The Cost of Development: How TIF Relates to Property Values Across Nebraska School Districts

reschovsky@lafollette.wisc.edu The property tax is the mainstay of local K–12 education revenue. Public schools derive over 80 percent of their local own-source revenue from the property tax (Reschovsky 2014). At the same time, nearly half of total property tax dollars collected in the United States is used to finance public elementary and secondary education (U.S. Census Bureau 2013, 2014). This close link between property taxation and school finance is one motivation for this special issue. Another motivation is the state and local fiscal aftermath of the Great Recession. Over the past few years the financing of public elementary and secondary education has become particularly challenging. In real per pupil terms, total revenues devoted to public education fell by 6.2 percent between the 2008–09 and 2011–12 school years.2 Although comprehensive revenue data are not yet available for the most recent years, existing evidence points to a continued decline in financial support for public education. Data from the U.S. Census Bureau’s Quarterly Summary of State and Local Tax Revenue indicate that per capita real local government property tax revenues (for school and non-school purposes) declined by 3 percent between fiscal years 2011 and 2013 (Collins and Langley 2014). And a survey conducted by the Center on Budget and Policy Priorities found that in 33 states, real

Tax increment financing: interaction between two overlapping jurisdictions

Tax increment financing (TIF) is currently the most important fiscal instrument for local development initiatives in this country. In theory, a TIF project requires no new taxes, and pays for itself by expanding the value of the tax base. However, many state TIF programs have the potential to encourage misallocation of resources, with both specific legislative provisions and larger institutional factors providing incentives for unproductive investments. Three common structural elements of TIF can be especially problematic: The interpretation of, “blight,” the assumption that future increases in property value are caused by the TIF project, and the ability of a TIF district to appropriate the future tax base growth of other, overlapping jurisdictions, most notably school districts. Clarity and transparency are essential to citizen oversight, but many TIF programs are largely hidden from taxpayer notice. Debt limits and a requirement of voter approval constitute a deliberate check on municipal borrowing, but legislatures and courts have generally agreed that bonds secured by tax increment financing do not constitute debt for these purposes. Yet the earmarking of taxes on future increases in property values can function as a type of unrecognized municipal debt, presenting problems of accountability and repayment capacity common to state and local borrowing of all kinds.

Among urban planners, tax increment financing (TIF) is a popular economic development financing tool. Critics, however, claim that TIF is a fiscal bane, reducing property value for affected jurisdictions, especially school districts. TIF regulations in Iowa—on annual base values, returned excess increments, and protected debt service levy—provide the opportunity to test this argument. Using eighteen years of TIF district-level data, this study finds that TIF was most likely a fiscal boon for school districts. Given this finding, the study also provides several implications for TIF use and economic development planners in Iowa and elsewhere.

Tax increment financing: a theoretical inquiry

California pioneered the use of tax increment finance (TIF) to promote redevelopment, but in 2012 all redevelopment agencies in the state were simultaneously (and unexpectedly) dissolved, essentially eliminating TIF-supported redevelopment in California. This paper uses hedonic methods to analyze changes in residential property values associated with the dissolution of TIF districts in five cities in northern Orange County. If TIF is necessary for (re)development in the TIF districts, then the unexpected elimination of TIF-funded redevelopment should have reduced property values. The authors find that, within the study area, the elimination of TIF was not associated with decreases in residential values within TIF districts, and quality-adjusted home prices in and near former TIF districts continued to grow at a rate at least comparable to citywide rates in the aftermath of the dissolution. These findings raise the concern that TIF may function as a tool for revenue capture before the TIF districts reach the anticipated expiration dates. In the absence of significant regulatory safeguards, TIF may be used to capture revenue from overlapping governments, instead of serving as an engine of economic development.

Problem, research strategy, and findings Municipalities relying on tax increment financing (TIF) to underwrite large-scale infrastructure and development projects assume that tax revenues from the increase in property values will be sufficient in the short run to cover capital expenses (i.e., that projects are self-financing). By examining a case of TIF in action, we move beyond expectations about how TIF should work in theory. Hudson Yards on the far West Side of Manhattan is one of the largest TIF projects in the United States in recent years and the first one implemented in New York City. We refined the conventional fiscal impact analysis approach by tracking costs and revenue flows of the project between 2005 and 2020 and comparing rents, assessed values, property tax appeals, abatements, and land prices across relevant submarkets. Through this exercise and critical reading of the literature, we developed a framework for analyzing TIF that treats property values as extrinsic and determined by the political arrangements and calculative negotiations that create, capture, and destroy them. Interactions between private property markets and governing bodies cause costs to fluctuate, responsibility for different expenditures and claims on new revenues to shift, and the location and magnitude of spillover effects to change over time. The flexibility of property values in Hudson Yards allowed the taxes to be used at cross-purposes, jeopardizing the payback streams and inflating risks shouldered by the public sector. Takeaway for practice Although our findings are limited by the single case study approach, the creation–capture–destruction heuristic we developed can help planners modify their expectations of the future and spend economic development dollars more effectively in the present. We suggest that municipalities claw back subsidies upon a property’s sale through a local capital gains tax and restrict the use of appeals and abatements in TIF districts to limit the potential for value destruction.

