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What is tax increment financing (TIF)?

Tax increment financing (TIF), established in Indiana Code(IC) 36-7-14 and 36-7-25, refers to a process in which municipalities use a portion of future tax revenue from a given area to promote development in that area.

 

What is a TIF district?

A TIF district is the area receiving future tax revenue to promote development. It must be established as part or all of one of the following designated areas:
 

  1. A redevelopment project area, defined as an area needing redevelopment where normal development and occupancy are undesirable or impossible due to a variety of factors (see IC 36-7-1-3); or
     

  2. An economic development area, defined as an area where the proposed new development will promote significant employment opportunities for local residents, attract major new business, or retain or expand existing business (1C36-7-14-41). The Redevelopment Commission of the city, town, or county with jurisdiction over the proposed TIF district controls the establishing process and the utilization of TIF funds. 

 

To establish a TIF district:
 

  1. The city, town, or county wishing to establish a TIF district must have an established Redevelopment Commission.
     

  2. The Redevelopment Commission must prepare a redevelopment plan for the proposed TIF district, as required by statute or the Department of Local Government Finance (DLGF) and State Board of Accounts TIF regulations, describing the redevelopment or economic development activities it plans to undertake in the area.
     

  3. The Redevelopment Commission then adopts a "Declaratory Resolution" approving the redevelopment plan and declaring the TIF district.
     

  4. The Plan Commission then adopts a resolution approving the redevelopment plan and the Declaratory Resolution, and finding that the redevelopment plan conforms to the plan of development for the area.
     

  5. The Common Council, Town Council, or Board of County Commissioners, as applicable, passes an approving resolution, and specifically approves the TIF district area.
     

  6. The Redevelopment Commission then holds a public hearing to adopt a "Confirmatory Resolution" authorizing the establishment of the TIF district.

 

Why establish a TIF district?

TIF is a local means of financing public infrastructure intended to stimulate private sector investment and job creation. The increased portion of the tax proceeds (known as "increment") generated by increases in assessed values stimulated by new development are temporarily allocated to the TIF district to pay for the capital improvements needed to induce the development.

 

How does a TIF district work? 

In order to calculate tax increment, the Auditor of the county where the TIF district has been established determines what the assessed value of the TIF district was as of the base assessment date (the January 1 that immediately precedes the effective date of the Declaratory Resolution). As of January 1 of each year following the base date, the Auditor then determines the amount by which the assessed value of the property in the TIF district exceeds the assessed value as of the base date. The property taxes that are generated by the increase in the assessed value constitute TIF, and are then allocated by the Auditor to the Redevelopment Commission.

 

What may TIF funds be used for?

TIF funds may be used for the following:
 

  1. Paying the principal of and interest on obligations payable solely from TIF.
     

  2. Establishing, augmenting, or restoring the debt service reserve for TIF bonds.
     

  3. Paying the principal of and interest on TIF bonds payable from TIF and a special taxing district tax levied by the commission.
     

  4. Paying the principal of and interest on bonds issued by the local governmental unit to pay for local public improvements (such as public ways, sidewalks, sewers, water lines, parking facilities, and park or recreational areas) in or serving the allocation area.
     

  5. Paying premiums on the redemption before maturity of TIF bonds.
     

  6. Paying leases entered into by the Redevelopment Commission for public improvements.
     

  7. Reimbursing the local governmental unit for expenditures made by it for local public improvements.
     

  8. Reimbursing the local governmental unit for rentals paid by it for a building or parking facility in or serving the allocation area.
     

  9. Paying all or a portion of a property tax replacement credit to taxpayers in the allocation area.
     

  10. Paying expenses incurred by the Redevelopment Commission for local public improvements that are in or serve the allocation area.
     

  11. With certain limitations, reimbursing public and private entities for expenses incurred in training employees of industrial facilities located in the allocation area.

What is the allowable term of a TIF district? 

The maximum term of a TIF District created July 1, 2008 or later is 25 years after debt is issued and the first principal payment or lease payment is scheduled to be paid from TIF.

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