Tax Increment Financing Research Articles

Subsidizing a sports arena in a bankrupt city: Detroit's Little Caesars Arena

AbstractObjectivesThe potential for ancillary real estate transformation and downtown revitalization has moved to the forefront of sports venue subsidy arguments. Despite the City of Detroit being in the largest municipal bankruptcy in U.S. history at the time, $324 million in public funding was directly provided to Little Caesars Arena, a new home for the Detroit Red Wings hockey team. Using the Detroit context, this article examines how a major arena subsidy deal arose in a severely financially distressed city.MethodsUsing a snowball technique, documents were collected from government, media, industry, community, legal, and academic sources to inform a retrospective, single case study. Over 300 documents covering a period from 1992 to 2021 were then reviewed for prospective relevance. A review of secondary media sources was conducted in lieu of traditional interviews.ResultsThe arena funding outcome is best explained by three interrelated aspects: local growth coalitions, real estate development promises, and lacking procedural and financial transparency exacerbated by both the chosen funding mechanism of tax increment financing (TIF) and the bankruptcy.ConclusionsWhere flexible financial subsidies and arena deal making are concerned, procedural transparency matters. Growth coalitions and rent‐seeking team owners can use the earmarked nature of TIF to circumvent traditional budgetary processes and mute prospective opposition through promises of self‐financing subsidies that will not result in new tax rate hikes. For venue deals where the substance is in the details of contractual obligations, transparency and adequate time for scrutiny are especially important.

Dissolving Districts: Did Property Values Fall When California Terminated Its Redevelopment Agencies?

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.

도시재생사업의 초기사업비 및 기반시설비용 조달을 위한 조세담보부금융(TIF) 규모 추정에 관한 연구

Tax Increment Financing (TIF) is the process of raising funds through the increase of taxes in future business areas. The local government treasury department finance is built by the increase of future tax revenue due to the real estate price rise in the urban regeneration area, TIF has been used in the US especially today. Because urban regeneration projects can be said to be achieved not only during the project period but also after the end of the project period, in order to finance the local taxation as a collateral, it is necessary to induce the interest of the local residents to be in charge of business management. In this study, We found the possibility of provision for urban regeneration total costs, which are essential for the sustainability and continuity of urban regeneration areas, through the financial simulation for the case region. As compared with urban regeneartion, in the extensive rebuilding apartment houses and residential area redevelopment process, it is difficult for the stakeholder to bear urban regeneration costs additionally, due to the huge land development land and financial donation. This research result will motivate the Tax Increment Financing to proceed smoothly during the urban regeneration project period longer than we expect.

Dilemmas of 21st century land value capture: Examining Henry George’s legacy in a new Gilded Age

This essay reviews 20th century applications of Henry George’s thought by local and national policy makers in the Anglo-American context with the goal of better interpreting contemporary debates about land value capture (LVC). Proponents of LVC mechanisms argue that incentive zoning, planning obligations/exactions, special assessments, transfers of development rights, density bonusing, and tax increment financing can rebalance public and private wealth and promote economically redistributive development where direct government spending on social goods is not politically possible. Critical scholars question this stance, arguing that interventions pursued under the LVC banner often deliver publicly generated wealth to already-affluent parties while contributing to price escalation that harms low-income and middle-class citizens. An examination of Henry George’s foundational ideas sheds light on the challenges policy makers have faced in attempting to recover the “unearned increment” for the public. This analysis provides useful context for present-day debates about the advisability and practical effects of land value capture mechanisms.

Assessing the Effects of Place-Based Policy on Spatial Inequality and the Distribution of Household Income: Evidence from Tax Increment Financing

This research examines the effects of tax increment financing (TIF) on spatial inequality from 1990 to 2014 in Cook County, Illinois. The author explores the effects of TIF on real income and income distribution and examines whether the effects lead to a reduction in spatial inequality. To address the question of spatial inequality, dependent variables are constructed that assess the probability of TIF increasing upward mobility on the real income ladder and catching up with other areas. The results show beneficial distributional effects, but the effects are much attenuated when examining changes in the probability of moving up in the rankings, indicating that the effects of TIF are limited in reducing spatial inequality in the region.

The Impact of Tax Increment Financing on Business Entries and Exits in Iowa

One of the economic development objectives of tax increment financing (TIF) is to increase business entries and decrease exits in designated areas. The authors use data on sales and use tax permit registrations in Iowa for two of the largest counties, Johnson and Polk, during the period 1990 through 2017 to estimate the effects of TIF on business establishments, entries, and exits. Using an event-study design, the analysis of pooled data suggests that TIF has no significant effect on total establishments or business entries, and significantly reduces business exits. TIF seems to increase establishments in Johnson County and to reduce business exits in Polk County. Of the industries examined, retail stands to benefit the most from TIF. The authors also find limited evidence of spatial spillover effects of TIF.

