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Introduction Minnesota was one of the first states to pass laws authorizing the use of tax increment financing (TIF) for redevelopment of blighted and deteriorating areas of cities. The City of Robbinsdale created the first tax increment district in the state in 1968; the first district in Minneapolis was created in 1972 (Legislative Auditor, 1996). Since then, TIF has become one of Minnesota's most widely-used tools to encourage redevelopment and new development. TIF has been controversial almost since its inception. In part, the controversy surrounding tax increment financing is due to its complexity, and to the varieties of ways cities have found to use this tool. The purpose of this paper is to defend the use olf TIF as it was originally conceived and to provide a context for future discussions on the use of TIF. How Tax Increment Financing Works The basic concept behind tax increment financing is to use the increases in property valuation generated by a completed development to pay for public development costs associated with that development. The initial step in the use of tax increment financing is the designation of a project area where development or redevelopment is necessary. The development authority designates project areas under the applicable development law, such as the HRA, port 8luthority, economic development authority, or municipal development act. A project area is the geographic area in which tax increment funds may be spent; this may ultimately contain multiple tax increment districts. The tax increment must be collected from TIF districts located in thE~ project area (Michael, 1990). Once the project area is established, the city or authority can establish one or more tax increment districts. A TIF district may have the same boundaries as the project area, or it may be composed of scattered or non-contiguous parcels. Only those parcels specifically identified in the finance plan will be considered to compose the TIF district and to generate tax increments.