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UNIVERSITY OF MINNESOTA Center for Urban and Regional Affairs PORTER V OLU!\1E 33 NU:tvfBER 2 SUIvTh-fER 2003 Tax Increment Financing: Its Effect on local Government Finances by Kenneth A4. Kriz Tax increment financing (TIF) is a widely used economic develop- ment and urban redevelopment tool. Local governlnents use TIF to finance im.provement projects by floating a general bond that is paid off using the additional tax revenue gener- ated by the improvement project. Although TIF allows municipalities to creatively finance development projects and can be an effective means of promoting development in blighted areas, public perception of TIF has always been somewhat tenuous. Son1.e have suggested that TIF diverts resources that could be better used elsewhere. Others argue that developers use TIF and other economic development incentives to "playoff" cities against one another and make additional profits, demanding incentives even though they would have moved their operations to an area anyway. Finally, some question the effect of TIF on local finances, suggesting that this redevelop- ment approach may promote increased demand for public services and cause local governments to lose out on the growth in tax base that would have occurred without TIE Many practitioners and researchers have struggled with the question of how TIF affects local government finances. The prevailing wisdoln usually takes one of two forms: the "pure capture" theory and the "pure attribution" theory. The pure capture theory views TIF as simply a nleans to redirect public resources to subsidize developn1.ent. Proponents of this view argue that all development would likely occur without the use of \:J ::J o S 0- '< ~ ro < ro V') t"'l ::J :J ro 0: ~ In This Issue: . Tax Increment Financing: Its Effect on Local Government Finances .........1 [J Project Update: Statewide Digital Parcel Map Inventory ....................8 . Perceptions of the Environmental Review Process in Minnesota . . . . . . . . . . . .9 o 19th Annual Conference on Policy Analysis .........................., 3 [J 2000 Population Change Maps ...................................1 3 . The Community Assistantship Program: Connecting the University with Greater Minnesota ...................................................'6 [J Project Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 o Project Update: Bringing INFO-U to New Audiences . . . . . . . . . . . . . . . . . . . . . .23