Tax Increment Financing (TIF) is a financing tool that uses the
projected rise in property tax value within the TIF Zone to finance specific
infrastructure and development and redevelopment, levied by urban local bodies.
Increased revenue from the rise in property taxes is deposited into a locally created
TIF fund which is used to repay infrastructure improvements. Within TIF districts, revenue from the
captured tax base is used to finance site improvements or other economic
development costs. The focus of TIF was essentially
shifted from urban renewal and redevelopment projects, to economic development projects
and also intended to revitalize brownfields. TIF projects also emphasize on the
blighted area’s infrastructure, such as roads, lighting, sidewalks, and other
Temporally, as per growing pattern of federal
government in size and increasing bureaucracy, cities were into the struggle of
raising funds for redevelopment. So, after that, TIF gradually became an
attractive tool for economic development, due to state legislatures opening up
their urban renewal laws to include economic development. This allowed TIF
legislation much more striking to more states, and 44 states had statutes
allowing TIF by 1992. Today, every state except for Arizona allows TIF programs
to be used. Through the use of TIF,
municipalities typically divert future property tax revenue increases from a
defined area or district toward an economic development project or public
improvement project in the community. The first TIF was used in California in
1952. By 2004, all 50 American States had authorized the use of TIF.
1.1 Rationality of TIF as value capture tool
Rationality is can be measured in two ways, like, in terms of existence
of TIF as a value capturing tool and in terms of applicability or
implementation of TIF as a tool with special reference to case study, Though
TIFs are not been implemented at everywhere, as it does not fulfil the criteria
and condition of areas. So, regarding this platform, there are need to discuss
rationality of existence TIF as value capture tool.
As TIF encourage economic
development, so, TIF districts are most of industrial and commercial as well in
compare to residential area. After finalising the TIF, property values in the
area are gone under assessed to create a baseline value. For the provision of infrastructure
in the form of goods and services, current property tax rate is applied to
baseline assessed value. In North Carolina, up to 30 years (certain period of
time) the assessed value will be remain frozen. After certain time if property
value is became increased then subsequent revenue will be generated for the
purpose of economic development project. TIF is also designated as
self-financing tool. TIF is also sold in the form of different ways, to create
jobs and cater private investment. Though there re another dimension of TIF
that is, TIF will not give any guarantee regarding development project which will
cater private sector investment, more jobs and higher property values in TIF
In case of Texas, Texas State legislature acknowledged that, TIF has
become as important and valuable tool for local economic development incentives
in the state along property tax abatement and economic development sales tax.1 Fourteen
cities in Texas have used TIF as a value capture method, though TIF has been
first approved on 1981.
Basically, there were dilemma between its effectiveness and incentives.
In globalized era and in post-modernist society, to overcome competition there
are need of incentives, and subsidies, which attract private investment to
cater economic development.2 TIF
is a technical tool which can strengthen city’s viability and future capacity,
which invokes hopes, progress and fairness. Thus it has been widespreaded over
the area which must follows some benefits, like, it has fair effectiveness of
local development incentives. Though it has some critics, like,
disproportionate benefits are involved in this system, especially private
development investors and it is not concerned about marginalised people.
So, as a value capture tool and TIF has rationality of implemented in US
2.1 Process of implementation of TIF
TIF is generally placed
or implemented where it is been needed specially, in developed and redeveloped
area. Local government bodies formulate a development plan, which is sent to
commission (state) for final approval. After approval of plan, the property
value is been measured to give the platform of base valuation, on which the
property tax is been levied, during the stretch of time. Now, the new tax
revenue is can be arose from increment of property tax value, which lead to the
bond debt. At the base valuation level, the property tax is been remained
frozen. This increment of tax revenue is been allocated for general expenditure
and for development of the TIF district.
Case Study: Texas
TIF framework in Texas: Its applicability and beneficiaries
legislation was first introduced in Texas on 1981, along with constitutional
amendment act, by approving TIF as legal redevelopment tool in the cities of
Texas. According to bill, at least 60% developed and 25% blighted TIF zones are
to be created by cities. Texas law is more flexible in compare to other state
in USA. Three features of law defines TIF in Texas from the other states.
property owners to directly petition to have an area designated a TIF zone
Provision of permitting taxing
unit within the designated zone to negotiate with the city as to what portion of
the tax increment they will contribute. To the fund. A taxing unit may decide to
contribute anywhere from 0 to 100% of its incremental tax revenue to the TIF
Absence of any minimum
requirement for blight within the zone. With relatively over all restrictions
on what types of property can be included in a TIF district.
Texas TIF boards of
directors are empowered with the ability to dedicate revenue from the tax increment
fund to pay the costs of replacement housing in or outside the zone. It would
not permit more than 10% of property within the zone to be used for residential
purposes, which has great restriction in replacement of houses within the area.
Zone created the petition
for counties of 2.1 million people or more are required to dedicate atleast
one-third of the surface area of the zone to residential housing and one- third
of tax increment of the zone to low income housing.
all of USA states, the active users are Texas, Illinois and California which
are been referred as TIF’s, Public Improvement Districts (PIDs), or Tax
Increment Reinvestment Zones (TIRZ). On 2014, Fort Worth in Texas had
approximately 12 most active TIF districts. Currently, Dallas city in Texas has
18 active TIF districts or TIRZ’s, and 12 active PID’s.
