Tax incremental financing (TIF) allows cities or villages to finance most commercial development in designated areas of a municipality to promote a tax base expansion and economic development. Under this process, a city or village (with approval of its joint review board) creates a tax incremental district (TID) in a qualifying area of the municipality.
After a TID is created, all of the property taxes generated within the TID are placed in a special fund and used to pay for improvements inside the TID. The rationale is that the property value of the TID will eventually rise, the taxes paid on the increased value can be used to pay back the public project costs, and the tax base growth would not otherwise have occurred.
Previously, cities and villages could create TIDs, while towns were only permitted to use TIDs for limited purposes related to tourism, agriculture, manufacturing and forestry.
New changes in the law, effective April 2014, now permit towns to have the same tax incremental financing authority as cities and villages if they meet the following criteria:
- Population is more than 3,500.
- Equalized value of all taxable property is more than $500 million.
- The TID is in a sewer service area served by a wastewater treatment plant.
Also effective April 2014, a city or village may now require the Department of Revenue to re-determine the base value of a TID, if it has been in a specific “decrement” situation for at least two years. This allows TIDs that were negatively impacted by the struggling economy in recent years to reduce the TID's base value to its current equalized value. Starting from a lower base value means that more increment can be created.
There are a number of questions that can arise when using the TIF process since the way TIFs are used vary from project to project. For example, a municipality can use TIFs to install improvements or to make loans or grants to developers. Loans or grants may be “up front” or after the tax increment has been created. Other recent changes in TIF laws affect the ways in which TIF can be used and the entities that can use them.
Nida Shakir and Hal Karas are attorneys at Whyte Hirschboeck Dudek S.C. in Milwaukee.
