Tax increment financing (TIF) is a State legislated development tool exclusively for municipalities. Under TIF, an eligible "blighted" district is formed and an initial base EAV of the area is determined. All of the affected taxing districts continue to receive tax revenue based on the initial EAV throughout the life of the TIF.
As redevelopment occurs and the area's EAV increases, taxes on the increased portion are diverted to a special fund to pay for public costs associated with the redevelopment effort. This is the "tax increment."
Property Owner Taxes
The establishment of a TIF district does not affect an individual property owner's tax bill and does not constitute an automatic tax increase or decrease. Tax revenue is merely distributed differently with the incremental portion being deposited to the special fund. The municipality is able to borrow against the incremental revenue flow by issuing bonds or paying for redevelopment costs from other sources of funds.
TIFs are popular for redevelopment purposes because they operate under the premise that redevelopment should pay for itself. There are very few tools available to municipalities to facilitate redevelopment. TIF allows a community to take on some of the extraordinary costs associated with redevelopment and have an equitable source of revenue to pay for those costs. In essence, all of the taxing districts invest in a TIF district, and all benefit from the redevelopment at a future date.