According to Texas Tax legislation underdeveloped areas are identified as Reinvestment zone. In
Tax Increment Reinvestment Zone there will be no more 15% tax base. There will
be representation of at least 50% of proposed TIRZ appraised value. There will
be process for zone creation which includes public participation and requires
TIRZ project plan and financing plan. Transportation Infrastructure Zone was
also created in Texas cities, for financing transportation infrastructure.
is city level project, its effect and implications and policies are different
in different cities. From this TIF project most of private investors are got
3.1.2 Qualifying for and implementing of TIF Zone in Texas
Qualifying of TIF Zone in Texas
of TIF Zone in Texas
to the survey, 75% of the projects are been adopted by small cities in Texas
before 1990, and 85% of the projects are been adopted by larger cities after
1990. Among all of those cities El Paso was the only city which took advantage
of TIF earlier. Implementation of TIF in Texas cities was responsible of
enhancing confidence among property owners regarding future land values. Thus
more owner initiated districts were formed. According to the survey, it can be
seen that, most of active TIF zones are or cities which had adopted TIF were
located at urban city centre and it can be inferred that the dilapidated
situation of core area was impairing the city growth. Three large cities in
Texas like, Dallas, Houston, and Galveston had used TIF project more than once.
3.1.3 Financial Framework
of public sector in financing of TIFs is the major aspect of financial
framework. Predominant share of total investment comes from the private sector
in Texas, though public sector is been involved in financing and play crucial
and critical share. Critical because, infrastructure improvements must occur
for the private sector to find the area profitable for investment. TIF funded
different projects which include street improvements, landscaping, sidewalks,
parking lots, parks, pedestrian overpasses, and water and sewer improvements. To
implement improvement plans, TIF authorities have varieties of available
techniques, including the purchase, and sale of property, site clearance, and
underwrite TIF expenditure, different combination of final arrangements can be
chosen by cities.
Issue bonds and finance project with debt,
to revitalize the area.
‘Pay as you go’ which defines finance improvements
by incremental tax revenue, which is collected from property values, and rising
due to market process.
Allowing developers to pay up front for
public improvements to be reimbursed as incremental tax revenues which are
collected, and gives the developers an additional incentives to work for a
In Texas most of districts were been
attracted to the new business, where business was at top priority and most of
new business were in low paying consumer service sector and many of sectors
like, retail outlets, food service establishments, bank storefronts were come
TIF also attracted private investments
which generated low wage service sector jobs, is in El Paso, which used TIF for
Enabling of feasible financing and project
plans in Texas.
Enhance public private spending ratio 1:8
TIF projects are been financed by less
risky non-debt options.
Not any districts in Texas, made any
special effort to incorporate women and minority owned business within the
Districts are getting neglected of
investment by this segment of the population.
Basically, TIF project was more concerned
about business attraction, which is lead to the capital oriented market, but it
had neglected the investment opportunities by economically marginalised groups.
Gender and ethnic mix had not much
garnered attention through this TIF project.
No special effort to attract of investing
by woman and minority.
Discouraging occlusion by giving non
municipal taxing unit the legal option not to contribute or to any project they
perceived to be objectionable. It provides few restrictions on the types of
land that can be considered for inclusion in TIF districts.
Cities are required to submit annual
report with the state Attorney General’s office containing specific information
about their projects. But neither the AGO nor any other state office maintains
any formal registry or review process. The biggest issue facing the use of TIF
in Texas could thus be accountability, particularly as concerns over the fairness
of economic development initiatives become ever more apparent and pressing.
Scenario of TIF project in Indian cities
There are no TIF project
in any Indian cities till now. But, there were proposal of creation of TIF in
the city of Hyderabad, which was not implemented, due to some pullbacks.
took initiative to implement TIF to fund development works in municipalities in
the state of Hyderabad, but some of civil society activists opposed of that
statement, that the move will only enhance the tax burden on citizens without
getting any intended benefits. Raising funds can be involved for
development works in specified areas by using future gains in taxes accumulated
as a result of the development of the areas. The municipal administration and
urban development department issued an order by announcing that, TIF will be
introduced in all urban local body areas to fund works related to underground
drainage, drinking water, storm water drains, development of water bodies, roads,
side walls, , parks, streetlights, bridges. The order further said that TIF was
essential to meet an expenditure of Rs. 46,695 crore for infrastructure
development and maintenance during 2015-2020 in the state’s ULBs.3 According
to activists and urban planners, it would collect a ‘supplementary tax’ above
normal property tax. According to expert opinion government may collect
additional tax to ensure itself against debt in the event that the properties
in TIF areas may not appreciate as expected, which is the biggest risk to the
Risk of implementation of TIF in Indian cities
TIF is tool that encourage economic
development, it can also be misused on projects with few public benefits.
Complexity of TIF projects may be
constrain for smaller communities as they don’t have much staff capacity and
having fewer resources to devote to planning and implementation. Another issues
is that smaller communities is finding projects of sufficient scale which is
need to be appropriate for TIF, following by higher transaction costs and
interest expenses involved relative to other types of financing.
In Indian cities TIF
project cannot be implemented as, there would be extra burden of property tax
levied on citizens, and interference of political activity will also take role
as barrier in implementation of TIF project.
1 Texas Senate Economic Development
Arvindson. E, et.al ; Tax Incrementing financing in Texas: Survey and
Assessment; state University of New York Press
3 Times of India; Mar 2, 2014