Tax Increment Financing (TIF) 101
There has been much discussion lately in regards to tax increment financing (TIF) and whether it is something the city should pursue. That question largely depends upon the specific project, but I thought I would shed some light as to how a TIF can aid in development.
TIF is not something new, but rather a tool that has been used for decades. Shakopee has used TIF since the 1970s for economic development, redevelopment, senior affordable housing and infrastructure costs. A TIF is designed to help make up a monetary shortfall in a project:
- Creates jobs;
- Creates new investment in a designated area;
- Pays for improvement (infrastructure, like roads and sewers) that would otherwise be paid for through bonding or use of general fund tax dollars; or
- Creates affordable housing.
One main reason the city has used TIF in the past is that it is a pay-as-you-go program by the developer (who continues to pay its full taxes) with no risk to the city. Some of the current TIFs in place in Shakopee include River City Centre and All Saints Senior Living (senior affordable housing), SanMar and Rahr (economic development) and Amazon (economic development used to pay for infrastructure). In Amazon’s case, the city would have had to bond for the improvements on Fourth Avenue absent the TIF, which would have impacted all taxpayers as opposed to just the Amazon property.
TIF isn’t right for every project, but it is one of many tools we have as a city to help spur development and investment.