Tax Increment Financing (TIF)
Tax Increment Financing (TIF)
TIF districts are special taxing areas designed to spur redevelopment. When a TIF district is established, new tax growth (the new real property taxes generated by the redevelopment projects beyond the amount of taxes generated by the existing land and improvements) in the district is used to finance affordable housing and public infrastructure within the district’s boundaries. Funds can also be used for property acquisition and industrial relocation. Beyond CIP funds, TIF funds may be the only source available for the required improvements in the community. The creation of a TIF district requires the approval of City Council, County Commission, Community Reinvestment Agency, and Land Use Control Board.
Background and History
Tax Increment Financing is a popular tool that has been used to redevelop communities in forty-nine states and the District of Columbia. Initially Tax Increment Financing was pioneered in the State of California in 1952 as a way to find local matching funds for federal dollars available under the Federal government’s urban renewal program. The creation of a TIF district allowed the use of property taxes from new development to pay for rehabilitation of blighted areas. As federal funding for redevelopment began to evaporate in the late 1970’s and early 1980’s more and more states began to find new uses of Tax Increment Financing.
There are a number of creative projects that may be supported by TIFs, and to a large extent the answer depends on the most appropriate solution to a problem in an area or district. There are always exceptions, but generally a TIF district funds public improvements within the public right of way to help attract new development (or redevelopment) and to generate new revenues that in turn are captured to pay for the improvements. A property tax TIF should encourage or support private development that will generate new or higher property taxes.
Every taxable property, with or without improvements, has an assessed value. That assessed value is the basis for determining the property taxes on the property. Under the TIF concept this increased tax amount, or increment, is set aside in a special account to be used to pay debt service and other expenses in improving property.
The city and county receive taxes based on the property’s base assessment or value throughout the project repayment period. The CRA captures or receives the extra increment in revenues and applies these new revenues to pay for the debt incurred to develop the improvements, or other project expenses. In a very real sense the revenues generated from the improvements pay for the improvements that make the project possible, and through the use of a TIF district the extra taxes generated by growth pay for the expenses that were required to make that growth possible. At the end of the bond repayment period, both the city and county receive higher taxes generated from the properties within the TIF, with the expectation of a higher value than may have been otherwise available without the TIF project.
It is important to note that upon improvement of the properties there will be two streams of property tax revenue. The first stream is referred to as base revenue from the base assessment. The base assessment is the assessment immediately preceding adoption of the resolution setting up the TIF. Property taxes from the base assessment would continue to be collected by the City and/or county and would not be affected by the TIF. The second stream of revenue, which is called the increment, would be placed in a special account and used to pay the development costs of the project. The effect of this process will be the new taxes generated from the improvements, without an increase in the tax rate, will be used to fund the development, and the City and County will start to receive the higher revenues only after the bonds are retired. At that time all future property tax revenue goes to the taxing jurisdictions.
The initial projects are to commence construction in 2015 using PILOTs. It is assumed that the TIF projects will be approved in the year 2015 and that 2017 would be the first year of the TIF program. For the purpose of this analysis it is assumed that the tax increment revenues will be available for financing for a total of twenty five years.
Increment tax revenues ultimately available to the project for the affected taxing district and for deposit into the trust fund may be impacted by several events. The availability of the increment tax revenues depends on the implementation of the administration system for the identification and collection of these revenues by the City and County, the various offices charged with the administration of these taxes, and the developer. At the initiation of the project, it is critical for this system to be in place.
Use of TIF Funds
Without TIF funds, needed infrastructure improvements as well as costs for the development of affordable housing and the relocation of industrial uses would not be feasible. These improvements are crucial to the redevelopment of the neighborhood. With current market conditions, the low rate of returns makes it very impractical for the developer to obtain private funds to make such improvements in this long neglected area of Downtown Memphis. It is also not realistic to expect the City of Memphis to make CIP funds available for improvements to the infrastructure, affordable housing and industrial relocation.
According to the Community Development Legislation, the maximum amount of TIF funds available is 20% of the overall development cost excluding infrastructure improvements. City South Ventures has estimated the amount of funds to be required; however due to the complexity of the project, further in-depth studies will be necessary. At this time, City South Ventures anticipates that the TIF funds required for the project will be within the amount available per the legislation.
Recent studies of other TIF legislation and other TIF projects throughout Tennessee show that the French Fort Redevelopment is good example of what the TIF program was originally designed for. TIF funds for this project are intended to be used for public projects and affordable housing development. Studies were completed on TIF projects in Chattanooga, Knoxville, Nashville, and Memphis.
Sales Tax & Other Revenue
Sales taxes are not captured by Tax Increment Financing and represent new taxes that will accrue to the City and County as a result of the implementation of this project.
Sales and/or leases of the following government owned properties may bring in additional revenue for the City of Memphis.
Crump Park property
Vacant properties adjacent to Chickasaw Heritage Park
Vacant property adjacent to Alston Avenue
Economy Boat Store property
Vacant property at Riverside Boulevard
Any properties acquired by City from State
The redevelopment of the French Fort area including major enhancements to the neighborhood will also significantly contribute to the tourist base in the City of Memphis through increased traffic to the National Ornamental Metal Museum, Chickasaw Heritage Park and Crump Park, and the extension of the Riverwalk. Hotel taxes will also add significant revenue for the City.