Improving Tax Increment Financing for Economic Development.

• Position: News & Numbers

Promoting economic activity is a key function of local government, and it requires cooperation between the government and the private sector. Tax increment financing (TIF) is a tool that cities can use to support economic development in a designated area by earmarking property tax revenues from anticipated increases in assessed property values resulting from investment in that district.TIF expenditures are often debt financed in anticipation of these future tax revenues.

Although a number of states have used TIF for decades, the tool is poorly understood, and its effectiveness is disputed, the Lincoln Institute of Land Policy notes. TIF is legal and employed widely in every state except Arizona, but many states do little to track or evaluate the use of TIF. "Academic research suggests that local governments enact TIF in part to capture growth that was already occurring and in part to stimulate further economic development. Studies also indicate that TIF's impact on economic activity is mixed: Many recent findings show that TIF does little to deliver economic growth and sometimes simply relocates economic activity that would have occurred elsewhere without TIF," according to the Institute's report, Improving Tax Increment Financing for Economic Development. "Empirical studies of other TIF-related effects, including its impact on school finance...