldermanic district

Each dollar of TIF ﬁnancing generates a $3.50 increase

in property value.

TIF adoption not estimated simultaneously Positive

Byrne, Paul F. (2006) Chicago Metropolitan Area

89 TIF districts in

67 municipalities

1990–1993

Annualized property value

growth

Industrial, blighted, and centrally located TIF districts grow

faster than the municipalities that house them.

Lagged demographic independent variables used to

reduce endogeneity concerns

Positive

Smith, Brent C. (2006) Chicago, IL 36,158 multifamily units 1992–2000

Natural log of sale price

per square foot

Price of units within a TIF district grew slightly faster

than those outside TIF districts.

TIF adoption not estimated simultaneously Positive

Weber, Rachel, Saurav Dev Bhatta, and

David Merriman (2007)

Chicago, IL

5,852 single-family homes

that sold more than once

1993–1999

Sale price of single-family

homes sold more than once

during the time period

Houses near mixed-use TIF districts appreciated faster than those

farther away, but units near industrial or commercial TIF districts

appreciated slower.

Three sets of data used; results do not support hypothesis Mixed

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 49

50 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Article City, State, or Region Data Time Dependent Variable(s) Finding(s) Notes

Summary

Finding

Carroll, Deborah A. (2008) Milwaukee, WI 12,169 business parcels 1980–1999 Real assessed value Business parcels located in TIF districts grow faster. TIF adoption treated as endogenous Positive

Smith, Brent C. (2009) Chicago, IL

4,022 commercial

property sales

1992 and 2000 Commercial property values

Commercial property values appreciate faster in TIF districts. TIF adoption treated as endogenous Positive

Immergluck, Dan (2009) Atlanta, GA

25,999 house sales near the

BeltLine TIF district

2003–2005 Log of sale price

Announcement of the TIF district caused prices to increase

substantially near some parts of the TIF district.

Effects varied with geography; negative effects in some areas Positive

Byrne, Paul F. (2010) Illinois

1,449 observations in a panel

of municipalities

1980–1999 Employment

On average, TIF has no effect on employment, but industrial TIF

increases employment.

Some controls for endogeneity Neutral

Skidmore, Mark, and Russ Kashian

(2010)

Wisconsin 537 municipalities 1990–2003 Property tax rates

With TIF in place, the property tax rate of nonmunicipal governments

rises, but the property tax rate of municipal governments falls.

Lagged control variables reduce concerns about endogeneity Mixed

Merriman, David F., Mark L. Skidmore,

and Russ D. Kashian (2011)

Wisconsin All municipalities 1990–2003

Real per capita value of

real estate

TIF does not increase in total, residential, or manufacturing property

values, but may increase commercial property values.

Panel data reduce concerns about endogeneity Neutral

Bossard, Jennifer A. (2011) Minnesota

Panel of 334–421 school

districts

1992–2007

Non-TIF district property value

growth for school districts

Increases in TIF intensity result in more rapid growth.

TIF intensity too low to maximize non-TIF school district

property value growth

Positive

Giradi, Anthony G. (2013) Iowa All counties 2002–2012

Standardized employment

growth and wage growth

TIF had no impact on wage or employment growth.

Actual employment and wages compared to predicted level;

controlling for industrial composition

Neutral

Lester, T. William (2014) Chicago, IL

1,026 block groups treated by

TIF and 14,013 block groups

not treated by TIF

1990–2008

Log of employment by industry

and number and value of

building permits

TIF designation had no impact on employment, establishment counts,

or building permits.

Propensity score weighting to deal with potential endogeneity Neutral

Overton, Michael, and Robert L. Bland

(2014)

Dallas, TX 17 TIF districts 1992–2011

Annual amount of private

investment in a TIF district

A $1 increase in public expenditures within a TIF results

in a 20¢ increase in private investment.

Result holds only during recessions Positive

Swenson, Charles W. (2015) California 5,689 census tracts 1980–2000

Changes in measures of

economic well-being, includ-

ing poverty, unemployment,

income, vacancy rate,

employment, and others

TIF districts resulted in minimal positive impacts. TIF adoption treated as endogenous Neutral

Hicks, Michael J., Dagney Faulk, and

Pam Quirin (2015)

Indiana 91 counties 2003–2012

Effective property tax rate,

total assessed values,

and employment

TIF use is associated with increases in assessed value and effective

property tax rates, but also with declines in employment.

