How exactly does tax-increment financing work?

While new to Columbia, tax-increment financing, a program the city will use in some downtown development projects,  has been used as an economic tool in Missouri for more than 25 years.

The value of property slated for a TIF-approved development is frozen before any construction or improvements are made to the property. Depending on the negotiated terms between the city and the developer, the frozen tax rate can last as long as 23 years. As improvements are made to the property the difference (called increments) between the actual value of the property and the frozen value of the property is invested in a “special allocation fund.” The city also transfers 50 percent of its incremental sales and utility tax revenues into that same fund. All or a portion of the money in the fund can then be used to pay directly for redevelopment project costs or for public infrastructure needs like sidewalks.

Developers can only receive TIF-status for their projects if their proposal demonstrates “a substantial and significant public benefit” such as creating new jobs, eliminating blight and the conditions that may lead to blight or strengthening Columbia’s economy. The project must also not be possible, but for the tax break from the city.

Those interested in applying for TIF must pay a $10,000 application fee that will be returned if their project is not approved.

Do you think TIFs are a good idea for downtown development? Leave a comment and tell us what you think.

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One Response

  1. NO. TIF eventually ends up bankrupting a city, county, state. Look at CA. After 20 years they just shut down 400 redevelopment agencies. The general fund and the entire state has been bankrupt because of these TIF deals. ANY TIME YOU TAKE MONEY FROM THE GOVERNMENT IT IS A BAD IDEA. If a city can’t do it on their own then it shouldn’t be done at all.

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