What is a TIF and why should you care
TROTWOOD — Frequently asked questions about tax incremental financing (TIF) districts.
Q OK, what are they?
A Yep, that would be right up there in frequently asked questions.
Q Listen, wise guy, answer the question.
A Sorry. It is a method of paying for expensive infrastructure — water and sewer lines, roads, sidewalks and curbs — over time. In most cases, the city fronts the project by selling bonds to raise the money for construction. The developer is then responsible for making the annual bond payment.
Q So if the developer doesn’t have the money to build the infrastructure, where is he or she going to get the money to make those annual payments?
A You put in a road and the property along that road now becomes more valuable. As it is now worth more, tax on the property goes up. Under a TIF agreement, a portion of that increase is set aside in a pot from which the annual payments are made. The agreement stays in place until the bonds are paid off. From then on, the full amount of property taxes are paid to the city and school district.
Q So if the city sells bonds to build a road in a bean field, and the developer builds 16 houses on the road, the property along that road is now worth a lot more than the original soybean field. Right?
A I couldn’t have said it better.
Q OK, but answer me this. Doesn’t most of the property tax go to the school district and not the city?
A A During the negotiations for a TIF, the developer often agrees to pay the school district a sum equal or nearly equal to what the district would normally get in taxes on the improved property.
Q So the city is helping a developer by fronting the money for infrastructure. The reason the city would do this is to gain the increased property revenue from the development. Sort of makes sense. But what are the risks?
A That depends on what is negotiated. It has happened that developments have not grown at the expected pace, meaning there is not enough tax revenue generated to pay the annual payments.
Some TIF agreements require the developer to have some sort of financial guarantee in place — a performance bond, for instance — that will cover the annual payments should the development run into difficulties.
It’s a balancing act by elected leaders between sustainable growth and protecting the taxpayers’ money.
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