Tax Increment Financing (TIF) is a public financing method used as a subsidy for redevelopment, infrastructure, and other community-improvement projects. TIF subsidizes companies by refunding or diverting a portion of their taxes to help finance development in an area or on a project site.
TIF funds are used by government agencies to build and repair roads and infrastructure, clean polluted land and put vacant properties back to productive use, usually in conjunction with private development in a TIF district.
A tax increment is the difference between the amount of property tax revenue generated before TIF district designation and the amount of property tax revenue generated after TIF designation. Only property taxes generated by the incremental increase in value of TIF district are available for TIF projects. Tax rates do not change when a TIF is created. TIF districts do not increase taxes.
Property taxes collected on properties included in the TIF at the time of its designation continue to be distributed to the school districts, park district, library district, and other taxing districts and are not reduced by the TIF creation. Only taxes derived from future growth that would not have occurred without the TIF designation go to TIF projects.
In New York State, The Municipal Redevelopment Law entitles municipalities to issue tax increment bonds that are payable from and secured by real property taxes in order to establish a TIF district. TIF districts can work in conjunction with regional strategic plans to renew distressed neighborhoods and main streets. TIF is another tool working toward local and statewide smart growth goals.