TIF 101

Understanding TIFs Better

By Ron Van Straten

What is Tax Increment Finance and how can it help my business?

Tax increment finance (TIF) is a popular finance tool used by communities across Wisconsin.  There are over 1,000 communities that have used this method to help finance economic development.  At the same time, it is probably the most misunderstood and confusing term at the municipal level.

In a nutshell, tax increment finance uses future property tax revenue generated from proposed development to finance infrastructure projects that will improve a given geographic area (tax increment district).  For example, a community might identify an area near a highway interchange that has potential for new development but the cost of extending sewer and water service to the area simply outweighs the profit a developer might generate from the project, as well as the additional property tax that the community would get from the new development.  Keep in mind that a local city or village might have a property tax rate of $2-$6 per $1,000 of new property value.

If the community in the above example were to form a tax increment district for the project they would be allowed to capture all the new property taxes generated from the project until the cost of the infrastructure improvements are paid (with some limitations).  Instead of the $2-$6 per $1,000 of new property tax value, the community would be allowed to keep the whole amount of property tax paid by the new development of $20-$30 per $1,000 of new property value.  In short, this would make it feasible for a community to spend say $1 million to extend services if the project were to generate $6 million of new taxable development.  After the infrastructure costs are paid back the community dissolves the tax increment district and all the taxing jurisdictions share the additional property tax just as they do with any other taxable property.

From the perspective of a businessperson, tax increment finance can provide incentives that otherwise would not be available.  The Wisconsin tax increment finance law allows a tremendous amount of flexibility regarding what a community can offer a business for incentives.  While it is not legal for a community to offer lower property taxes to one business or group of businesses, tax increment finance allows the community to provide direct or indirect incentives to the business or businesses.  These incentives can take the form of actual cash payments or they can be in the form of improved roads, sewer or water service, or other site improvements.

In short, this entry is intended to help simplify a concept that can be confusing.  We hope that this helps you understand tax increment finance and how it can benefit you as a businessperson.  If you would like to discuss the topic further, please contact Ron Van Straten at (920) 405-3828.