Tax Increment Financing 101

Posted on 3.2.15 by Karl Stundins in Industry Education


Tax Increment Financing (TIF) is a method for local government to provide financial incentives for new development in targeted neighborhoods and/or for specific projects. Like many other local government incentive programs, the source of money is a portion of property taxes paid on the development in the future. That means:

  • There is typically no upfront money from the City
  • This program is geared towards helping larger projects (filling a vacant million square foot office tower for example)
  • TIF programs do not work well for smaller projects or projects that replace existing tenants with new tenants TIF financing

How TIF Districts Work

Identify an Area

Areas that make good TIF Districts are:

  • Areas of vacant land, surface parking or large, vacant buildings – these areas have the greatest potential for increased property value
  • Favorable locations like areas situated between two areas where real estate performance is strong
  • Adjacent to large scale public investment or assets – TIF Districts perform better when other public investment in the neighborhood is ongoing.
  • When common ownership is motivated to redevelop the property

Create a Redevelopment Plan

How can unique features in existing neighborhoods be augmented to create a stronger new development?

  • Enhance the historic core through new retail activity
  • Keep housing close and at the edges of new development
  • Be creative – look for alternative uses to vacant areas

Implement Redevelopment Plan

Usually a City’s staff find developers to build projects that fit the vision outlined in the Redevelopment Plan.

  • City officials makes sure TIF funds are used to provide reimbursement for certain development costs for eligible projects that have approval prior to the start of construction.
  • There is no such thing as ‘free’ money at City Hall. TIF incentives are all negotiated and being in a TIF District does not guarantee public funds for any project.
  • TIF funding is typically based on the amount of new property taxes generated by the development and how well the new development fits with the redevelopment goals.

Dallas Farmer’s Market is an example of how common ownership came together to redevelop an area on the decline. Private partnerships worked with the City of Dallas to enhance a historic area and used creative solutions to rejuvenate this area of downtown.

For people and companies looking to explore opportunities in TIF Districts, here is a quick list of things to remember:

  1. Do your homework – Understand the goals of the TIF redevelopment plan. Be prepared to show how your projects advances the goals of the plan and is a good investment of tax payer money. Understand the district’s cash flow and outstanding obligations contained in the annual report for the district.
  2. Be Flexible – Listen to the goals for the area from city officials and be prepared to make some changes to the development plan.
  3. Hire a good design team – Cities are usually a long term investor. Good design and premium materials pay dividends for long term project value.
  4. Have reasonable expectations – For most districts, TIF incentives rarely exceed 10% of hard construction costs.

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