Tax Increment Financing (TIF) and Schools
A popular alternative financing method for new development is setting up an Urban Renewal Area to capture Tax Increment Financing (TIF). “When property is improved, its value rises and taxes generated at the site increase. The difference between the taxes generated before and after the investment in the property is called the tax increment. TIF uses the annual increment to finance a portion of the costs the improvements made."[1] The Urban Renewal Council could allocate a certain percentage of the property tax to the school and create a mechanism that would allow them to invest the tax increment into the redevelopment of the city.
The process of setting up an Urban Renewal Area (URA) begins with a finding of blight. Blight can be declared for a variety of reasons (for more information, see ORS 457), but does not require the strict scrutiny that it once did. Blight can be declared if it is decided that the area in question was poorly planned. Once a finding of blight has been declared, an Urban Renewal Council must be set up to manage the process. In many cases, the City Council also acts as the Urban Renewal Council. Before defining the Urban Renewal Area boundaries, all taxing jurisdictions must be consulted. Not all taxing jurisdictions must sign off on the project, but some are required depending on the district (See ORS 457 for more information).
Normally, it takes nine months to set up a URA. Before the URA is defined, an Urban Renewal Plan and Report must go through a public process. Also required is a Financial Report that clearly shows the reasons for expecting Tax Increment Generators (new developments that yield higher property taxes) to produce a certain amount of money. It is important that these reports give a clear direction to the project, without restraining the Council too much.
Important requirements of TIF spending include:
- Blight must be demonstrated in URA
- No More than 25% of the City can be included in the URA
- Tax Increment Generators must be in the URA
- TIF dollars must be spent within the URA
- TIF dollars traditionally must go toward “bricks and mortar” projects (there are exceptions, but professional consultation is necessary to get around these rules)
A common myth about TIF funding is that it ends up hurting schools. It is true that schools districts lose the money that they are normally allocated form income taxes, but that lost money is given back to them by the state because school district are “held harmless” by TIF standards. The school district ends up with all of the money they had before accepting TIF money, it just comes from a different source.
The money resulting from the URA can be split almost any way that is politically feasible. There are too many variables in the process to address every aspect of TIF. It is recommended that the City and School District co-finance a TIF feasibility study, which should cost less than $10,000. ECONorthwest and Tashman Johnson both have experience setting up URAs in a variety of settings.
When starting the TIF process, it is important to have a realistic sense of the amount of money Tax Increment Generators will yield and to keep in mind political sensitivities in the community. TIF financing should only be pursued if it is believed that establishment of the URA will increase value in the larger community.[2]
Contact Information
Abe Farkas
ECONorthwest
888 SW 5th Ave, Suite 1460
Portland, OR 97204
503-222-6060
http://www.econw.com
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