TIF adoption not estimated simultaneously Neutral

Hicks, Michael J. , Dagney Faulk, and

Srikant Devaraj (2016)

Indiana 91 counties 2003–2012

Local-option income and sales

taxes and non-TIF

assessed value

TIF use has no impact on retail sales tax or local-option

income tax revenue.

TIF adoption not estimated simultaneously Neutral

Stewart, N. M. (2016) Baltimore, MD 710 block groups 2002–2013

Employment, building permits,

and home sales

TIF had no impact on employment or building permits,

but did stimulate home sales.

Difference-in-difference and propensity score matching used to

assure treated areas and control areas were comparable

Neutral

(slightly positive)

Yadavalli, A., and J. Lander (2017) Indiana

123,000 parcels in 579 TIF

areas

2004–2013

Assessed values, employment,

and wages

TIF increased growth in assessed values by .2%,

but had no impact on employment or wages.

Propensity score weighting to deal with potential endogeneity

Neutral

(slightly positive)

Lester, T. W., and El-Khattabi,

Rachid (2017)

St. Louis and

Kansas City, MO

141 Kansas City census block

groups with TIF and 92

St. Louis block groups with

TIF matched to block groups

without TIF

1990–2012

Employment, sales, and

establishments

TIF had no impact on economic development in either city. Propensity score weighting to deal with potential endogeneity Negative

50 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Table 6, cont’d

Empirical Studies of Effect of TIF on Economic Activity

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 51

Article City, State, or Region Data Time Dependent Variable(s) Finding(s) Notes

Summary

Finding

Carroll, Deborah A. (2008) Milwaukee, WI 12,169 business parcels 1980–1999 Real assessed value Business parcels located in TIF districts grow faster. TIF adoption treated as endogenous Positive

Smith, Brent C. (2009) Chicago, IL

4,022 commercial

property sales

1992 and 2000 Commercial property values

Commercial property values appreciate faster in TIF districts. TIF adoption treated as endogenous Positive

Immergluck, Dan (2009) Atlanta, GA

25,999 house sales near the

BeltLine TIF district

2003–2005 Log of sale price

Announcement of the TIF district caused prices to increase

substantially near some parts of the TIF district.

Effects varied with geography; negative effects in some areas Positive

Byrne, Paul F. (2010) Illinois

1,449 observations in a panel

of municipalities

1980–1999 Employment

On average, TIF has no effect on employment, but industrial TIF

increases employment.

Some controls for endogeneity Neutral

Skidmore, Mark, and Russ Kashian

(2010)

Wisconsin 537 municipalities 1990–2003 Property tax rates

With TIF in place, the property tax rate of nonmunicipal governments

rises, but the property tax rate of municipal governments falls.

Lagged control variables reduce concerns about endogeneity Mixed

Merriman, David F., Mark L. Skidmore,

and Russ D. Kashian (2011)

Wisconsin All municipalities 1990–2003

Real per capita value of

real estate

TIF does not increase in total, residential, or manufacturing property

values, but may increase commercial property values.

Panel data reduce concerns about endogeneity Neutral

Bossard, Jennifer A. (2011) Minnesota

Panel of 334–421 school

districts

1992–2007

Non-TIF district property value

growth for school districts

Increases in TIF intensity result in more rapid growth.

TIF intensity too low to maximize non-TIF school district

property value growth

Positive

Giradi, Anthony G. (2013) Iowa All counties 2002–2012

Standardized employment

growth and wage growth

TIF had no impact on wage or employment growth.

Actual employment and wages compared to predicted level;

controlling for industrial composition

Neutral

Lester, T. William (2014) Chicago, IL

1,026 block groups treated by

TIF and 14,013 block groups

not treated by TIF

1990–2008

Log of employment by industry

and number and value of

building permits

TIF designation had no impact on employment, establishment counts,

or building permits.

Propensity score weighting to deal with potential endogeneity Neutral

Overton, Michael, and Robert L. Bland

(2014)

Dallas, TX 17 TIF districts 1992–2011

Annual amount of private

investment in a TIF district

A $1 increase in public expenditures within a TIF results

in a 20¢ increase in private investment.

Result holds only during recessions Positive

Swenson, Charles W. (2015) California 5,689 census tracts 1980–2000

Changes in measures of

economic well-being, includ-

ing poverty, unemployment,

income, vacancy rate,

employment, and others

TIF districts resulted in minimal positive impacts. TIF adoption treated as endogenous Neutral

Hicks, Michael J., Dagney Faulk, and

Pam Quirin (2015)

Indiana 91 counties 2003–2012

Effective property tax rate,

total assessed values,

and employment

TIF use is associated with increases in assessed value and effective

property tax rates, but also with declines in employment.

