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City of �" Tax Increment Financing (TIF) Minnesota, USA Overview How does TIF Work? As noted above, tax increment is the difference between the existing property taxes paid on a parcel of land before development, and the increased property taxes created by the new development. In the example above, lot #2 pays taxes only on the land, say $500. However, it is known that if the lot is developed similar to lot #1, it too will pay $5,500 annually in taxes. Now let's assume that the City creates a TIF district to clean up lot #2, and agrees to reimburse the developer for the $50,000 in soil cleanup costs. This gives the developer the necessary incentive to go forward with the project. How does the City come up with the $50,0009 From the additional (or incremental) property taxes that are now paid by the newly developed lot. The example below demonstrates how TIF works. Before Development After Development Property tax paid on the land $ 500 $ 500 Property tax paid on the building - 5 000 Total property tax $ 500 $ 5,500 In this example, after the development is created an additional $5,000 in property taxes is generated. The additional taxes are captured each year for ten years, and remitted to the developer. Is TIF Good or Bad? Whether the use of TIF is good or bad depends on the desires of the community. If the community desires to clean up contaminated soils, remove blighted areas, or create affordable housing, TIF may be a viable solution. If the community is willing to accept what the marketplace will bear, TIF may not be appropriate. The list of advantages and disadvantages of TIF is long and varied. In the example above, the City paid the developer $50,000. Was this a good investment? Again, it depends. Some would argue that the City shouldn't have provided this `public subsidy'. Others would suggest, that `but for' the development, the City wouldn't have had the $50,000 in the first place. Similar ideological differences exist when trying to compare the development's long-term benefits with the long-term public costs. Above all else, the desires of the community should remain a priority when determining whether to use TIF. www.cityofroseville. com Pare 2 of 2