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Tax increment financing is a method by which a city or municipality can generate new money for improving undeveloped areas. When a city wishes to improve or redevelop an area, it can designate it as a Tax Increment Finance Zone. It can then use the excess taxes created by the development to fund the project. Tax increment financing essentially allows a city to use all new property taxes over the designated area for further redevelopment. Tax increment financing (TIF) is a popular legal option for cities because individual property taxes do not increase and the money is reinvested in the neighborhood.
In tax increment financing, the city surveys areas in need of development or beautification and designates those areas as TIF Zones. The city planner surveys the proposed zone and determines if the area is eligible for consideration. The city attorney then pairs with outside consultants to determine if the TIF Zones legally meet the standards by conducting an eligibility study. Once the TIF Zone has been certified, the city civil engineer works with the consultants to write a redevelopment plan. This plan will include all proposed projects for the TIF Zone as well as a budget proposal. The budget proposal provided by the city planners and consultants will outline how the tax funding will be spent.
Once the TIF Zone is designated and the proposal has been certified, the plan may proceed. Current property taxes are “frozen” in the designated neighborhood. This ensures that an individual’s property taxes won’t rise during the redevelopment. It also ensures only the excess property tax directly created by the project itself will be used. The hope is that property taxes and property values will eventually rise and the excess tax revenue will be used normally.
In tax increment financing, only new tax revenue may be used to fund a project. New tax revenue may be found in the form of redevelopment of existing property or new development of vacant land. For example, the city may decide to refurbish a historic building or park to obtain new tax revenue. The city could also propose to build a new building on land that was once vacant and considered an eyesore.
Revenue generated from a TIF Zone can only legally be used for certain projects and items. The city will consult with a lawyer during multiple steps of the project to ensure the money is being spent appropriately. Tax increment financing revenue can be used for planning expenses and consulting, including legal consultations. It can also be used to buy land or property and prepare it for redevelopment. Sometimes, the city may own the property in question, but many times, it is owned by private individuals.
Cities may use the revenue generated by the TIF Zone to purchase the property from the owners and then use the revenue again to prepare the property. Sometimes, owners will not want to sell their property to the city. In these cases, lawyers may act on the city’s behalf and pursue an eminent domain process. Via eminent domain the city buys the property at fair market value after the city proves that the project will serve the public's general welfare.
Tax increment financing may also be used for day care and job training expenses for companies involved in the TIF Zone. It can be used for the actual redevelopment of the land and renovation of property. It can even be used to pay for the financing of the project itself. Initially, the city will have to finance the project in order to complete it before the revenue accumulates. Then the tax increment finance revenue will pay for all costs associated with the financing.
A lawyer is often needed to ensure that projects adhere to the tax increment financing law. The city will work with an attorney to review the proposed site, project detail and budget proposal.
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified tax increment financing lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local tax increment financing attorney to discuss your specific legal situation.