TIF adoption not estimated simultaneously Neutral

Hicks, Michael J. , Dagney Faulk, and

Srikant Devaraj (2016)

Indiana 91 counties 2003–2012

Local-option income and sales

taxes and non-TIF

assessed value

TIF use has no impact on retail sales tax or local-option

income tax revenue.

TIF adoption not estimated simultaneously Neutral

Stewart, N. M. (2016) Baltimore, MD 710 block groups 2002–2013

Employment, building permits,

and home sales

TIF had no impact on employment or building permits,

but did stimulate home sales.

Difference-in-difference and propensity score matching used to

assure treated areas and control areas were comparable

Neutral

(slightly positive)

Yadavalli, A., and J. Lander (2017) Indiana

123,000 parcels in 579 TIF

areas

2004–2013

Assessed values, employment,

and wages

TIF increased growth in assessed values by .2%,

but had no impact on employment or wages.

Propensity score weighting to deal with potential endogeneity

Neutral

(slightly positive)

Lester, T. W., and El-Khattabi,

Rachid (2017)

St. Louis and

Kansas City, MO

141 Kansas City census block

groups with TIF and 92

St. Louis block groups with

TIF matched to block groups

without TIF

1990–2012

Employment, sales, and

establishments

TIF had no impact on economic development in either city. Propensity score weighting to deal with potential endogeneity Negative

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 51

52 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

What is the most appropriate dependent variable? One

might argue that TIF is designed as a tool to stimulate

growth in real estate variables, and therefore it is most

appropriate to focus on property values. However,

the purpose of stimulating growth in property values

is to ultimately improve citizens’ quality of life, so

employment or median household income would also

be appropriate. Increases in retail sales or building

permits, by contrast, are relatively weak proxies for the

key underlying variables of interest.

Methodology is also important. All but two studies use

some form of regression analyses (Dardia 1998; Kriz

2001). The various data used in the studies are from

city, TIF, and parcel-level observations. Many of the

studies account for potential reverse causality

between TIF use and economic outcomes. This is

important because without reverse causality one

might attribute economic gains to TIF use when, in

fact, the expectation of economic growth was the stim-

ulus for TIF formation in the ﬁrst place. The differences

in study areas, time periods, outcome variables, and

methodologies make it difﬁcult to generalize about

the ﬁndings, however.

Despite this, the last column of table 6 reports a very

concise qualitative summary of each study’s ﬁnding—

classifying the empirical results as positive (i.e., TIF

promotes economic development), negative (i.e., TIF

reduces growth), and neutral or mixed (both positive

and negative results). In many cases, the concise sum-

mary required a judgment call about which results

were most important and salient. A simple count shows

42 percent of the studies—13 total—have positive

results. Of the remaining 18 studies, 5 have negative re-

sults, 8 have neutral results, and 5 have mixed results.

The neutral results suggest that TIF did little or nothing

to stimulate economic development, so these studies

might be viewed as an argument against the use of

TIF. The mixed results often show very weak positive

effects (Stewart 2016; Yadavalli and Landers 2017) or

strong negative effects (Skidmore and Kashian 2010;

Weber, Bhatta, and Merriman 2003). Also, the most re-

cent studies, which tend to have the strongest data

and best methodologies, are much less positive than

earlier studies. Taken together, this review of the

rigorous evaluation literature suggests that in most

cases, TIF has not accomplished the goal of

promoting economic development.

Taken together, this review of the rigorous

evaluation literature suggests that in most

cases, TIF has not accomplished the goal of

promoting economic development.

Still, there is some evidence that TIF does work in

certain cases. One possible explanation is that TIF

simply works in some locations but not in others. The

empirical research does not support that view, how-

ever: Of the nine studies using Illinois data, three are

positive, two are negative, two are neutral, and two are

mixed. Two of the four studies using Wisconsin data

are positive, but one is neutral and one is mixed.

Two of the ﬁve studies from Indiana are positive, but

the three most recent studies show a mostly neutral

effect. Thus, the empirical evidence shows that use of

TIF is no guarantee of success, which suggests using

caution in employing TIF.

