News Flash

TIF: Tax-Increment Financing

Posted on: October 7, 2019

TIF: What Is It and How Does It Work?

In the past few years, the City of Edina has experienced redevelopment at a pace not seen for nearly five decades. The City has used Tax-Increment Financing (TIF) on just six of more than 50 large-scale construction projects in those years. Most people aren’t experts in public finance tools, so understanding TIF can be a challenge. To help residents better understand TIF, this is the first installment of a three-part series that will explain what TIF is, how it benefits the community and the projects it has helped create. 

What is TIF? 
TIF stands for Tax-Increment Financing. It’s a financing method that allows the increased tax value from a newly developed property to help pay for a portion of that development or public infrastructure related to that development.

Is it only used in Edina? 
No. TIF is used by communities throughout the United States. TIF was first used in Minnesota in the 1960s and has been used in Edina a handful of times since the mid-‘70s.

How does it work? 
When a TIF district is created, the existing property value is locked in as a base valuation. The property taxes from this base value are distributed to each of the taxing entities, such as the City, Edina Public Schools and Hennepin County. After the property in the TIF district is developed or redeveloped, its value tends to increase dramatically. The property tax money above the base value, called the “increment,” remains within the TIF district and goes to paying debt or financial obligations necessary to complete the project. Once that TIF obligation is satisfied, the entire property value returns to the tax rolls, benefiting all taxing entities.

Is TIF just taxpayer-funded subsidies for development? 
The use of TIF could be viewed that way, but that’s missing the big picture. In some communities, TIF is the only way developers are willing to take on certain projects or redevelop blighted areas. In Edina, it’s used to deliver public improvements in a project, such as plazas, parks, open spaces or shared-use streets that otherwise wouldn’t happen. It’s also used to push for innovative, attractive development instead of generic residential or commercial buildings. Edina residents have demanded high-quality projects, and TIF is one way to get them without increasing the tax burden on current residents.

Are there any rules on which projects TIF can be used for? 
TIF has a lot of rules. It’s governed by dozens of pages of Minnesota laws – see MN Statutes 469.174-469.1799. In addition, the City’s use is further restricted by policies established by the City Council and the Housing & Redevelopment Authority.

Do developers get a tax cut from TIF? 
No. Developers who receive pledges of TIF support still have to pay the full property taxes – the base and the incremental value when they improve the site. Those tax payments aren’t discounted.

What risk does the City have from TIF? 
Before TIF is allowed, it’s studied to ensure the use is legal, justified and produces results with limited risk to the City. The level of TIF assistance is determined before the project begins. Developers must complete the full project before the full TIF pledge is made.

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