The dynamic and persistent effects of tax increment financing as an example of place-based policy: evidence from Cook County, Illinois

ABSTRACT Using a staggered difference-in-differences design, this paper analyses the effects of tax increment financing (TIF) in Cook County, Illinois. TIF is negatively correlated with the number of establishments in Chicago, likely due to unintended tax burdens and competition between TIF districts. In non-Chicago areas, TIF shows positive effects on employment for 6–20 years. Lastly, this study provides evidence of the persistent effects of TIF and its potential to move localities from low- to high-density economic activity, calling for a re-evaluation of the argument against subsidising economically lagging areas.

Does tax increment financing affect business survival and failure in Chicago, Illinois?

ABSTRACT This study examines how and to what extent tax increment financing (TIF) affects changes in business operations—the risk of businesses moving away from their original locations in Chicago, Illinois. Using a Cox proportional hazard regression with multi-year business license datasets, the study finds that TIF districts are not a favorable environment for existing businesses that opened prior to the actual TIF-funded investments, leading to more business closures than their counterparts outside of the districts; on the other hand, new businesses that opened after the TIF investments are better equipped to survive in and around TIF districts than the comparable areas. The study provides a better understanding of the survival and exit patterns of businesses induced by public tax policy, as well as of what factors are ascribed to such business market dynamics and transformations. Findings from this study will yield valuable reference data for both planners and policymakers in decision-making processes for future economic development and corresponding tax policy initiatives.

Social reproduction and public finance: A comparative study of TIF in California and Chicago

Tax increment financing (TIF) is a mechanism used by municipal governments throughout the United States to fund public and private urban development projects. This paper examines the trajectories of TIF in the state of California and the City of Chicago, where the expansion of TIF as a mechanism for publicly financed development is inextricable from disinvestments in social reproduction and the transformation of public funding for K-12 education. Taking seriously the divergent paths of TIF in each case, we argue that the framework of social reproduction helps expand the scope of TIF as a “policy in place,” bringing into view other path and place-dependent factors that shape the adaptation and implementation of public finance mechanisms. Bridging the literature on urban policy and feminist political economy, we suggest that scholars must investigate the place-specific entanglements of social reproduction and public finance if we are to understand how mechanisms such as TIF are adopted, expanded, or curtailed within the broader framework of neoliberal urban governance. In making such an intervention, we expand on calls to attend to the ways public finance can heighten or mitigate economic inequality.

The Influence of TIF Overlay Zoning on Residential Real Estate Prices

Tax increment financing, a form of overlay zoning, are purported to spur economic development and promote the public interest of the community. However, these municipal overlay zones frequently generate hostility due to their use of public funds. While a large volume of knowledge exists on the impact of residential real estate prices within a tax increment financing district, little is known about the impact of the municipal overlay zone on the surrounding community. Using four, similarly timed, but separate tax increment financing districts and a transactional residential real estate dataset, we test price implications for residential real estate property at three separate geographic distances. Using propensity score matching and fixed effects modeling, we find that the imposition of tax increment financing districts increased surrounding residential real estate property values.

Types of financing from land value capture in Transit Oriented Areas in Terminal Baranangsiang

Transportation infrastructure plays an important role in increasing access and accelerating economic growth. The TOD design concept presents an area arrangement that is multi-use in nature and is integrated with the public transport network. Thus, there is another potential that can be captured from the high accessibility in the area, namely the opportunity to increase land value. The increase in land value comes as a result of the benefits obtained directly by residents of the TOD area, including various choices of transportation modes and also savings in transportation costs (Smith and Gihring, 2013). The method for capturing the increase in land value so that it is diverted for the development of facilities and infrastructure around the terminal or station location is known as Land Value Capture (LVC). The concept of Land Value Capture has been widely applied in many developing countries in the world. Among the many mechanisms and tools used in Land Value Capture, Jillella and Newman (2016) explain that joint development is the most widely used mechanism, followed by Tax Increment Financing and Property Tax. Thus in brief, TOD planning aims to increase accessibility in the area, where that accessibility can be converted into other sources of financing for the TOD project itself or the development of public transport infrastructure, through increasing land value with the LVC mechanism.

Theories, principles, opportunities and challenges of local government financing: A Comprehesive review of literature

This article provides a comprehensive examination of the theories, principles, benefits, and challenges that underpin the multifaceted landscape of local government financing. The discussion delves into the theoretical foundations of fiscal federalism, the Benefit and Ability-to-Pay principles, the Tiebout Model, Tax Increment Financing (TIF), and Public-Private Partnerships (PPPs), which guide the allocation and management of financial resources at the local level. It underscores the importance of intergovernmental cooperation, equity in taxation, and local autonomy in shaping financial policies and practices. The article further highlights the advantages of local government financing, including efficient resource allocation, local control, diversified revenue sources, and economic growth. However, it also acknowledges the persistent challenges, such as equity concerns, fiscal sustainability, coordination, and public accountability. In conclusion, this article underscores the significance of striking a balance between theory and practice to ensure effective and responsible local government financing for the betterment of communities.