Empirical work provides other guidance, too. Several

studies provide evidence that TIF has its strongest

positive effects when used for commercial or mixed

uses (Ingraham, Singer, and Thibodeau 2005; Merri-

man, Skidmore, and Kashian 2011; Smith 2009; Wass-

mer and Anderson 2001; Weber, Bhatta, and Merriman

2003; 2007). However, Dye and Merriman (2000; 2003)

suggest that at least some of the growth in commer-

cial TIF districts is offset by reduced growth in other

nearby areas.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 53

Effects of TIF Adoption on

School Finance

One area of considerable controversy about TIF is its

impact on school ﬁnance. Cities are responsible for

establishing and overseeing TIF districts. If some of

the real estate appreciation in a TIF district would

have occurred even in the absence of the TIF district,

overlying school districts may face a diminished tax

base during the life of the TIF district. A school dis-

trict’s ﬁscal difﬁculties due to loss of its tax base may

also be exacerbated if the TIF district facilitates new

housing and increased demand for school services.

Some of the revenue lost to the school district in

the short run may be eventually recovered if the TIF

district stimulates additional real estate appreciation.

Even the short-run impact of the TIF district may be

mitigated because many school aid formulas that

depend on property tax base per pupil compensate

school districts, at least to some degree, for the loss

of tax base due to TIF. For example, Illinois’s state-aid

formula subtracts TIF increments from available tax

base per pupil to calculate state aid. Also, TIF revenues

may in some cases be used to ﬁnance public spending

that can substitute for school district funding, such as

renovations of parks instead of school playgrounds.

Hence, the net effect of TIF on school ﬁnance is

unclear and may be illuminated by further empirical

research. In an environment of scarce resources and

ongoing pressure on the property tax despite its im-

portance as a source of local revenue, it is no wonder

that the impact on school funding continues to be a

major issue.

Table 7 (p. 54) provides basic information about three

empirical studies on TIF’s effect on school ﬁnance.

Weber (2003) ﬁnds that TIF has no observable impact

on school district tax revenue in the Chicago metropol-

itan area but does raise state aid to school districts.

Similarly, Weber, Hendrick, and Thompson (2008) ﬁnd

little impact on tax revenues in the Chicago area, but

they do ﬁnd evidence of lower revenues and higher

tax rates in school districts with TIF in other parts of

Illinois. Nguyen-Hoang (2014) studies the impact of

TIF on school spending in Iowa; in contrast to Weber

(2003), he ﬁnds that greater use of TIF is associated

with reduced education expenditures. He ﬁnds that

this effect is greater for lower-wealth districts. Taken

together, these ﬁndings suggest additional reasons to

be cautious about using TIF.

Other Effects of TIF Adoption

Table 8 (p. 55) gives some basic information about em-

pirical studies that examine other potential effects of

TIF and that cover various related ad hoc topics. Skid-

more, Merriman, and Kashian (2009) provide evidence

that, at least in Wisconsin, TIF encourages municipal

annexation, as TIF districts can be used to improve

municipalities’ ﬁscal conditions. Merriman (2010)

provides a simulation analysis that illustrates how the

cycle of TIF adoption and dissolution can make munic-

ipal budgets signiﬁcantly more difﬁcult to manage, as

TIF gradually supplements available municipal funds

and then those funds suddenly disappear when TIF

is dissolved. In the context of random ﬂuctuations in

assessed value, this can make ﬁnancial management

signiﬁcantly more difﬁcult.

Kashian and Skidmore (2011) study factors that

determine the time until a TIF district is dissolved.

They ﬁnd that TIF districts have longer life spans when

the municipalities that house them—and thus can

decide when they are dissolved—pay smaller shares

of the cost, as measured by the municipal tax rate as

a share of the total. TIF districts were also kept alive

longer following the slow-growth period of the 1991

recession. This ﬁnding seems consistent with Dye,

Merriman, and Goulde (2014), who ﬁnd that TIF dis-

tricts in both Illinois and Nebraska grew signiﬁcantly

slower during and immediately after the 2008–2009

recession. They ﬁnd some evidence of a recovery in

TIF growth in Nebraska but little in Illinois.

54 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Hall and Bartels (2014) ask why some Dallas–Ft. Worth

TIF districts are more successful than others and ﬁnd

that TIF districts using certain formal management

methods, especially performance measurement, have

better outcomes than those that do not. For example,

TIF districts that listed, quantiﬁed, and tracked public

versus private initiatives, cost responsibilities, and

success indicators had higher property value growth

than those that did not. On the other hand, risk-

management techniques, such as very detailed and

explicit economic projections, did not signiﬁcantly

improve the performance of TIF districts.

Kane and Weber (2015) study the relationship between

the type of expenditures in Chicago TIF districts and

the growth rate of property values in those districts.

