Running head: TAX INCREMENT FINANCING 1

Tax Increment Financing

Student’s Name

Institutional Affiliation
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Tax Increment Financing

1. Are TIFs in the public's interest or business's interest?

Tax increment financing (TIFs) is a public interest that touches on public and private

development, employment, residential development, commercial development, and industrial

development. It can play a critical role in urban renewal under the Urban Renewal Law whereby

when a city finds a slum of blighted areas that they recognize to jeopardize the community's

public health, safety, and morals, the city can declare the area blighted (Policy Council, n.d).

Later, the city develops a workable program that utilizes public and private resources to create

commercial and industrial properties. According to Healey and McCormick (1999), Chicago had

initiated three lender-backed micro-TF investment fund programs that benefit some of TIFs to

small businesses, small-scale, downtown projects, and homeowners. They further mention that

the Small Business Improvement Fund (SBIF) reimburses business and building owners eligible

for TIF investment that improves neighborhood appearance, preserves building stock, and

enables growing businesses to stay in the neighborhood to be competitive expand.

The TIF targeted projects that could retain or create jobs and finance historically

significant buildings. After a given area is declared blighted, a public hearing is held to discuss

the renewal plan. The city approves the project when there is a reasonable method to help

families who have been displaced; the program conforms to the city's plans as a whole. The

project provides a maximum opportunity for development to be carried out. Once the renewal

plan is in place, the city can use tax increment financing to pay off any expenditures associated

with the renewal plan. TIFs can help developers develop commercial and industrial properties as

long as there is a public hearing.

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2. Is TIF an effective tool for workforce development or a scheme to finance private

capital with public funds?

The creation of TIF was an effective scheme to finance private capital with public funds.

For example, when one wants to open a grocery store and grow, a city council member can

suggest using the TIF to finance the project. TIF is a method that developers employ to reinvest

into their property. The higher taxes they would normally pay when development takes place, the

incentive aims to encourage economic growth and create jobs by allowing developers to pursue

projects that would not normally occur if they had to fund the projects on their own (Columbian

Missourian, n.d). The developer has to prove to the city and the tax increment financing

commission that the property one is targeting is blighted or in need of conservation to avoid

becoming blighted. One cannot afford to do the project on their financing will benefit the entire

community.

The City of Chicago had a policy decision prohibiting issuing general obligation bonds

from funding projects in the TIF districts directly. As the individual companies and developers

needed up-front funding to complete their deal, other initiatives have to be taken to keep the City

of Chicago competitive and attracting development. Chicago allocated about $25 million from

the citywide general obligation bond issue for economic development funding. The allocated

funds helped attract and retain other large companies, including Luster products, Culinary Foods,

Farley Candy, and National Wide Service. When these projects are completed, together with the

real estate increment numbers, the TIF funds are issued to the Reed-Dunning, Stockyards, and

Ship Canal TIF districts. The proceeds obtained from the bonds were then used to repay the

originally allocated funds.

3. What limitations, if any, should be placed on TIFs?

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Mediating for TIFs can be an enormous problem as it highly involves multiple groups,

including the county and municipality, and it can affect one's competitors. A challenging

mediation for TIFs can slow one's project and bring it to a stop. Secondly, the development

proposals don't get the green light from municipalities as there is a change in the economic

conditions, and there can be heat in the public debate eventually, the TIF process can be long and

drawn out, which can sabotage a deal and cause the project to go either way. Therefore, it is

important to understand that TIFs can be complex, and despite one's efforts, the deal might fall

off. Also, there might be a backlash in securing TIFs as several states have a clause, "But for"

that require developers to certify the projects would not move forward "but for" the TIF.

It can also backlash as public funds come with various public viewpoints, some of which

can be held by other competitors, and the general public might fight for TIF financing.

Therefore, developers should be ready to face public feedback that might not be favorable. TIFs

affect the tax rates as it relies on the property tax revenue developed from the increase in the

taxable assessed value in a given area. Also, it involves some of the taxpayers more than others.

Also, there is a doubt whether the tax increment financing could induce an economic

development project. Also, there can be a lack of transparency, especially when TIF funds are

sheltered on the official oversight and funds.

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References

“Columbia Missourian.” How TIF Works. Retrieved from

https://www.youtube.com/embed/LoS2excxVuY

Haeley, L., & McCormick J. F., (1999). Urban Revitalization and Tax Increment Financing in

Chicago. Government Finance Review. Retrieved from

https://www.cdfa.net/cdfa/cdfaweb.nsf/ord/ac3442e8843ece3688257936005f0c13/$file/

urbanrevitalizationandtifinchicago.pdf

“Policy Council.” Tax Increment Financing 101. Retrieved from

https://www.youtube.com/embed/0u5aPAyeXGQ