How does Tax Increment Financing work?

Anytown, Illinois — Hundreds of acres of property in the northwest side of Anytown were left unoccupied following decades of decline in the steel industry. The area was characterized by dangerously obsolete, environmentally contaminated facilities, old and inadequate access roads and utilities, and vacant foundries. Furthermore, no building permits had been issued in the area in over 10 years.

Anytown decided that it could attract private investors to this part of the city if it could repair the access roads and clean up and rehab the dilapidated structures.

Anytown designated this area as a TIF district. A ball-bearing company that had been looking to expand its operations found one of the improved buildings to be ideal for its manufacturing and distribution facilities. This company brought 175 new jobs to the area, generated sales tax revenue in excess of $1.3 million, and increased the property value in the district significantly.

The new jobs brought new residents to the district, and a private developer built 50 new townhouses in the area in response to the increased demand for housing. The local school district’s state aid increased due to the surge in enrollment.

The city used the additional property tax revenue — the tax increment — to pay for the clean up, new access road and improved utilities.

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