Disturbingly, they ﬁnd a clear positive effect resulting

from commercial subsidies but a negative impact from

infrastructure spending. This could suggest that TIF is

ineffective in areas that lack the preconditions (namely,

infrastructure) to support growth. As other studies have

suggested that commercial development in TIF districts

often displaces commercial development elsewhere,

the scope for successful use of TIF may be narrow.

Bland and Overton (2016) study the growth of TIF

districts in Dallas, Texas, and ask whether public or

private investments do more to stimulate real estate

appreciation. They ﬁnd that public investments, by

themselves, do little to stimulate appreciation, but that

public investment can be a catalyst to stimulate private

investment and promote appreciation when combined

with operational and institutional knowledge.

Table 7

Empirical Studies of Effect of TIF on School Finance

Article

Region or

State

Data

Time

Period

Dependent

Variable(s)

Finding Notes

Summary

Finding

Weber, Rachel

(2003)

Cook County,

Illinois

151 school

districts

1989–

1999

Change in tax

revenue, state

aid, and effective

tax rate

TIF intensity had no

effect on the tax rev-

enue of the school

district, but did raise

state aid.

TIF intensity treat-

ed as endogenous

No impact

Weber, Rachel,

Rebecca

Hendrick,

and Jeremy

Thompson (2008)

Illinois

777 school

districts

2001

Property tax rate

percentage (2001)

and change

in property

tax revenue

(1990–2000)

TIF intensity was

not a determinant of

change in property

tax revenues in the

Chicago metropol-

itan area, but reve-

nues were lowered

in other areas of

Illinois.

Endogeneity not

an issue (munici-

palities choose TIF)

No impact

Nguyen-Hoang,

Phuong (2014)

Iowa

347 school

districts

2001–

2011

Log of education

expenditure

TIF is associated

with reduced

education expendi-

tures, especially in

low wealth districts.

Argues that

endogeneity is

not an issue

TIF lowers

education

spending

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 55

Table 8

Empirical Studies About Other TIF-Related Issues

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 55

Article

City or

State

Data

Time

Period

Dependent

Variable(s)

Finding(s) Notes

Skidmore, Mark,

David F. Merriman,

and Russ Kashian

(2009)

Wisconsin

533

municipalities

1990–2003

Log of municipal

land area

Adding a new TIF

district is associated

with annexation.

TIF adoption

treated as

endogenous

Merriman, David F.

(2010)

Simulation,

parameters

mimic Wis-

consin

Simulation,

based on typical

Wisconsin

municipality

Simulation,

based on

2003

parameters

Volatility of

municipal property

tax revenues

The formation and

expiration of TIF districts

can signiﬁcantly increase

revenue volatility.

Simulation of

municipal

governments'

revenue; overly-

ing governments

not studied

Kashian, Russ, and

Mark Skidmore

(2011)

Wisconsin 362 TIF districts 1988–2009

Lifespans of

TIF districts

Longer TIF lifespans are

associated with smaller

municipal share of the

tax rate and several other

variables.

Parameters

estimated

using duration

analysis

Hall, Jeremy L.,

and Christopher E.

Bartels (2014)

Dallas–Ft.

Worth, TX

72 TIF projects 2007–2008

Difference between

projected assessed

value in the TIF

district and actual

assessed value in

the TIF district

Actual results match

performance results more

closely in TIF districts that

use preimplementation

risk and performance

management.

TIF adoption

not estimated

simultaneously

Dye, Richard F.,

David F. Merriman,

and Katherine

Goulde (2014)

Nebraska

and Illinois

920 Illinois TIF

districts and 297

Nebraska TIF

districts

2006–2013

Growth rate of EAV*

in TIF districts

There was a large decline

in TIF EAV after the start

of the Great Recession in

Illinois, but the recession

had less of an effect in

Nebraska.

Young TIF

districts grow

faster than more

mature districts

in both states

Kane, Kevin, and

Rachel Weber (2015)

Chicago, IL 160 TIF districts 2002–2012

Growth rate of EAV*

in TIF districts

Commercial TIF subsidies

result in faster property-

value growth than other

types of expenditures.

Research sug-

gests important

symbolic effect

of TIF district

Bland, R. L., and M.

Overton (2016)

Dallas, TX

18 TIF districts,

212 observa-

tions

Not

provided

Growth rate of EAV*

in TIF districts

Private investments

stimulate more growth

than public investments,

but there is interaction

between these two types

of investments.

No correction

for possibility

that private

investments

are attracted to

rapidly growing

areas

Note: *EAV: equalized assessed value.

