TIF Frequently Asked Questions
Tax Increment Financing: An Introduction
What is Tax Increment Financing?
Tax Increment Financing (TIF) is an economic development tool authorized by the Oklahoma Constitution and State statute to permit cities, towns and counties to use local taxes and fees to finance certain public costs of development and redevelopment. Projects financed with TIF must serve a public purpose such as redeveloping blighted areas, providing employment opportunities and improving the tax base.
How does TIF work?
When a TIF district is established, the assessed value of all taxable property within the district (or, in the case of a sales tax increment district, the sales tax revenue from within the district) is established as a base. For the district's duration - until the project costs are paid, not to exceed twenty-five (25) years - any increased tax revenues above the base are available to the city, town, or county to finance pubic project costs. Taxes generated from base assessed value (or an amount equal to the base sales tax) continue to be paid to the various taxing jurisdictions (county, school district, vo-tech district, library system and health department).
For a city, town, or county to use TIF to help finance a development or redevelopment project, it must determine that, among other things, investment, development and economic growth are difficult but possible if TIF is utilized. It must also determine that TIF is not being proposed to an area where investment, development, and economic growth would have occurred anyway and that TIF is being used to supplement and not supplant or replace normal public functions and services. Projects that meet these conditions should have no negative impact on the affected taxing jurisdictions, since they use tax revenue that, without the use of TIF, would not have been generated.
What about public input?
The governing body of the city, town, or county considering a TIF project must appoint a Review Committee made up of representatives of the affected taxing jurisdictions, the planning commission with jurisdiction over the project area, the city, town, or county considering the project (who representative serves as the chairperson), and the public at large. The Review Committee then must make determinations as to the eligibility of the project and the financial impact, if any, of the project on the taxing jurisdictions, as well as a recommendation to the Governing Body whether to approve the project.
The Planning Commission must separately consider the proposed project and determine whether it conforms to the comprehensive (master) plan for the area. All meetings of the Review Committee, Planning Commission and Governing Body are subject to open meeting laws.
Prior to adoption of a TIF project, the Governing Body must hold two public meetings. The first is solely to provide the public information about the proposed project; the second is a public hearing to provide an opportunity for the public to be heard in favor of or in opposition to the proposed project.
If the Governing Body votes to approve the proposed project contrary to the recommendation of the Review Committee, it must do by by a two-thirds majority vote. Any change to the area to be included, any substantial change in the proposed project, or any amendment of an approved plan affecting more than 5% of the district's area or 5% of the project costs, must be reviewed and approved by the Review Committee, Planning Commission, and Governing Body in the same manner as the original proposal.
Any school district within the boundaries of an increment district may file with the Governing Body a protest as to the amount certified as the base assessed value of the increment district. In the event such a protest is filed, the base assessed value of the district shall be redetermined.
How may TIF be used?
Oklahoma's Local Development Act governs TIF use. Tax increment revenues must be spent for approved public costs of development and redevelopment within geographic areas refereed to as project areas.
TIF uses include:
- Capital costs, including costs of acquisition, construction, demolition, alteration, remodeling, repair or reconstruction of public works, public improvements, public buildings, structures and fixtures;
- Financing costs, including costs associated with the issuance of bonds;
- Real property assembly costs, including clearance and preparation;
- Environmental remediation;
- Professional service costs;
- Direct administrative costs; and
- Relocation costs
- Pay-As-You-Go: The developer pays for the TIF-eligible costs, and is reimbursed from the increment of increased tax revenue generated by the development (the 'increment'). This method shifts the financing risk to the developer.
- Bonds: Bonds are issued 'up front' to pay for public redevelopment or redevelopment costs are are repaid with the Increment.
- Cash Financing: A private non-profit or other entity pays costs directly and is reimbursed through tax increments or other revenue sources.
What are some benefits of TIF?
TIF allows cities, towns and counties to simulate revitalization activities that the private sector is unwilling or unable to undertake. By using TIF, cities, towns, and counties have tools to:
- Leverage economic revitalization;
- Develop or redevelop property which is undeveloped, underdeveloped, unproductive, or blighted;
- Supplement other public functions, services, efforts and programs, including Oklahoma Main Street Program, Oklahoma Enterprise Zone Act, historic preservation, and other locally implemented economic development efforts;
- Enhance conservation, preservation, and rehabilitation efforts;
- Encourage residential development;
- Enhance neighborhood stability;
- Remediation of environmental damage;
- Enhance the tax base;
- Create and retain jobs.