Dedicated tax increment financing (TIF) schemes in the United States
TIF is created through state legislation and local regulation which designates a specific geographic area as a special zone. These are economically distressed geographical areas and the TIF designation incentivizes redevelopment and revitalization.
Description
While TIFs are usually established to revitalize distressed communities, they can also be used to help preserve and promote affordable housing.
TIF works by freezing the property tax collected by public entities at the level in place when the TIF was created. However, while the amount collected by local authorities is frozen, the actual tax collected continues to increase over time as the value and use of properties increase, thus increasing the taxable base. This additional amount of tax is used as an incentive, either through forgiveness/waiver programmes or through collection and redistribution by the TIF entity to support specific projects. At the end of the designated period, local authorities can collect the entire, escalated amount of tax and dedicate this to achieve local development goals.
Why it works
The success of TIF schemes for affordable housing relies on communities dedicating captured tax increment funds in order to build or preserve affordable homes and/or assist households to enter home ownership.
The effectiveness of TIF raising funds and channelling these towards affordable and inclusive housing is difficult to generalise due to the diversity of local programmes. However, a common criticism of TIFs is that they often lead to increased property values and gentrification, which, if not properly managed, can ultimately harm or displace those in need of affordable housing solutions.
The following good practice insights stem from a recent evaluation of 40 TIF programmes:
Establish a needs-based and dedicated allocation of funds.
Track the change in property values, monitor accumulated delayed TIF tax revenue and provide clear reports on allocated expenditure.
Ensure that delayed tax collection and hypothecated use of funds do not erode resources for other essential services (e.g. schools).
Regularly review effectiveness of the revenue raising and funding mechanism and learn from evaluation of the different outcomes of TIF use in various geographic areas [1]
[1] David Merrimaan, “Improving Tax Increment Financing (TIF) for Economic Development”, Policy Focus Report (Cambridge, Lincoln Institute of Land Policy, 2018). Available at https://www.lincolninst.edu/sites/default/files/pubfiles/improving-tax-increment-financing-full.pdf.
Scale
National
More information
Some States of the United States have passed legislation and reporting requirements to ensure this transfer takes place.[1] Two examples can be found in Massachusetts and the city of Atlanta.
The Massachusetts State government established the Urban Centre Housing Tax Increment Financing (UCH-TIF) programme to allow cities and towns to designate commercial centres with a need for affordable multi—unit housing. It requires at least 25 per cent of new housing units created in TIF zones to be affordable. TIF may be combined with other grants and loans from other local, state and federal development programmes. Each year, participating localities are required to report on progress to the state government, specifying the amount of TIF revenue generated, number and type of new housing units created and the initial incomes of households renting or purchasing the new, dedicated affordable housing.[2] The second example concerns the Beltline road development area in Atlanta, Georgia, which makes use of funds from a long-established TIF district. Some 15 per cent of the funds raised were set aside for affordable housing in the district, via a housing trust fund. This aims to produce about 5,600 affordable housing units in the area.[3] There are currently 873 affordable housing units in the pipeline.[4]
[1] National Housing Conference, “How TIFs Can Be Used for Affordable Housing”. Available at https://nhc.org/policy-guide/tax-increment-financing-the-basics/how-tifs-can-be-used-for-affordable-housing/.
[2] For information on regulation for UCH-TIF, see https://www.mass.gov/doc/760-cmr-58-urban-center-housing-tax-increment-financing-uch-tif-program/download.
[3] Atlanta BeltLine, “Project Goal: Affordable Housing Overview – 5,600 units of Affordable Workforce Housing”. Available at https://beltline.org/the-project/project-goals/affordable-housing/.
[4] Atlanta BeltLine, “ABL’s Mid-Year Update”, 21 September 2020. Available at https://beltline.org/2020/09/21/abis-mid-year-update/.
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