56 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

CHAPTER 8

Conclusion

Although TIF has been used across many states for

years, there is still much we do not know about how its

use affects economic development. Nonetheless, the

information summarized in this report provides a strong

factual basis for certain ﬁndings and recommendations

as we continue to monitor and research this tool.

TIF was used to help fund the Millennium

Park in Chicago. Photo: Serge Melki/Flickr

CC BY 2.0.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 57

Findings

1. Tax increment ﬁnancing is an important and

widely used tool to promote economic develop-

ment, especially in areas facing blight and other

signiﬁcant economic challenges. TIF performs

best when the public and private sectors work

together to stimulate economic development. TIF

can be a useful tool to create commitments that

engender trust among the various parties involved

and lead to successful implementation of devel-

opment plans.

2. Unfortunately, the design of TIF in many states

makes it vulnerable to exploitation by cities,

which can obtain revenues that otherwise would

have gone to overlying governments, especially

school districts.

3. TIF has been used very unevenly across states,

with extensive use in Midwestern states, for ex-

ample, but little use in other regions of the coun-

try. The reasons for the uneven use of TIF have not

been rigorously studied, but it is reasonable to

speculate that states’ responses to their neigh-

bors’ use of TIF has contributed to this pattern of

unevenness.

4. Within individual states and cities, most often TIF

has been used in areas that were already moder-

ately successful, and it has done little to stimu-

late growth in the most depressed areas.

5. Transparency in the use of TIF is a huge challenge,

and state monitoring of TIF use is very uneven. City

reporting about TIF is also mixed. Even in cities

like Chicago, where TIF is used extensively and

where much information has been made public,

the transparency of TIF remains inconsistent.

6. Many academic studies of TIF suggest that it often

fails to deliver economic growth beyond what oth-

erwise would have occurred and may often simply

result in the relocation of economic activity.

7. Academic studies suggest a variety of unintended

effects that may result from TIF use. These include

diminished or reallocated school revenues and

increased budget volatility, especially during

unstable economic cycles.

8. Recent research suggests that more attention to

the management of TIF and the type of spending

within TIF districts could lead to a better under-

standing of why some TIF districts succeed and

others do not.

58 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

Recommendations

1. States should track and monitor TIF use.

Basic monitoring helps states evaluate the use of

TIF and helps state legislators better understand

whether TIF regulations are achieving their goals.

Virtually all states are involved in monitoring the

property tax assessment processes of local gov-

ernments and could easily report on the number

of TIF districts and the base and incremental val-

ue in each district in each year. Some states, such

as Wisconsin and Illinois, require regular reporting

on TIF and can serve as models for other states.

Wisconsin provides a particularly strong example,

as it requires detailed delineation of expenditures

and information about the movement of TIF funds

from one TIF district to another, known as porting.

Wisconsin could improve its reports (Wisconsin

Department of Revenue 2017b) by requiring infor-

mation about TIF-related borrowing.

2. States should revise statutes to allow counties,

school districts, and other overlying local govern-

ments to opt out of contributing resources to TIF

districts. This measure would diminish or elimi-

nate the incentive for cities to use TIF as a device

to capture revenues that otherwise would have

gone to overlying governments. TIF districts can

be particularly problematic for overlying govern-

ments when combined with tax limitations, which

can prevent the districts from recouping revenue

lost to TIF districts. Recent legislation allowing

transit TIFs in Chicago may provide a model for

this kind of policy.

3. State legislators should review their states’ “but

for” TIF requirements to determine whether they

are effective. An effective “but for” requirement

can reduce reliance on TIF when other tools might

be more helpful and transparent. If a state’s

requirement is not effective, that state should

consider revisions that place realistic limits on

local governments’ use of TIF. California’s recent

revisions of rules on TIF might provide useful guid-

ance in this area.

4. Local governments should provide extensive, eas-

ily accessible information about TIF use, revenues,

and expenditures. This information would enable

local elected ofﬁcials to monitor and regulate the

application of this tool. Local legislative bodies

(e.g., city councils) should require regular reports

from executive ofﬁcers that document progress

toward clearly articulated goals for the use of TIF.

Local legislators should consider policies that

require periodic reports on the administration of

TIF districts, and they should have the option of

directing staff to dissolve TIF districts that do

not meet the jurisdiction’s objectives. They could

also use the evidence-based approach to make

adjustments, such as limiting the duration of

TIF mechanisms.

5. Researchers should study, document, and ex-

plain the different outcomes of TIF use in various

geographic areas. To date, academic studies of TIF

document mixed outcomes but do not clearly iden-

tify factors that explain this variation. Such studies

should also expand knowledge about the types

of TIF expenditures that best promote economic

development.

Evidence suggests that implementing these recommen-

dations will improve tax increment ﬁnancing and make

it a useful tool for economic development that contrib-

utes to strong, ﬁscally sustainable communities.

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 59



30Tax Increment Development



30Tax Increment Financing Districts



20Tax Increment Financing Districts



25Tax Increment Financing Districts



Tax Increment Allocation Redevelopment

Areas



24Revenue Allocation Areas



20Urban Renewal Areas



Term of

bonds

Tax Increment Financing Districts



Term of

bonds

Tax Allocation Districts



7–40Community Development



30Municipal Tax Increment Financing Districts



Varies by

district

Tax Increment Financing



40Tax Increment Financing Districts



25–50Tax Increment Financing Districts



45Enhanced Infrastructure Financing Districts

N/AN/A



25Redevelopment Districts



30Tax Increment Districts



40Improvement Area Projects

DAO

TCRASTSBCOCTO

DPPBPPCPCBFSBFB

Duration

(years)

Program NameState

Public

Hearing

Required?

Approval

Agencies

Requirements for District Creation

Appendix

State Tax Increment Finance Programs

60 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

A: Authorization

D: Deal

Approval

CT: City

CO: County

SB: School Board or District

ST: State

RA: Community Redevelopment

Agency Board

TC: TIF Commission

O: Other

B: Blight

BF: “But For” Test

FS: Feasibility Study

CB: Cost-Beneﬁt Analysis

CP: Consistent with Comprehensive Plan or

Development Plan

PP: Project Plan

PB: Finding of Public Beneﬁt

DP: Finding of Development Potential

O: Other

2142126141110354912334413171834Totals



25Tax Increment Financing



30Tax Increment Financing



20–27Tax Incremental Districts



30Tax Increment Financing



20Tax Increment Financing Districts



Term of

bonds

Tax Increment Financing Districts



UnknownTax Increment Financing Districts



20Tax Increment Reinvestment Zones



UnknownTax Increment Financing



20Tax Incremental Districts



Tax Increment Financing

for Redevelopment Projects



UnspeciﬁedTax Increment Financing Areas



20Tax Incremental Financing Districts



UnspeciﬁedUrban Renewal Plans



25Tax Increment Financing Districts



30Tax Increment Financing Districts



UnspeciﬁedTax Increment Financing



20TIF and Redevelopment Areas



10–20Tax Increment Development Districts



UnspeciﬁedRevenue Allocation District Financing



Term of

bonds

Tax Increment Financing in

Development Districts



Tax Increment Financing for

Redevelopment Projects



30Tax Increment Financing



30Project Development Financing (TIF)



15–40Tax Increment Financing



30Tax Increment Financing



23Real Property Tax Increment Allocation



25Tax Increment Financing



Term of

bonds

Tax Increment Financing



30Tax Increment Financing Districts



UnspeciﬁedTax Increment Financing Districts



20District Improvement Financing

DAO

TCRASTSBCOCTO

DPPBPPCPCBFSBFB

Duration

(years)

Program NameState

Public

Hearing

Required?

Approval

Agencies

Requirements for District Creation

Appendix, cont’d

State Tax Increment Finance Programs

MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 61

A: Authorization

D: Deal

Approval

CT: City

CO: County

SB: School Board or District

ST: State

RA: Community Redevelopment

Agency Board

TC: TIF Commission

O: Other

B: Blight

BF: “But For” Test

FS: Feasibility Study

CB: Cost-Beneﬁt Analysis

CP: Consistent with Comprehensive Plan or

Development Plan

PP: Project Plan

PB: Finding of Public Beneﬁt

DP: Finding of Development Potential

O: Other

2142126141110354912334413171834Totals



25Tax Increment Financing



30Tax Increment Financing



20–27Tax Incremental Districts



30Tax Increment Financing



20Tax Increment Financing Districts



Term of

bonds

Tax Increment Financing Districts



UnknownTax Increment Financing Districts



20Tax Increment Reinvestment Zones



UnknownTax Increment Financing



20Tax Incremental Districts



Tax Increment Financing

for Redevelopment Projects



UnspeciﬁedTax Increment Financing Areas



20Tax Incremental Financing Districts



UnspeciﬁedUrban Renewal Plans



25Tax Increment Financing Districts



30Tax Increment Financing Districts



UnspeciﬁedTax Increment Financing



20TIF and Redevelopment Areas



10–20Tax Increment Development Districts



UnspeciﬁedRevenue Allocation District Financing



Term of

bonds

Tax Increment Financing in

Development Districts



Tax Increment Financing for

Redevelopment Projects



30Tax Increment Financing



30Project Development Financing (TIF)



15–40Tax Increment Financing



30Tax Increment Financing



23Real Property Tax Increment Allocation



25Tax Increment Financing



Term of

bonds

Tax Increment Financing



30Tax Increment Financing Districts



UnspeciﬁedTax Increment Financing Districts



20District Improvement Financing

DAO

TCRASTSBCOCTO

DPPBPPCPCBFSBFB

Duration

(years)

Program NameState

Public

Hearing

Required?

