Prepared by Weld County Treasurer John Lefebvre

Tax Increment Financing

A Quick Overview

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Tax Increment Financing TIF is a tool of local

general governments to finance (re)development of blighted property for the purpose of economic revitalization

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BackgroundProblem

Urban flight left blighted areas in the inner city unable to compete with the urban edge communities

Slums are economically depressed (blighted) areas in inner cities that need revitalization

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Slums = Market FailureCheap and available supply of fuel and

the auto lead to urban flight in the 1940s and 1950s

Owners allow their properties to fall into disrepair

Values spiral downwardTax base erodesBusinesses flee

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ResultsGovernment revenues fallSocial costs climb without offsetting

revenue High unemployment Increased crime Increased substance abuse

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Competing With The Urban Edge Solution

State governments established Urban Renewal Authorities (URA) in the 1950s

Power given: Declare blighted

areas Eminent domain TIFs

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History

Began in CA in 1952 CO established

parallel legislation in 1958 Heavily used since

the 1970s nationwide

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How They WorkDeclare blightedFreeze the tax baseSplit the revenue stream

Original underlying authority revenue remains frozen at the time of blight declaration for up to 25 years

Increment accrues to the URA

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Typical TIF

1 1 1 1 1 1

0.1 0.2 0.3 0.4 0.5 0.6

0

0.5

1

1.5

2

1 2 3 4 5 6

Years

Tax Amount

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URA / Blight / TIF Solution Urban Renewal Authorities

Eminent domain Holdouts Small parcels

TIFs Finance redevelopment Stop sprawl Retain tax base Level economic playing field with urban edge

developments Finance infrastructure improvements without a general

tax increase Development pays its own way

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TIFs = Financing OptionsFinance infrastructure Estimate future valueBond for differenceDollars today for dollars tomorrow Improved community

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General TIF ProblemsResult in market distortionTraditional tax base shifts from

underlying authorities to the cityJob qualityNo accountability

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New URA / TIF ProblemsEminent domain is abused

Taking land from one private party to benefit another private party

High jacks the tax baseTIFs misapplied

Used on the urban edge rather than competing with it

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What is Blight? Lack of infrastructure Incorrectly configured infrastructure Site or other improvement deterioration Faulty lot layout Unsanitary or unsafe conditions Unusual topography Defective or unusual conditions impairing

economic growth

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Colorado Community Revitalization AssociationTIF:

Prevents leakage of sales tax dollars to outside communities

Retains revenue for government services Contains costs for providing government

services by reusing in-fill locations; In-fill development carries a significantly lower

public cost compared to edge, or sprawl, development

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Colorado Community Revitalization Association

Revitalizing in-fill locations: Reduces pressure

on urban edges Preserves open

space & agricultural land

Retains Colorado’s character and quality of life

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Subjectivity = Blight Anything

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TIFs on the Urban Edge Meant for development

to pay its own way without a general tax increase Yet overuse leads to a

general tax increase Meant to limit sprawl

Subsidizes sprawl Leads to newly blighted

areas from overbuilding

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Winners Losers Developers get subsidized City gets new infrastructure Citizens have:

higher property values New jobs No new general taxes Local shopping

All other county residents County government Competing communities Truly blighted areas in cities All state residents

State legislature has to find the money to backfill schools

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IronyMeant for development to pay its own

way without a general tax increase Yet overuse leads to a general tax increase

Meant to limit sprawl Subsidizes sprawl

Leads to newly blighted areas from overbuilding

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Questions