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What is tax increase financing?
Tax increase financing is a method by which a city or municipality can generate new money to improve undeveloped areas. When a city wants to improve or redevelop an area, it can designate a tax increase funding zone. It can then use the tax surplus created by the development to fund the project. Financing the tax increase basically allows a city to use all the new property taxes in the area designated for redevelopment. Tax increase financing (TIF) is a popular legal option for cities because individual property taxes do not increase and the money is reinvested in the neighborhood.
Creation of a tax increase financing zone
In a tax increase funding, the city highlights areas in need of development or beautification and designates them as «TIF zones». The urban planner highlights the proposed zone and determines whether the area is eligible for consideration. The city attorney then accompanies outside consultants to determine if TIF zones meet legal standards by conducting an eligibility study. Once a TIF zone is certified, the city civil engineer works with the consultants to develop the redevelopment plan. The plan includes all proposed projects for the TIF zone and the budget. The budget provided by the urban planners and consultants will describe how the tax funds will be spent.
Obtaining income from a TIF zone
Once the TIF zone has been designated and the proposal has been certified, the plan can continue. Current property taxes are «frozen» in the designated neighborhood. This ensures that the person property taxes do not increase during redevelopment. They also ensure that only surplus property taxes directly created by the project itself are used. The hope is that property taxes and property values will eventually increase and surplus tax revenue will be used normally.
In financing the tax increase, only new tax revenue can be used to finance a project. New tax revenues can be found in the form of redevelopment of an existing property or a new development on vacant land. For example, the city may decide to remodel a historic building or park for new tax revenue. The city may also propose the construction of a new building on land that was empty and considered a monstrosity.
Expenditure on revenue from financing the tax increase
Income from a TIF zone can only be legally used for certain projects and elements. The city will consult a lawyer during the various project steps to ensure that the money is spent correctly. Revenue from financing the tax increase can be used for planning and consultancy costs, e.g. legal consultations. They can also be used to buy land or property and prepare it for redevelopment. Sometimes the city can own the property in question, and sometimes private individuals can.
Cities can use the income generated by the TIF zone to buy the property from its owners and then use the income again to prepare the property. Sometimes owners will not want to sell the property to the city. In these cases, attorneys can act on behalf of the city and pursue a process of eminent domain. Through an eminent domain, the city purchases the property at fair market value after the city proves that the project will serve the general public welfare.
Tax increase funding can also be used for day care and job training expenses in companies involved in a TIF zone. It can be used for actual redevelopment of land and renovation of property. It can even be used to pay for the financing of the project itself. Initially, the city will have to finance the project to complete it before income accumulates. The revenue from the tax increase funding will then pay for all costs associated with the funding.
A lawyer is needed to ensure that projects comply with the tax increase funding law. The city will work with an attorney to review the proposed site, project details, and budget proposal.
Talk to a Qualified Incremental Tax Lawyer Today
This article is intended to be useful and informative. But legal issues can become complicated and stressful. A qualified incremental tax attorney can attend to your particular legal needs, explain the law and represent you in court. Take the first step now and contact a qualified incremental tax attorney near you to discuss your specific legal situation.