QandA: How does a TIF district work?

News-DemocratNovember 30, 2013 

What is a tax increment financing district?

State law allows cities to create so-called TIF districts, which divert increases in property tax revenue to a special fund managed by city officials. City officials can choose to use the funds to reimburse developers and businesses for infrastructure related costs or can approve public works projects. The district can exist for up to 23 years before needing approval for a time extension.

How does it work?

Let's use a fictitious example to show a common use of local TIF funds. Leaders of a business tell city officials they wish to build a new headquarters within a TIF district. To do so, the business representatives say they require TIF funding. City officials determine the company will incur expenses state law allows to be reimbursed with TIF funds. The city and business sign an agreement stating city officials will use TIF funds to reimburse the business for those costs.

Where does the money come from?

Using the same example, let's assume the property in the TIF district is valued at $100,000 before the new headquarters is built. The City of Belleville would collect $538 in property taxes based on this year's tax rate. The newly built headquarters raises the property's value to $1,000,000. Next year's property tax bill for the company is $5,382. The increase between this year's tax bill and next year's ($4,844) will be placed into a TIF fund. The remainder will continue to go into the city's coffers.

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