A form of financing in which a municipality borrows money for a project with the expectation that it will pay back the debt using increased tax revenue generated by the new project.
The often-stated goal of TIFs, as they are sometimes called, is to jump-start development in a blighted area. In theory, TIFs are a mutually beneficial arrangement between a private developer and a municipality. The developer gets the municipality to pay for public improvements to a site. The municipality benefits, because sucessful development means more property or sales tax revenue.
In a simplified example, a private developer wants to build a shopping center in a depressed area. The developer tells town officials that he can afford to build his project if the city is willing to build sidewalks and extend water and sewer connections to the property. The developer proposes a TIF.
In this arrangement, the town issues bonds—or simply put—borrows money, to build the sidewalks and sewer lines. Before the first shovel hits the ground, the town determines how much property tax revenue the parcel generates—a number based on the assessed value of the property. That amount of tax revenue is frozen—it is all the revenue town will collect from the property for some time.
The developer builds the shopping center. Customers shop, dine and visit and the value of the land naturally increases. Because the land is now worth more money, the assessed value increases, which means its owner must pay higher property taxes.
But all the town gets is the amount of tax revenue it collected before the project started. The additional money, or the "increment" will be used to repay the debt the city took on to build sidewalks and sewer lines. In time, the debt is repaid and the town can start collecting the full amount of property tax on its new, bustling shopping center.
TIFs have had a controversial start in North Carolina. In 2004, voters approved a constitutional amendment that allowed the deals. They were controversial and divisive even before they were allowed.
In 2007, developer John Kane proposed using one to build retail and office space at the bustling North Hills in Raleigh. The proposal was denied after it met opposition with members of the Raleigh City Council.
Then there is Roanoke Rapids. The city used a TIF to build a theater for Randy Parton, brother of country superstar Dolly Parton. The theater was supposed to be the centerpiece of an entertainment and tourist complex, but in its first few months, the project was riddled with problems.
The project was made an issue in the race for governor, since Democratic candidate Richard Moore, who was head of a commission that must authorize TIFs, approved Roanoke Rapids' plans.
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