Tax Increment Financing in Theory and Practice

If the past quarter of a century is any indication, tax increment financing (TIF) is likely to remain one of the most popular forms of finance for local economic development in the United States. TIF is neither a new tax nor a tax abatement in the conventional sense. Rather, it is a reallocation of property tax revenues from the municipality’s general fund to a smaller enclave of contiguous properties: a TIF district. TIF allows a municipality or redevelopment authority to designate an area for improvement and then earmark any future growth in ad valorem property tax revenues from the district to pay for the initial and ongoing economic development expenditures there.