Tax Increment Financing (TIF)

Tax Increment Financing (TIF) provides for the temporary allocation to redevelopment or economic districts of increased tax proceeds in an allocation area generated by increases in assessed value. Thus, TIF permits cities, towns, or counties to use increased tax revenues stimulated by redevelopment or economic development to pay for the capital improvements needed to induce the redevelopment or economic development.

The use of TIF is initiated by the declaration of a tax allocation area by a county, city, or town Redevelopment Commission. Property tax assessments are frozen at predevelopment levels in the allocation area. Municipal bonds are then issued to finance the public improvements. As property values in the allocation areas increase as a result of new development, the increment in tax revenues is used to meet debt service on issued bonds. Once the bonds have been paid of, the taxes collected from the allocation area are distributed to the remaining taxing districts. Bonds payable from TIF may be used to finance the cost of redevelopment and the construction of public improvements in the redevelopment area or for projects that directly serve or benefit that area. Proceeds may also be used for training.

Bond amounts are determined by the size of the project and the amount of the increment available. The 1992 General Assembly passed legislation allowing depreciable personal property (machinery and equipment) to be used in computing the increment in addition to real property.