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CHAPTER 13 - ECONOMIC DEVELOPMENT AND SPECIAL PROGRAMS Figure 13.01-1 shows a classic, and more optimistic, example illustrating the benefits of TIF. In this illustration the value of the property is on a trend to decline (or stagnate) over time absent any intervention such as the use of TIF. The implementation freezes the value for tax purposes and the investments raise the value of the property, placing it on a more positive long-term trend. The taxes associated with the increased value are captured to pay for the investments, but plenty of benefit to all taxing districts is realized in the prevention of further tax base erosion and additional tax base upon the termination of the district. Figures 13.01-2 and 13.01-3 display more critical, and sometimes pessimistic, examples of the impact of TIF. In Figure 13.01-2, the premise is that the value—even if the TIF activities do induce a boost— would increase over time and the freezing of the taxable value essentially takes value away from the taxable base of the taxing districts. In this scenario there is some benefit down the road after the district terminates, but it must be weighed against the cost of the lost tax base in the interim. FIGURE 13.01-2 A CRITICAL EXAMPLE OF TIF V A L U E TIF activities induce an Increasing value, increase in valuation no blight TIF plan is•••••••••- enacted• • • • • • • • Captured value 1 TIF terminated 1 Value would continue Original to appreciate absent taxable the use of TIF value Benefit to other Value hijacked from other taxing jurisdictions 4 taxing jurisdictions / TIME Figure 13.01-3 is the most pessimistic view, arguing that the development would have occurred without TIF and therefore all of the captured value is a loss to the affected taxing districts, with no positive benefit associated with what amounts to a pure subsidy. Each of these scenarios has the potential to be true, ultimately making TIF a good tool only to the extent that it is prudently and appropriately used. TIF might be best suited to redevelop blighted areas or to be employed in situations where the free market fails to produce appropriate investment in a property. Entities that use TIF must understand that capturing the tax base to pay for the development may keep it from being available to lower taxes for general purposes. TAX INCREMENT FINANCING REVISION DATE: NOVEMBER, 2010 13.01-2