I am going to educate you about Tax Increment Financing, also known as TIF. I am finding I write these long tutorials/diatribes about Municipal Finance when I have an experience where I run into some Former Official who has very big opinions on a subject that turn out to be based entirely off of a misunderstanding of the subject material at hand. I have had that experience many times with TIF, former Councilors, a former State Rep, I vaguely remember a former Mayor bending my ear on the subject in 2019; but I have put off writing about it because frankly it is books level boring and normal people should not have to learn about it, but since some polities in Our Fair City seem to want to make it a bone of political contention I will attempt to edify in a way that keeps your interest. 

Before we go one step further, you do not have to take my word for anything. There is a TIF Bible to read instead if you think I am a suspicious manipulator; which I am, I am a human virus. You can read the source material written by the people who wrote the rules for TIF in the very first place. I have begged TIF haters to read it, they either haven’t or failed to comprehend it. I cannot blame them, again, it is very boring. You can find the TIF Bible at this link: https://www.house.mn.gov/hrd/issinfo/tifmain.aspx?src=21

WHAT IS TIF?

Great question! TIF is a state regulated finance tool for cities to encourage development by paying for public benefits like streets, sidewalks, sewers, and water. It can also be used to encourage developers to construct buildings and other private improvements to land. What it really does is help bring Banks to the table to loan money to developers by financializing increased projected taxes and projected property values to use today. Before 1986 we used to just do the loaning ourselves via Municipal Bond but Ronald Reagan sucks and blew that whole system up. Now we have to do ricochet financing with TIF.

I DIDN’T UNDERSTAND A WORD OF THAT!

We’re gonna use future taxes to invest in stuff we want to build right now which will create more future taxes.

I’VE HEARD SOME WILD STUFF ABOUT TIF, DISPROVE IT!

You’ve probably heard it’s a “give away to developers”, it’s not. In the Development Industry TIF is a considered Administrately Burdensome Funding Source. In layman’s terms that means TIF is a pain in the ass work wise, they don’t like it and they whine about it. 

You’ve probably heard that TIF is the reason the City has no money and why your dang property taxes are going up, it’s not. The list of reasons we have no money has some infinitely more relevant items on it far above an obscure financing tool from the state. Think “the collapse of downtown property values from COVID and the work from home era”, perhaps you’ve heard of Amazon and the destruction of local retail and small business, digitization of large parts of the economy, the abdication of responsibility and funding from both the federal and state government, inflation, take your pick.

I NEED AN EXAMPLE!

You got it, but first a list will help us think. I think about TIF in 5 different parts.

Here’s the example. Let’s pretend we’ve got an old abandoned Burger King and we want to turn it into apartments.

Let’s start with the Fence. Simple enough, it’s the border we draw around the parcel we want to develop, typically vacant land or a crummy property in need of improvement, our stinky old Burger King.

Then we take a photo. We figure out what the property is worth and what the taxes are on it right now. Our old Burger King sucks, it pays $1000 in taxes every year. The apartments we want to build are going to kick ass and pay $5000 in taxes every year. That’s a $4000 increase.

From there we take your photo and our dreams of what will be there in the future to the Bank. They’re a little nervous about us and say “This is a big project, we don’t think you can handle the payments on the loan you’ll need to build these apartments.” and now the TIF comes in. We say “Don’t worry Bank, if you help us build it the City will let us use the $4000 increase in taxes to help pay off our loan. And that value we’re using would not exist BUT-FOR the completion of our project.” (The but-for thing is important but way in the weeds) Now the Bank will give us the loan we need to build our project.

The fourth step is the Building. We knock over our stupid old Burger King and put up a sparkly new apartment building and a bunch of nice people move in and now we’re making money. The community is far better served by these new apartments and neighbors than by the rats and possums living in an old Burger King.

The fifth and final step is the Payment Plan. We’re paying $5000 in taxes every year. $4000 of that is going to pay off the TIF portion of our loan from the Bank. $1000 of that goes into city coffers just like if we hadn’t turned the old Burger King into kickass new apartments. After 10 years our TIF district has been paid out, the payment plan is closed, and now the city is getting 100% of that $5000 in taxes we pay each year. A huge increase in tax revenue and relevance to the community from our dumb old Burger King. 

We just made the future possible by betting on the future. That sounds silly when you say it like that but it’s literally just the basic concept of financial investment in capitalism.

THAT WAS TOO MUCH. GIMME THE SHORT VERSION!

Well I did that in the 4th paragraph but let me try again: We increase tax revenues by betting on increased tax revenues. Money isn’t real, it's a shared hallucination and also a Catholic Sin. The Private Market lives and breathes this sort of stuff all the time and it gets very moody when the Public Realm plays with its toys.

My writing in defense of TIF is pretty funny. I would not call myself a fan of TIF. It’s a tool to accomplish a goal. Generally speaking, people in our city want tax revenues to increase and for us to build out all the empty spaces in our shared home. TIF facilitates that work.

I wouldn’t call myself a proponent of Hammers but if I saw someone talking shit about Hammers I might feel compelled to stop them and say “Hey man. I’m not entirely sure how else you’re gonna get them nails into that wood.” I would feel profoundly strange about that interaction. I feel profoundly strange about having written this. Maybe my therapist will want to hear about it.

I don’t know, but I know I love you.

Bye.