TIF Explained

It occurs to me that the post below used the term "TIF" as though it is a well-known term, and perhaps it is not.

What TIF refers to is "tax increment financing." Essentially, what happens is a developer comes into an area and increases the value of the property and then the increased tax revenues associated with that increased assessment are then poured back into the infrastructure to support the project.

Let's have an example:

A developer buys an acre of land for $10,000. She then invests $1m into the acre, thereby making the acre worth $1.5m. The tax rate remains the same, let's say 1%.

Prior to the developer, the government would collect $100/year on that acre. After the development, the government would collect $15,000/year on that acre. There is $14,900 additional tax revenue as a result of the development.

Developers often want a piece of that money. So, they cut a deal with the local government whereby the local government creates a "Tax Increment Financing District" or TIF District, whereby that $14,900 in additional money is diverted from general government funds to dedicated funds to develop infrastructure around the project, think sidewalks, sewers, etc. At least that is the way it is supposed to work in theory.

Unfortunately, that money often becomes a slush fund for well-connected developers to get big fat taxpayer handouts. (The irony is not lost on me that so many of the people involved in these deals rail away about government "handouts" to the poor, but I digress).

Anyway, that is what a TIF district is. That increased tax money then goes into a developer's (or local politicians . . . sometimes they're the same person) project, usually to make payments on a previously issued bond. The money does not go to police, schools, etc. Remember this the next time the City of Indianapolis pleads poverty when it comes to parks, police, schools, or any other traditional government function, yet has the money to subsidize well-heeled developers (ahem, Simon Properties, ahem, excuse me . . . there was something caught in my throat).

I'm not averse to TIFs in principle, but they are too often abused to give kickbacks to well-heeled developers. I don't know enough about Speedway's TIF districts to make any sort of assessment on the propriety of them.

I do believe, however, that the redevelopment has been a good thing, warts and all.