Impact of Tax Increment Financing on School District Revenues and the Spillover Effect

Abstract

Tax Increment Financing (TIF) is used by local governments to promote economic growth using “revenue diversion” from overlapping tax jurisdictions. The controversy of TIF arises from the debate whether the captured revenue would have occurred without the incentives of TIF. The school district is of particular interest as it levies the largest tax rate on the property value of TIF districts among all taxing entities. This study examines the fiscal impact of active TIF districts and expired TIF districts on school district revenues by also incorporating potential spillover effects. Using various sets of measurements, empirical evidence in Cook County, Illinois, reveals that school districts with intensive use of TIF received less revenue and that school districts received promised windfall upon the dissolutions of TIF districts.