Approval

Agencies

Requirements for District Creation

Sources: Updated from Kenyon, Langley, and Paquin (2012) using Signiﬁcant Features of the Property Tax and various state sources and statutes.

Other Requirements for District Creation: CA, impact report; CT, creation of local development agency; DC, potential for tax revenue growth; FL, shortage of affordable housing;

GA, deterioration and inadequate infrastructure; IL, housing impact study and map of land uses to be funded; IA, slum or economic development need; ME, suitability

for commercial uses; MD, resolution designating area and pledge of revenue; MT, inadequate infrastructure; NM, no net expense; VA, development needs.

Other Approval Agencies: DE, delegated by bond issuer; IA, community colleges; IL, Joint Review Board; KS, county and state in some cases; MN, governing board of authority;

MT, urban renewal authority; OH, Tax Incentive Review Council; OK, review committee; SC, affected taxing entities; WA, ﬁre protection district; WI, Joint Review Board;

WY, planning commission.

62 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

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MERRIMAN | IMPROVING TAX INCREMENT FINANCING FOR ECONOMIC DEVELOPMENT | 67

The author thanks the following Lincoln Institute of Land Policy staff for

their helpful comments on the work in progress and other contributions:

Lourdes Germán, director of International and Institute-Wide Initiatives;

Daphne Kenyon, fellow, Department of Valuation and Taxation; Emily

McKeigue, managing editor; and Joan Youngman, senior fellow and chair of

the Department of Valuation and Taxation.

The author also thanks:

Catherine Collins, research professor and interim associate director of the

George Washington Institute of Public Policy, and her staff for assistance

in using information compiled from the Signiﬁcant Features of the

Property Tax database;

Tianshu Zhao and Di Qiao, University of Illinois Chicago Ph.D. students, for

their help in gathering data about the number of TIF districts in each state

and Chuanyi Guo, University of Illinois Chicago Ph.D. student, for his work

on various aspects of the project;

Alyssa Conley, former Lincoln Institute of Land Policy research assistant,

for her work on early drafts of several case studies;

Margaret Cusack, research manager, International Association of

Assessing Ofﬁcers (IAAO), and William Lester, associate professor,

Department of City and Regional Planning, University of North Carolina

Chapel Hill, for reviewing the manuscript and offering helpful comments;

Richard Dye, emeritus professor of economics, Lake Forest College,

and Rachel Weber, professor, Department of Urban Planning and Policy,

University of Illinois Chicago, for their colleagueship and insights; and

Property tax professionals from around the United States too numerous to

mention individually for feedback during many stages of this report.

Although the author integrated comments and ideas from the individuals

listed here, the ﬁnal report does not necessarily represent the views of

these individuals or their organizations.

Acknowledgments

68 | POLICY FOCUS REPORT | LINCOLN INSTITUTE OF LAND POLICY

ABOUT THE AUTHOR

David Merriman is the James J. Stukel Presidential Professor in the

Department of Public Administration and the Institute of Government

and Public Affairs at the University of Illinois Chicago. He serves as a

member of the board of the National Tax Association, an associate editor

of Economic Development Quarterly, and a fellow at the Lincoln Institute

of Land Policy. He previously served as a senior research associate at

the Urban Institute and as a visiting scholar at the New England Public

Policy Center, Federal Reserve Bank of Boston. Merriman has expertise

in state and local public ﬁnance and urban economic development.

Some of his current research projects focus on state and local gov-

ernment business taxation, public school teacher pension policy, and

illicit tobacco markets. His research has been funded by the John D.

and Catherine T. MacArthur Foundation, the Volcker Alliance, the Robert

Wood Johnson Foundation, the World Bank, and grants from local, state,

and national governments. His research has been published in many

peer review journals and he is frequently quoted in local and national

news media. He earned a doctorate in economics from the University of

Wisconsin–Madison and a bachelor’s degree in economics and political

science from American University.