Tax increment financing (TIF) is a tool often used by municipalities to support economic goals in a community, such as desire for development or redevelopment. TIFs are often used in situations where governments seek to attract new or retain current businesses, grow property values, redevelopment blighted or downtown areas, create jobs, or expand the local tax base. Such financing tools have increased in popularity, as federal funding allocated for municipal economic development projects has decreased significantly over the past twenty years. A tax increment financing district allows a municipality local control over and flexibility in structuring and paying for economic development related projects.
Individually, state laws regulate the ability of municipalities to establish TIF districts. A municipality must undergo the following steps in seeking to establish a TIF: determine feasibility of a proposed project, design a redevelopment plan, formally adopt and establish a TIF district, implement the proposed plan, and finally monitor the performance of the TIF until its expiration (usually no more than twenty years). Although each state sets different requirements, the state of Illinois requires that specific criteria be met to show an area in blighted. Factors in these criteria include: deterioration, declining assessed value, inadequate utilities, need for environmental remediation, and existence of structures below building code. Municipalities must often demonstrate that economic development or redevelopment would not occur, "but for" the intervention of a municipality and establishment of the TIF to support the efforts.
Since TIF districts are an economic tool, an understanding of the revenues and their uses is essential in a thorough understanding. Generally, municipalities as well as other taxing bodies such as schools, counties, and park districts receive revenues based on assessed values of property (referred to as base revenue). When a TIF district is established, all revenues based on increased value due to development or redevelopment (above the base revenue) can be allotted to the taxing body sponsoring the economic project. This increased revenue is known as incremental revenue and can act as a powerful incentive in enabling a municipality to pursue major projects. Many municipalities use these incremental funds to acquire land, prepare sites for construction, conduct environmental remediation, and sponsor certain public structures (like parking garages).
St. Charles currently has 5 TIF districts, including Hotel Baker, Moline Foundry, St. Charles Mall, St. Charles Manufacturing, and First Street Redevelopment.
Information gathered from An Elected Official's Guide to Tax Increment Financing published by the Government Finance Officers Association (GFOA).