Tax Increment Financing: A History and Analysis of its Success and Failure

Tax increment financing (TIF) is used by cities and towns to subsidize projects within their jurisdictions. The name derives from the growth in the tax base that a (re)development is theoretically responsible for. The increase in tax revenue is directed to funds to pay for the project. TIF is used in 49 U.S. states and each state has unique legislation for its use of it, though there are large similarities between states on how it’s implemented. Research suggests mixed results with whether or not the increase in the tax base is enough to pay off how much money went toward the project in the form of TIF. Since TIF differs depending upon the state, looking at patterns of policy may lead to discerning which traits increase the likelihood of success or failure. This paper suggests that there are policies that can improve use of TIF: requiring that project sites be deemed in need for subsidizing developments for projects to occur, involvement of local government agencies that will be affected by the project, and quality financial decisions/oversight.