The Trouble With TIF

I’m talking about Tax Increment Financing (TIF), a popular mechanism meant to boost economic development. Its usage is widespread: Every state but one employs it, and it’s a go-to move for many cities trying to revive struggling neighborhoods, especially in the Midwest. But how effective is it, really?

The answer, like life itself, is complicated. But David Merriman, a professor at the University of Illinois at Chicago, takes a stab at it in a new report for the Lincoln Institute of Land Policy. After reviewing available research on the implementation and impacts of TIF, Merriman concludes that the mechanism, while helpful in some ways, leaves a lot to be desired.

To understand what he means, let’s first explain how TIF works: When a city designates an area as a TIF district, the property value of all the real estate within its boundaries at that time is designated as the “base value.” This is the amount that, for a set amount of years after the fact, generates revenue through the city’s property tax process. Everything over and above that, through an increase in value of existing real estate and new development in that time frame, goes into a separate fund earmarked for economic development.

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