Tax Increment Financing

Tax Increment Financing (TIF) is a powerful financing tool that is used to fund economic development and promote investment in infrastructure. TIF is based on capturing future increased tax dollars that are generated because of a real estate development project. TIF allows local governments to raise money for development projects, to attract federal matching funds for those projects and to target specific areas for economic development. All states except for Arizona have adopted TIF-enabling legislation, but laws governing TIF can vary from state to state.

Before capturing TIF revenue, a local government wishing to utilize TIF must designate an area as a TIF district and create a Redevelopment Commission (RDC). The RDC must then make a declaration of a public purpose, prepare a plan, and approve a declaratory resolution. A public hearing is held after RDC approval, and the local fiscal body approves the resolution. Once the resolution is adopted, a redevelopment project area is established. Lastly, the determination of a redevelopment project area is approved by the local legislative body that designated the TIF district and created the RDC. Once established, the increase in future real estate taxes on properties within the district attributable to development will be captured and made available for TIF purposes. A common way local governments use the TIF tool is to issue bonds to raise large amounts of capital to pay for infrastructure up front, then use the TIF proceeds to make the bond payments over the term of the bond. This process shows some of the clear advantages to TIF like shifting the redevelopment risk away from taxpayers and towards bondholders, making redevelopment self-financed, and giving local government control over redevelopment in local areas.

Indiana law makes it clear that TIF is intended to fund infrastructure to promote development that would not occur but for the added infrastructure financed by the TIF revenues. When used appropriately, TIF does not raise taxes for taxpayers and does not reduce operating revenue for either the enacting or overlapping governments. Uses of TIF proceeds include paying expenses of RDCs for public improvements; paying principal and interest on bonds or leases; constructing roads, streets, sidewalks, street lighting, and parking facilities to support new development; constructing or extending utility lines; and acquiring real estate for future development.

If you have any questions or want assistance with a tax increment financing district, please reach out to one of our municipal law attorneys at McNeelyLaw LLP by calling (317)825-5110.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.

Information found at: https://www.in.gov/ocra/mainstreet/files/Tax-Increment-Financing-Toolkit.pdf