CONTENTS
FIGURES
TABLE
Assessed value refers to the value that a taxing authority places on real property (both land and any improvements upon it, such as buildings or parking lots) for the purposes of real property taxation. Assessed values typically bear some relationship to market value. In some jurisdictions, assessed values are frozen when a property is purchased and then reset when a property is subsequently sold. In other jurisdictions, the law mandates that assessed values reflect only a specified fraction of market value. Even in jurisdictions where assessments are mandated to reflect market value, the data used to determine market value are often a year or two old by the time that assessments are proposed. There are typically two metrics for evaluating the quality of assessments:
Accuracy:A comparison of the assessed value of a property to the legally mandated determinant of value.
Uniformity: The degree to which identical properties are assessed the same.
Base revenue is the total revenue from designated taxes and fees received from the properties and/or businesses within a TIF district prior to undertaking any TIF-related infrastructure or development projects. This base revenue is certified when the TIF district is created. Base revenue is used to calculate each year's tax increment. Depending on a State's TIF enabling statute, the base revenue might be fixed at its initial level or it might be allowed to grow by the amount of inflation or some other factor provided in the statute. Allowing the base revenue to grow helps protect funding for existing public goods and services, but decreases the amount of tax increment that will be generated.
Bonds are a type of loan or debt. The bond purchaser provides an amount of cash (principal) that the issuer is obligated to repay with interest. Typically, interest-only payments are made until the maturity date, at which time the entire principal must be returned. There are different types of bonds:
General obligation bonds, meaning that the issuer (typically a local government) is obligated to make the required payment from whatever resources it has at its disposal. This could entail a requirement that the local government raise taxes if the annual TIF increments are insufficient.
Revenue bonds, meaning that a stated source of revenue (e.g., annual TIF increment) is the only possible source of funds for making required payments. The issuer (typically a local government) is not obligated to make the payment by obtaining funds from other sources. These "non-recourse" bonds entail greater risk of non-payment to bond purchasers. Therefore, they typically require higher interest payments as compensation.
District area is the area containing properties from which a tax increment is collected. The area is defined by the TIF plan; depending on State requirements, it may or may not need to be contiguous. The total annual revenue from designated taxes and fees received from the properties in the district is certified when the district is created. This value is the base revenue for the district.
Environmental impact statement is a detailed study mandated by the National Environmental Policy Act of 1969 that assesses the environmental impact of a proposed Federal action (and alternatives) that could significantly affect the natural or human environment.
Land write-down occurs when a local government (or government agency or instrumentality) transfers property to a developer at less than the government's acquisition cost. For example, an agency acquires a property for $900,000 and spends $100,000 to demolish a building on the property and an additional $100,000 to clean up contaminated soils. If the agency sells the property to a developer for $700,000, the price of the land is "written down" by $400,000 from the agency's $1.1 million. To know whether the write-down constitutes a subsidy to the developer or to the initial property owner (or both), one needs to know the actual market value of a property when it was acquired by the government and the market value when it was sold to a developer.
Market value, in the context of real property, refers to the price that a willing buyer would pay to a willing seller when both the buyer and the seller are aware of market conditions and neither is under any coercion, compulsion, or hardship regarding the completion of the transaction.
Revenue segregation is a characterization of the TIF process. TIFs do not increase tax rates or apply special fees to properties that obtain a special benefit from public funds. Instead, TIFs merely segregate the tax increment from the total revenue received from benefiting properties and allocate it to an account dedicated to the creation of the special benefit.
Special assessment district (SAD) is a legally designated area that is purported to receive specific and direct benefits from an infrastructure improvement project. Properties within a SAD must pay an additional fee that is added onto their regular property tax to compensate the public sector for the special benefit that they are receiving. The additional fee is used to help pay for the infrastructure improvement. A SAD is different from a TIF because a SAD consists of an additional fee that property owners must pay. Under a TIF, property owners pay the same taxes and fees that they would have even if the TIF had not been created. (See the definition of TIF below.)
Tax increment is generally the
difference between the amount of revenue from designated taxes and fees in a
year after a TIF has been created and the base revenue. Depending on a
State's TIF enabling statute, the base revenue might be fixed at its initial level
or it might be allowed to grow by the amount of inflation or some other factor.
Allowing the base revenue to grow helps protect funding for existing public
goods and services, but decreases the amount of tax increment that will be
generated.
Tax increment financing (TIF) is a process whereby identified revenue
sources are benchmarked prior to an infrastructure improvement project. Any
increase in revenue after the project begins (or some designated portion
thereof) is defined as a tax increment and is used to fund the
infrastructure project instead of being deposited into the general fund. (See
section 2.1.)
Value capture entails returning a portion of publicly created value to the public sector that created it. Public goods and services, in addition to providing benefits for the general public, sometimes confer specific and direct benefits on particular properties. For example, a highway interchange might be useful to an entire community, but those properties closest to the interchange will have greater access to the highway facility and the services it provides. This "greater access" will often be reflected in higher land values for well-served properties. TIF is sometimes referred to as "value capture." However, because properties within a TIF district are paying the same taxes and fees that they would have in the absence of a TIF, they are not providing any more (or less) value capture than what is already embedded in the structure of the taxes and fees that they owe. For this reason, a TIF could more accurately be referred to as revenue segregation or value transfer.
Value transfer entails extracting value from some parties and providing it to others. Although a TIF is sometimes referred to as value capture, in some circumstances it amounts to "value transfer." In other words, in the absence of a TIF, a new development would pay taxes, and these taxes would help offset the cost of public goods and services that the new development consumes. When a TIF is created, most of the taxes paid by a new development are characterized as a tax increment. Instead of going into the general fund to compensate for public goods and services, the tax increment is deposited into an account used solely for infrastructure projects and programs likely to benefit that property. Thus, to the extent that other taxpayers will be subsidizing the public goods and services consumed by new development in a TIF district for the duration of the TIF, a TIF could be characterized as "value transfer."
