Tax increment financingTIF

Tax increment financing starts by freezing the property tax base of a defined district at its current level. As development raises property values, the taxes collected above that frozen base, the increment, are set aside to pay for public improvements in the district or to reimburse developers for certain costs, rather than flowing to the general budget.

The logic is that the new tax revenue would not exist without the development, so dedicating it to the project is not a cost to existing taxpayers. Critics answer that some of the growth would have happened anyway, and that revenue diverted for the life of the district is revenue schools and other services do not receive.

For housing economics, TIF works by lowering a project's effective cost. If a city uses the increment to pay for streets, utilities, or a parking structure that the developer would otherwise fund, the total development cost borne by the project falls, and the rent required to support that cost falls with it. It is one of several tools, alongside payments in lieu of taxes and housing tax credits, that governments use to close the gap between what housing costs to build and what a market will pay.