Tax Increment Financing

Abstract

Tax increment financing legislation enables a local government to finance planned area redevelopment through an anticipated increase in the area's property tax revenues resulting from private development that may be stimulated by public investment in the area. While differing in significant ways, the tax increment statutes of the 31 states with such legislation all include both a redevelopment-law component and a revenue-law component. The redevelopment-law component authorizes redevelopment activities to support private-sector projects not otherwise feasible. The revenue-law component allocates the increased property tax receipts generated by redevelopment to the municipality to pay the cost of financing the redevelopment. Redevelopment plans adopted under the authority of this innovative legislation are in wide use in many states, including California, Florida, Illinois, Minnesota, and Wisconsin. Even wider use can be expected as the amount of federal urban renewal funds continues to decrease and as states evaluate their earlier experiences with tax increment financing.