Tax Increment Financing (TIF) - Purpose

Tax Increment Financing, also known as TIF, is an economic development tool used to assist a municipality in the redevelopment of a specific area that is blighted or showing signs of becoming blighted. A TIF district (area) is created as a joint investment by local taxing bodies to attract and retain private development and businesses, which in turn spurs growth in underperforming areas.

TIF works to create growth through an initial public-private investment. As property values increase due to the redevelopment, the increment in property taxes has a compounding effect generating increasing economic growth. A tax increment is the difference between the amount of property tax revenue generated before TIF district designation and the amount of property tax revenue generated after TIF designation. 

The TIF redevelopment project creates a vital cycle, increasing development and redevelopment in the area, such that when the TIF project ends — and Illinois law allows a TIF project to exist for a period of up to 23 years — all of the taxing bodies benefit from the new growth.

Tax increment financing is an effective economic development tool used in 48 states and in over 260 Illinois cities. It became a popular program after the federal and state governments, including Illinois, began cutting back economic development programs in the 1960s and 1970s that cities could use to revitalize communities. Tax increment financing is one of the few remaining tools that local governments can use to attract new business, invest in infrastructure and rebuild blighted areas. 

FREQUENTLY ASKED QUESTIONS ABOUT TAX INCREMENT FINANCING 

1.  What is tax increment financing (“TIF”)?

Tax increment financing is a financial tool designed to incentivize redevelopment of a specific area that is blighted or showing signs of becoming blighted The program allows municipalities to freeze the Assessed Value of the affected property. As the assessed value increases from investment, the difference in property taxes between the frozen values and new values creates tax increment. The increment is restricted for use on eligible project costs.  Only those costs stated in the TIF law can be paid with TIF funds. 

2.  Can any area be placed in a TIF district?

No.  To use TIF, the area must meet very detailed criteria set out in the TIF law and must qualify as a blighted or conservation area. A general overview of the requirements include identifying the physical and economic deficiencies that need to be cured. These deficiencies are often called the “blighting requirements.” The municipality must demonstrate that these conditions will not be addressed without public intervention. Along with meeting these requirements, the municipality must also prepare a plan laying out the actions that the municipality intends to take to improve the area

3.  Do TIF districts hurt the school districts?

No--TIF Districts encourage long term growth that provides a healthy tax base to support local government services, including school districts. TIF districts are a tool to attract redevelopment to areas where the tax base is declining.  New commercial development revitalize and grown the tax base for the future. 

Additionally, when the assessed value of an area is in decline, schools collect less and less money each year.  TIF Districts put a stop to declining property values and acts as a source of growth for properties that would otherwise not experience investment. A TIF district stabilizes a tax base by freezing the assessed value of the properties within the TIF, which helps school districts fulfill their tax collections. When the redevelopment project is complete, the overall tax base experiences a higher assessed value as a result of the investment put forth into the TIF.

A healthy, growing tax base is what allows schools and other taxing districts to continue to provide services to residents without needing to increase their property tax rate. The image below helps demonstrate the purpose and benefits of a successful TIF district. 

4.  Do TIF Districts increase taxes on the properties within them?

No. A TIF District is not a taxing agency. The number of taxing agencies for properties after a TIF District is implemented remains the same. Properties within a TIF District are charged the same tax rates as all other properties within the boundaries of a taxing district.

5.  Is there some other way to attract development without TIF?

Illinois municipalities have very few tools to attract and keep development.  Eventually, all of taxing districts benefit from the increased assessments as a result of redevelopment projects.

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