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Although most TIFs follow the general structure discussed in previous sections of this report, each State's statutory TIF requirements are unique.80 Creation and administration of a TIF will be subject to the substantive and procedural requirements established by State statutes and by local laws and procedures as well. If a State has created implementation resources or has an office responsible for overseeing TIF creation and administration, these will provide authoritative information regarding key legal and regulatory issues.81
State TIF enabling statutes typically include the following parameters for local implementing ordinances:
A finding that a TIF district is "blighted" and unlikely to develop without public sector intervention. If this requirement exists, localities will typically hire a consultant to conduct an eligibility study to ensure that the proposed TIF district satisfies State criteria.82
A finding that subsequent development within a TIF district would not occur "but for" the specific intervention being proposed in the TIF implementation ordinance.83
A delineation of activities (interventions) that could be permissibly undertaken by localities using TIF in support of private sector development.
Compatibility of intended TIF development with local comprehensive plans and zoning.
A maximum duration for the TIF district, along with procedures for extending the term (if any) and for termination.
To the extent that these requirements exist in State law, localities will typically hire consultants to:
Conduct an eligibility study to ensure that the proposed TIF district boundaries satisfy State criteria.
Develop a TIF implementation plan that ensures that the proposed interventions are, among other matters, consistent with State law, compliant with any "but for" requirement, and consistent with local plans and zoning.
Once the eligibility study and plan have been completed, a public hearing will typically be held in accordance with State law and local legislative procedures. Notice of the hearing will typically be provided to the public and specifically to property owners within the proposed TIF boundaries.
Having completed the hearing (and making any warranted changes to the TIF plan), the TIF creation and implementation ordinance is drafted and subjected to the legislative process for enactment.
For the duration of a TIF district, the local tax and revenue authority will identify the collection of TIF-eligible taxes or fees that are generated within any designated TIF district(s). For each such tax or fee, the collection will need to be disaggregated into:
Base revenue, which is deposited to the general fund.
Tax increment, which is distributed to the TIF project account (and possibly to others as well) according to the TIF ordinance.
The local tax and revenue authority will be mindful of amendments to TIF boundaries (if any) and to extensions of the termination date (if any).
80 For citations to individual State laws authorizing TIF, see https://www.fhwa.dot.gov/ipd/value_capture/legislation/tax_increment_financing.aspx.
81 Minnesota has extensive online materials related to TIF formation and implementation at https://www.house.leg.state.mn.us/hrd/issinfo/tifmain.aspx?src=21. Montana has a TIF manual available at https://leg.mt.gov/content/Committees/Interim/2017-2018/Revenue-and-Transportation/Meetings/Sept-2017/tif-manual-2014-cornish.pdf.
82 Some studies have found that TIFs have been used in areas that would not be widely considered as "blighted." In some cases, TIF laws have been amended to eliminate the blight requirement. See Merriman, David. 2018. Improving Tax Increment Financing (TIF) for Economic Development. Lincoln Institute of Land Policy. p. 7. https://taxpayersci.org/wp-content/uploads/TIF_Lincoln-Institute_2018.pdf.
83 Studies indicate that the "but for" test has often been construed very loosely. See Merriman, David. 2018. Improving Tax Increment Financing (TIF) for Economic Development. Lincoln Institute of Land Policy. pp. 15–16. https://taxpayersci.org/wp-content/uploads/TIF_Lincoln-Institute_2018.pdf.
