What is it? How does TIF function? How is it intended to work? Why/how is TIF connected to economic development? Potential benefits? Potential risks? What is the history of TIF in the City of Madison?

Definition: Tax incremental financing (TIF) is a financial tool that can be used to promote tax base expansion and job creation. It is targeted toward geographic areas that have become blighted, or are in need of rehabilitation or conservation work, or to promote industrial development or "mixed- use" development in areas which are experiencing declining value.

How does TIF function?: TIF is a financing tool that allows municipalities to invest in infrastructure and other improvements, and pay for these investment by capturing property tax revenue from the newly developed property. An area (as small as one parcel) is identified (as the tax incremental district, or TID) as appropriate for a certain type of development, and projects are identified to encourage and facilitate the desired development. Then as property values rise, the property tax paid on that private development is used by the municipality to pay for the projects. The tax paid to the schools, county and technical college district (the overlying taxing jurisdictions) is also sent to the municipality to pay for the improvements. After the costs of the projects are paid off, the TID is closed and the value of all the new development gets shared by the municipality, schools, county and technical college as it does for other property.

The way TIF is used varies from project to project, and from place to place. In some cases, the municipality governing body will choose an area they would like to see developed, or that is unlikely to develop without assistance. They then design improvements, such as roads, sidewalks, sewer systems, streetscapes, etc., that will attract growth. In other cases, a developer or company will identify a site where they might like to locate (and as part of negotiations with the municipality body) TIF will be used to fund some improvements, such as demolition, soil clean up, roads, water, etc., that the developer would like.

Either way, an area that faces development challenges gets help to grow, providing a larger tax base for the municipality and the overlying taxing jurisdictions. In Wisconsin, when the tax base grows and spending is stable, tax rates and tax bills are expected to go down, decreasing the property tax burden for everyone.

How is it intended to work?: City officials can encourage private development by making publicly funded improvements such as demolition, sewer, roads, curb and gutter. This option, however, is expensive and can discourage local officials from taking action-especially since the overlying taxing jurisdictions (school district, county and technical college) would not bear any redevelopment costs, yet would share in the expanded tax base. State lawmakers saw this situation as inequitable to local taxpayers and counterproductive to redevelopment efforts. With TIF, the overlying taxing jurisdictions become involved in helping to pay development costs in partnership with the city.

In summary, the municipality makes the expenditures to promote (re)development in an area where development would not likely otherwise occur. Any resulting private development increases the tax base. The other taxing jurisdictions agree to forego the increase in property tax revenues so that the city can use it exclusively to repay the costs of public improvements. If everything works out well, development/redevelopment occurs, resulting in increased tax base and jobs; the local municipality recoups the cost of their investment; and thereafter, all taxing jurisdictions share the tax base. This is the basis of TIF.

Why/how is TIF connected to economic development?: Economic development is the process that communities engage in for the purposes of creating wealth through increasing jobs and income. There are several strategies that communities can use for their economic development efforts. TIF is particularly suited for two of these strategies;
1) attract new businesses to the community and
2) help retain and expand existing businesses.

Potential benefits: A well planned and executed TIF project has many possible benefits, such as:

• An increased tax base for the city, school district, county and technical college
• Elimination or reduction of blighted areas
• Rehabilitation of areas declining in value
• Creation of new jobs and income
• Partnership for economic development among the city, school district, county and technical college (this is particularly important to reinforce Wisconsin's "Smart Growth" law and comprehensive planning)