The effect of tax increment financing districts on job creation in Chicago

Tax Increment Financing (TIF) districts are the largest economic development program in the City of Chicago allocating nearly $1 billion in tax revenues annually. This paper uses comprehensive data on employment by place of work and place of residency to study if TIF districts see an increase in jobs as a result of designation, and whether the residents in neighborhoods designated as TIF districts see employment benefits from the designation. To account for the endogenous selection of TIF areas, I implement a propensity score matching dynamic difference-in-differences approach exploiting differential timing of TIF designation. I find that TIF designation increases the number of jobs in a selected census block by approximately 15% over 5 years. However, the employment levels of residents living in or around TIF districts shows no increase due to designation. I also find evidence of substantial spillover effects to adjacent blocks, and limited neighborhood compositional changes. These findings suggest that TIF districts can be effective in revitalizing commercial and industrial areas while the ability of TIF to improve outcomes in blighted residential neighborhoods surrounding the district is limited.

Can Tax Increment Financing Benefit U.S. Rust Belt Communities?

Place-based economic policies and value-capture instruments are resurging in many American communities looking for alternative ways to fund infrastructure projects and support local economic revival. Using principal component methods, the authors construct an index for identifying distressed neighborhoods to enable the targeting of place-based policies involving tax increment financing (TIF). In addition, the authors use the Monte Carlo method to simulate the impact of a TIF intervention on employment and property values in neighborhoods. The analysis focuses on Broome County in upstate New York, a region that witnessed massive deindustrialization as manufacturing firms moved to other states and overseas. The authors find that a significant fraction of neighborhoods in the study area would qualify for TIF-type policies that would lead to significant improvements in property values and, likely, modest employment effects.

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

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.

Value Creation, Capture, and Destruction

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.

ESTIMATING THE NPV OF A PAY-GO TAX INCREMENTAL FINANCING DEVELOPMENT NOTE

ABSTRACT This paper derives a generalized model to estimate the net present value (NPV) of tax increment financing (TIF) development notes associated with the pay-as-you-go (PAY-GO) approach. Empirical results based on the model are presented under an assumption of common parameters. The paper offers a reference graph and look-up tables to those who need to understand and estimate the NPV of a TIP PAY-GO note in practice. Keywords Tax Increment Financing, Pay-Go Note, NPV

An evaluation of Churchill Downs’ tax increment financing district

Tax increment financing districts (TIFs) have become important local government tools in the USA over the last several decades as ways to help bring public and/or private investment dollars into inner city areas and/or older neighbourhoods which are deemed to need revitalisation. Within the last ten years, the concept has become popular in Canada, and it has been used as a component piece of enterprise zone programmes in other nations. This paper evaluates one of the first Kentucky USA TIFs started approximately 20 years ago with a pre-eminent Kentucky horse racing track, Churchill Downs, as the target for investment spending. Some of the desired spin-off effects of such investment are to help bring jobs, investment and general economic growth to an older and low-income neighbourhood which surrounds the track. This paper finds mixed results regarding these outcomes for the area surrounding Churchill Downs.

Class monopoly rent and the urban sustainability fix in Seattle's South Lake Union District

The paper contributes to the recent renaissance in Marxian land rent theory by examining the dynamics of rent in the context of contemporary urban sustainability policies and practices. It specifically examines the ways in which landowners, developers, and the local state work together to pursue class monopoly rent through a variety of policies and practices normally treated as separate, such as tax-increment financing, discursive-branding, urban growth boundaries, business improvement districts, and transfer of development rights. We implicate each of these practices as fundamentally linked insofar as they function as strategies for myriad invested actors in collaboratively pursuing class monopoly rent. In the process, we present a heuristic tool to conceptualize how these policies converge to the benefit of myriad rent seekers in the context of Seattle's rapidly redeveloping South Lake Union District. The study peels back the discursive and ostensibly progressive façade of urban sustainability to reveal a collaborative network of landowners, developers, and state actors whose goal is to increase rents. The multi-scalar dynamic of class monopoly rent is revealed as a constitutive feature of an urban sustainability fix embedded within wider processes of uneven neoliberal urbanization.

“Selling TIF: Positioning Hudson Yards as a project that pays for itself”

This research examines how tax increment financing (TIF)’s theoretical ability to pay for itself can be used to camouflage development risks and facilitate project approval, even in a municipality with effective and accountable land use and taxing authorities. The analysis uses a case study of the United States' largest TIF-type project, New York City's Hudson Yards redevelopment project. When proposed, the $3.5 billion public investment in Hudson Yards was sold as self-financing by supporters and elected officials and passed the City Council in 2005 with widespread support. Yet, by documenting the projected and actual costs of implementation over Hudson Yards' first 14 years, the project's first phase cost the city an additional $2.2 billion due to the city's decisions to shift risk from developers onto taxpayers. In light of policy mobility studies' documentation of TIF's global expansion and the use of Hudson Yards as a global model for urban development projects, this viewpoint illustrates the need for transparent risk assignation before project implementation, especially in cities with less robust economies or less formal institutions.