Variations in Development Subsidies under Tax Increment Financing

In the face of increasingly scarce federal community development grants and in an effort to encourage the renewal of deteriorated sections of many urban areas, states have become interested in tax increment financing (TIF) as a way of providing development incentives to their local units of government.1 Tax increment financing laws typically allow cities or local development authorities to recover certain development expenditures that they make in specially created districts from a portion of the property tax revenues realized by the county, school district, and other local taxing jurisdictions.2 States are attracted to TIF largely because of their concern that cities will not engage in socially desirable development or redevelopment efforts, such as slum clearance or blight elimination, when faced with the incentives inherent in the existing property tax system. Without TIF, cities often bear the cost of development alone, while several local taxing jurisdictions share the development benefit-narrowly defined as increased property tax revenues. The resultant distribution of costs and benefits leads to perceptions of inequities and disincentives for development, as reflected by the legislative declaration for the Wisconsin TIF legislation: