How Does That Work? TIF, Blight and Property Values

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Maggie Collister

How Does That Work? TIF, Blight and Property Values

In TIF 102 of our series on TIF funding, we’re going to go over more of TIF basics.  

Now, before we get started, it’s important to note that Sterling CRE works on commercial sales and developments that involve TIF funds. From our experience, we know TIF projects aren’t all good and they aren’t all bad. This series is meant to help clear up some of the confusion about TIF.

A normally taxed property evolves over time. Usually, as property owners invest and maintain property, and neighbors do the same, the property value rises. That equals more taxes paid to the city. 

But in an area identified as a TIF district, values may be stagnating. These areas have declined so far that quality private development to rebuild the area doesn’t pencil out for a builder. 

If blight continues to plague the area, the city loses tax revenue due to falling property values. And, blight might start spreading to surrounding areas. 

By making TIF funds available to the developers, improvements can be made to the site that increase the property value, spur additional development and create a domino effect of improved properties. 

When a developer decides to build in a TIF district, the city freezes the value of the property at the start of the project. The city will continue to collect taxes from that value for a period of time, generally 20-30 years. This is the frozen value. 

After completing the development, the property value rises above the frozen amount. This is what is known as the Incremental Value – that’s the money that goes to the TIF fund.

Incremental value will continue to rise over time as the property appreciates. The frozen value will remain the same. 

Now, at some point, typically in 20-30 years, the TIF district will expire. At that time, the frozen value and Incremental value will merge and become the new taxable value of the property, with no money being directed to the TIF district. 

With a typical property, all tax funds go to pay for things like police, schools, and roads. And in a TIF distinct, that is true for the frozen value. 

But the taxes paid on the incremental value will go back into a specific TIF fund to invest in the district. As the property value increases, so will the revenue paid into the TIF district. 

When the TIF district expires, taxes will be paid on the full property value.  That’s the frozen plus the current incremental value. As a result, all of the increased revenue will go to local services like schools and roads, with no portion being reserved for the TIF fund. 

So in theory, property in the district would have likely simply stagnated without using TIF funds to incentivize private investment. Twenty years down the road, the city may have been collecting even fewer tax dollars from the property and dealing with the problems of a blighted area. Instead, the improvements didn’t cost the general tax fund any money and ultimately brought in even more revenue.

That’s how a TIF district is supposed to work – in theory. But as we know, in practice, there is more gray area. 

Next up, we’ll cover case studies local to the Missoula area. One project had almost no public outcry, while the other caused a debate. 

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Matt Mellott
Matt Mellott, CCIM/SIOR

How Does That Work? TIF, Blight and Property Values