Tax Increment Financing (TIF) is a unique mechanism that enables an Urban Renewal Authority or board to use the net new tax revenues generated by projects within a designated urban renewal area to help finance future improvements. Tax increment financing is a new source of tax revenue, not an additional tax, that would not be available but for new investment.
When a redevelopment project is being planned, the Urban Renewal Authority or Board analyzes how much additional property and/or sales taxes may be generated once it is completed. That “tax increment” then can be used by the urban renewal entity either to finance the issuance of bonds or to reimburse developers for a portion of their project costs.
In either case, the new tax revenue that is created must be used for improvements that have a public benefit and that support the redevelopment effort, such as site clearance, streets, utilities, parks, the removal of hazardous materials or conditions, or site acquisition.
How it works
At the time an urban renewal district is formed, the County Assessor establishes the current value for each property in that district. This value is referred to as the “base” value. All property taxes on the “base value” continue to flow to the taxing districts within the urban renewal district, such as the county, the city, the highway district, etc. Over time, the assessed value of the properties in the urban renewal district will generally increase. That increase in value is referred to as “incremental value.” The property taxes generated by the incremental value above the base value go to the urban renewal agency to be reinvested in the specific urban renewal district.
For instance, if the district is approved in 2010, the assessed value of a property in 2010 becomes the “base value” and all property taxes on that value continue to flow to the usual taxing districts. If the property increases in value after the 2010 base year, the property taxes on the incremental value is distributed to the Agency.
An example would be: if a property was assessed by the County Assessor as having a value of $100,000 in 2010, the property taxes on that amount would all go to the usual taxing entities since that is the “base year value”. Then, if the property value increased to $110,000 in 2011, the taxes on the “base value” of $100,000 would still go to the usual taxing entities and the taxes on the “incremental” $10,000 would go to the Agency.
If the urban renewal district did not exist, taxes on the entire $110,000 value would go to the usual taxing entities so the total tax bill to the property owners remains the same.
Beginning in the 1960s federal funds were the initial source of money for urban renewal projects in Idaho. As these funds were phased out in the 1970s, an alternative financing method was needed. In 1988, the Idaho state legislature adopted the Local Economic Development Act which authorized the use of tax increment financing. Under the Idaho Economic Development Act, urban renewal agencies now receive the majority of their funding from revenue allocation, otherwise known as “Tax Increment Revenue,” and, in some cases, bonds or other long-term debt secured by the Tax Increment Revenue.