Tax Increment Financing (TIF) is a public financing method and economic development tool which allocates future increases in property taxes (increment) from a designated area to pay for improvements to that area. TIF helps local governments improve historic districts, restore run-down and blighted areas, or jump-start economically challenged parts of town. TIF funds also assist municipalities to make needed improvements, like new roads and sewers, or provide incentives to attract private development and new businesses to an area that may otherwise be unattractive to new investment. The cost of such improvements or incentives are funded by the TIF increment which are repaid by the increased property tax revenues that arise when new development occurs.

When a TIF district is created, the property values for all of the parcels within the district are frozen, creating a base value (blue area in graph). As development occurs and property values increase, the overall value of the district increases as well. This new value that is created is called the increment (green area), which is the difference between the current total value and the base value. The increment is collected into a special fund that the municipality can then invest back into the district under specific rules.

Establishment of a TIF does not reduce property tax revenues available to the overlapping taxing bodies. These taxing bodies continue to collect the property taxes at the base value throughout the life of the TIF. Upon the expiration of the TIF, all property taxes are distributed to the school districts, county, community college, and all other affected taxing districts in the same manner as before the TIF existed.

Below is a list of eligible costs including potential improvements and/or incentives that could be funded through the TIF.

• Roadway, stormwater, & streetscape improvements
• Relocation and demolition costs
• Facade improvements, building rehab, interior remodeling
• Land assembly and demolition
• Utility extensions and enhancements
• Planning, architectural, engineering, legal and other services
• Bond financing costs
• Certain redeveloper interest costs
• Costs of construction/rehabilitation of housing for low/very-low income
• Job training

TIF districts do not create taxes, but instead, create a mechanism that allows municipalities to utilize tax revenues to specifically target a business district that has been identified as being in need for revitalization.

Illinois TIF law allows a district to exist for 23 years. Any TIF district may be terminated earlier if all financial obligations are met and the Village Board votes to terminate the district. Upon termination of the TIF district, the full tax base, including the increment, which had been used to pay for improvements, becomes available to all taxing bodies for their use.

Here are two common myths or misnomers associated with a TIF District.

MYTH #1: PROPERTY OWNERS RECEIVE A TAX BREAK IN THE TIF DISTRICT
Property owners continue to pay their property taxes as they would if they were outside of the TIF district. This includes any increases to the property taxes that are the result of increased property values and/or if any tax rates were to raise.

MYTH #2: SCHOOL DISTRICTS WILL NOT RECEIVE PROPERTY TAX REVENUES DURING THE LIFE OF THE TIF.
As you can see from the section “What is “Tax Increment”? that is not the case. A school district and other taxing bodies continue to receive the amount of taxes originally assessed at the beginning of the TIF – called the base value. The TIF district was created due to the area being blighted and in need of redevelopment. The values of such areas are stagnant with limited increases in the equalized assessed value of the area, thus creating limited revenue increased in property tax for the local taxing bodies in that area. Secondly, TIF districts can create money for schools. In Illinois, school districts continue to receive all the tax revenue they were entitled to before creation of a TIF district. Although schools can lose General State Aid when assessed valuations increase, the incremental growth in property values within a TIF district is excluded from the property tax base when the State of Illinois calculates the amount of aid it awards to a school district. Due to the way this state aid is calculated the “poorer” a school district is, the more it stands to gain from having a TIF District.

Since the Federal and State governments have greatly reduced their support for economic development, Tax Increment Financing permits municipalities to accept some of this responsibility without raising local property taxes to fund public investment and assist with the redevelopment of blighted areas.

Without TIF benefits, development in certain areas may not be economically feasible. Businesses do not sink capital into decaying or blighted areas, and most local governments cannot afford the needed costly improvements without raising taxes. But in a TIF district, dollars for improvements are generated by businesses—new and old—attracted by the TIF benefits. Specifically, money for infrastructure improvements and other incentives comes from the growth in property tax revenues—the tax increment.

An example of this would be if an investor wanted to rehabilitate a former industrial building into a new high-end office space due to its location and visibility to an interstate, but the site had contamination from its previous use. The high cost of the environmental clean-up may be enough for the project to be financially infeasible. Recognizing that the proposed concept would be beneficial to the community and long-term fiscal health of all the local taxing bodies, the municipality could use TIF to cover the cost of the environmental remediation, thus moving the project forward.