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CHAPTER 13 - ECONOMIC DEVELOPMENT AND SPECIAL PROGRAMS <br />But if developer builds the planned $5 million office building, the tax will rise to $304,000 per year (an <br />increase of $280,000). <br />To induce the developer to build on the site, the city designates a project area and creates a TIF district <br />that includes the development site. The district consists of parcels A, B, C, and D (the shaded area). <br />(Parcel D must be included to permit the site to qualify as a redevelopment district under state law.) The <br />district is illustrated in Figure 13.01 — 4 (below). The city agrees with developer to acquire the site, <br />demolish the substandard buildings, and put in the utility improvements and vacate the alley. The city, in <br />turn, sells the site to developer for its market value of $500,000, This is commonly called "writing <br />down" the cost of the land. The city's $1.5 million cost is "written down" to $500,000. (The city could <br />write it down to zero—in effect, giving the land to developer.) The computation of the increment is <br />shown in the table. The "project area" is the area in which increment may be spent (e.g., if some of the <br />sewer and water improvements may actually be outside of the district). The extent to which this may be <br />done is restricted by the rules on "pooling." (See paragraph on TIF pooling later in this chapter.) <br />FIGURE 13.01.4 <br />Project area <br />TIF district <br />Parcel B <br />(substantia; <br />Parcel C <br />(subStandard <br />hbldg) <br />Parte <br />(bldg ,1i .-. <br />good <br />canditiion) <br />The Source of the Financing <br />Table 13.01 -1 <br />Computation of Tax Increment <br />Original Post Captured <br />tax development tax <br />Parcel capacity tax capacity capacity <br />A $18,000 $224,000 $200,000 <br />B $3,000 <br />C $3,000 <br />p $124,000 $124,000 <br />Total $148,000 $348,000 <br />Tax rate 140.000 <br />Tax $280,000 (tax rate x captured tax capacity) <br />increment <br />0 <br />$200,000 <br />TIF Districts capture the additional property taxes paid as a result of new development in the district to <br />pay for part of the development costs, The tax revenue that is generated and collected on the new <br />development is not distributed as provided in general law to the County, School District, City/Township <br />and Special Taxing Districts, but instead is distributed to the TIF Authority that created the district, <br />When a new building is constructed, the market value of the property and its property taxes typically <br />rise, Classic examples would be building a new store on an undeveloped parcel or replacing one or more <br />TAX INCREMENT FINANCING <br />REVISION DATE; NOVEMBER, 2010 <br />13.01 .4 <br />