Tax increment financing (TIF), a popular economic development tool across the United States, often falls short of its promise to revitalize struggling neighborhoods. TIF earmarks property tax revenue increases (or “increments”) in a designated area that are expected to result from new development and real estate appreciation generated by the TIF. Enabled by the state, city governments typically create new TIF districts and specify their goals, permitted expenditures, and terms of operation. This practice allows cities to divert revenues of overlying governments—such as counties or school districts—to fund economic development, rationalizing that diverted revenues would not exist “but for” the economic activity TIF funds. Therefore, in theory, there is no loss to overlying governments, and developers receive no subsidy unless they spur development. Indeed, TIF’s power lies in its potential to bring together private- and public sector actors to stimulate growth. Local governments should provide extensive, easily accessible information about TIF use, revenues, and expenditures, and they should document progress toward clearly articulated goals. TIF spending is fundamentally different from other government spending; districts are often not subject to ordinary democratic controls, thus meriting much more reporting and transparency. Furthermore, municipal legislators should be able to make evidence-based adjustments to TIF districts, such as limiting durations or dissolving those that do not meet the jurisdiction’s objectives. Researchers should study, document, and explain the mixed outcomes of TIF and expand knowledge about the types of TIF expenditures that best promote economic development. To date, academic studies of TIF document mixed outcomes but do not clearly identify factors that explain variations in outcomes of TIF use in various geographic areas.

Cities use tax increment financing (TIF) to trigger growth in blighted communities. Critics argue that Chicago’s broad conceptualization of “blight” facilitates the designation of TIF districts that do not resemble conventional notions of blight, bolstering their natural ability to generate capital, thereby exacerbating the gap between wealthy and poor minority spaces. This study examines Chicago’s TIF districts to determine whether blight levels and percentage of non-White residents interact to reduce the effectiveness of TIFs measured as the change in the equalized assessed valuation (EAV) of properties. Using composite indices to measure physical and economic blight, the results of a quantile regression analysis indicate that economically blighted TIFs with predominantly non-White populations outperform other districts. These findings run counter to expectations given that TIFs report high rates of growth in property values, yet they remain substantially blighted. This suggests a need to reconsider change in equalized assessed valuation as the measure of TIF effectiveness given that the “growth” in TIFs does not seem to reflect a higher quality of life for residents.

The research team investigated Tax Increment Financing (TIF), which can often help cities address critical needs to revitalize neighborhoods. Nevertheless, how planners and policy-makers define “neighborhood,” how they construct state-enabling statutes, and how local governments actually apply TIF may determine the success of Tax Increment Financing. A TIF designation should attract growth, it should be used in limited areas for limited durations, and it must include citizen-based planning. If a neighborhood is to receive a TIF designation, slow growth in taxable values might be more appropriate than designating the neighborhood as “physical blight.” Determining which revenue streams are eligible for capture is perhaps the most significant issue in financing. If a TIF district captures all property tax increments, schools and other public associations will be disadvantaged. In contrast, limiting a TIF district's tax base to the general revenues of municipal government will substantially limit the outcomes of a TIF designation. In designating TIF districts, planners and policy-makers must balance assessments of need with investment potential. Finally, the success of neighborhood TIFs depends on planners to anticipate private investment increases on property values to generate funds for planned improvements. The initial characteristics of a TIF district often influence the amount of investment attracted. Municipal planners and policymakers must balance citywide and neighborhood needs to avoid creating multiple tax jurisdictions as “have” and “have not” neighborhoods.

Tax Increment Financing (TIF) is one of the most popular funding mechanisms used to finance downtown and other local economic development projects in the United States. However, California’s recent dissolution of its over four hundred Regional Development Authorities, many of which relied heavily on tax increment revenue to issue bonds that financed redevelopment activities, has caused considerable concern about the possibility of legal challenges across different communities of economic development practitioners. The Michigan Legislature is currently in the process of evaluating a series of state-level legislative proposals that potentially imply significant changes in the structure and participation of TIFs, possibly limiting the scope of this economic development option in Michigan. The opportunity costs of such modifications to TIF practice are not easily quantifiable for public policy makers or local economic development specialists because statewide data that could help analysts evaluate the extent and effectiveness of these tax capture tools simply does not exist. This proposal seeks to contribute to the current policy discussion on TIF reform by\ndeveloping the blueprint for a comprehensive, state-level database on the scale, scope and structure of TIF activities in Michigan (Michigan Repository for TIFs “MiRTIF”). Categorizing, classifying and standardizing the reporting on all active\nTIFs in the state in a consistent manner, the MiRTIF is intended to provide a consolidated view for making meaningful fiscal comparisons at different levels of state and local government.

Tax increment financing (TIF)—an economic (re)development tool originally designed for urban cities—has been available to rural communities for decades. This is the first study to focus solely on TIF in rural school districts, to examine TIF effects on school districts’ property tax base and rates, and to conduct event-study estimations of TIF effects. The study finds that TIF has mostly positive effects on rural school districts’ property tax base and mixed effects on property tax rates, and that TIF-induced increases in tax base come primarily from residential property and slightly from commercial property. The study’s findings assert the importance of returned excess increment if rural school districts in Iowa and many other states are to benefit from TIF.

Increasingly, municipal leaders justify their use of tax increment financing (TIF) by touting its role in improving municipal employment. However, empirical studies on TIF have primarily examined TIF’s impact on property values, ignoring the claim that serves as the primary justification for its use. This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district.

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.

While numerous studies have examined tax increment financing (TIF), most focus on its impact on job creation and property value growth. This paper addresses a key gap in the literature by investigating the effect of TIF on local income. Utilizing a unique dataset on income measures for Iowa school districts from 2003 to 2018, we employ two‐way‐fixed‐effects and event study designs to estimate the effects of TIF on income, supported by robustness checks including Goodman‐Bacon decomposition and Synthetic Difference‐in‐Differences. Our findings reveal that TIF significantly increases district‐level income, as measured by total adjusted gross income, taxable income, and the income base for school districts' optional income surtax. However, these income‐enhancing effects are not equally distributed. Notably, school districts with weaker tax bases and higher shares of students in poverty benefit less from TIF.