CAPITAL FINANCE.

The Effect of Tax Increment Finance on Local Government Financial Condition

Kriz, Kenneth A.

Municipal Finance Journal, Spring 2001, pp. 41-64.

By employing a probability-based analysis technique called Monte Carlo simulation, Kriz examines the likely effects of tax increment financing (TIF) projects on local governments. The analysis examines the impact of TIFs on the financial condition of local governments based on data gathered from Minneapolis, Minnesota. The study also examines whether or not TIF projects produce justifiable rates of return and under what conditions the best financial results are obtained. Based on economic assumptions, the structure of the TIF itself, and historical financial data, Kriz built a model that expands on the work of previous statisticians in the field. After 10,000 iterations, he concluded that there is a 90 percent chance of a negative net present value resulting from the...