Understanding Tax Increment Financing

These new tools can help communities grow

Over the past twenty years, the use of Tax Increment Financing (TIF) has exploded in Ohio and communities in Miami County are no exception. But, as with many things in government, these districts aren’t widely understood. Today, this publication is going to take some time to talk about these districts and how they impact our local communities.

Tax Increment Financing (TIF) is a crucial economic development tool for local governments in Ohio, enabling them to fund public infrastructure improvements and stimulate new development. This financing mechanism allows local jurisdictions to capture the increased property tax revenues generated by new developments and redirect them towards necessary infrastructure projects, traditionally within those districts. Understanding how these TIF districts work and which local governments in Ohio can establish these TIF districts is essential for leveraging its benefits to foster economic growth and community enhancement.

How a TIF District Works

The first step in utilizing TIF involves the creation of a TIF district. Local governments—municipalities, townships, or counties—initiate this process by enacting specific legislation. This legislation must designate the parcels of land to be exempt from real property taxation and declare that improvements to these properties serve a public purpose. The public purpose can include various infrastructure projects such as roads, bridges, water and sewer lines, and other essential public facilities.

Baseline Property Value

Once the TIF district is established, the property tax revenue collected prior to the creation of the TIF serves as the "baseline." This baseline ensures that the existing tax revenues continue to flow to the local government and other taxing entities, such as school districts. Only the increased value (the "increment") resulting from new investments and development within the TIF district is subject to TIF provisions.

Payments in Lieu of Taxes (PILOTs)

Instead of paying traditional property taxes on the increased value, property owners within the TIF district make Payments in Lieu of Taxes (PILOTs) to a special fund, often called the TIF fund. These payments are equivalent to the property tax liability that would have been incurred on the new value. The funds collected through PILOTs are then used to finance the public infrastructure improvements specified in the TIF legislation. This mechanism ensures that the financial burden of new infrastructure is borne by the new development that benefits from it, rather than existing taxpayers.

Duration and Approval

TIF exemptions can last for a significant period, up to 30 years, providing a substantial timeframe for infrastructure development and economic growth. The percentage of the exemption can be up to 100%, meaning that all the increased property tax revenue can be redirected to fund the infrastructure projects. However, exemptions exceeding 75% or lasting more than 10 years require approval from the affected local school district. This requirement ensures that school districts, which rely heavily on property tax revenues, have a say in the extent and duration of the TIF exemptions.

Eligible Local Governments

In Ohio, the following local governments can establish TIF districts:

Municipalities

Cities and towns in Ohio can create TIF districts to promote urban development and infrastructure improvements. Municipalities often use TIF to revitalize downtown areas, attract new businesses, and enhance public amenities. By leveraging the increased property tax revenues from new developments, municipalities can fund projects that might otherwise be financially unfeasible.

Townships

Townships, which are local government units that typically serve more rural or suburban areas, can also utilize TIF to enhance community development. For townships, TIF can be a powerful tool to support infrastructure projects that improve connectivity, public safety, and quality of life for residents. This can include the construction of new roads, the extension of utility services, and the development of public parks and recreational facilities.

Counties

County governments in Ohio have the authority to implement TIF districts as part of broader economic development strategies. Counties can use TIF to support regional infrastructure projects that benefit multiple municipalities and townships within their jurisdiction. This can include large-scale transportation projects, regional water and sewer systems, and other critical infrastructure that supports economic growth and development across the county. The enabling legislation for TIF in Ohio is found in the Ohio Revised Code, specifically sections 5709.40-5709.43 for municipalities; 5709.73-5709.74 for townships; and 5709.77-5709.79 for counties. This legislative framework provides the guidelines and requirements for establishing and managing TIF districts, ensuring that they are used effectively and responsibly.

Benefits of TIF

The benefits of TIF are multifaceted and extend to various stakeholders within the community. For local governments, TIF provides a mechanism to finance much-needed infrastructure improvements without raising taxes. This can be particularly important in communities with limited financial resources or those facing budget constraints.

For developers, TIF can make projects more financially viable by reducing the upfront costs associated with infrastructure improvements. This can encourage private investment and spur new development that might not occur otherwise. By providing the necessary infrastructure, TIF can attract businesses, create jobs, and stimulate economic growth.

For the community, TIF can lead to significant improvements in public infrastructure and amenities. This can enhance the quality of life for residents, improve property values, and create a more attractive environment for businesses and visitors. Additionally, by focusing on areas that need revitalization, TIF can help address blight and promote sustainable development.

Challenges and Considerations

While TIF offers numerous benefits, it is not without challenges and considerations. One potential concern is the impact on school districts and other taxing entities that rely on property tax revenues. By diverting the increased property tax revenues to fund infrastructure projects, TIF can reduce the funds available for schools and other public services. This is why the approval of school districts is required for exemptions exceeding certain thresholds.

Another consideration is the need for careful planning and management of TIF districts. Local governments must ensure that the infrastructure projects funded through TIF are aligned with broader community goals and priorities. This requires effective coordination with stakeholders, transparent decision-making processes, and ongoing monitoring and evaluation of TIF projects.

Brining it All Together

Tax Increment Financing is a powerful tool for local governments in Ohio to promote economic development and fund public infrastructure improvements. By capturing the increased property tax revenues generated by new developments, TIF enables local jurisdictions to invest in critical infrastructure projects that support growth and enhance community well-being. Municipalities, townships, and counties can all establish TIF districts, leveraging this financing mechanism to attract new businesses, create jobs, and improve the quality of life for residents. While TIF offers significant benefits, it also requires careful planning, management, and consideration of potential impacts on other taxing entities. By understanding how TIF works and utilizing it effectively, local governments in Ohio can drive sustainable development and build stronger, more vibrant communities.

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