Tax increment financing explained
The answer
Tax increment financing lets a city borrow against future property tax growth in a defined area to pay for redevelopment now. The folk-model-breaking fact is whose money that growth would otherwise have been: the "future growth" a TIF borrows against would, without the TIF, flow to schools, parks, and the county too, not just the city.
How it actually works
When a city creates a TIF district, it freezes the area's taxable assessed value at that moment, the "base." For the life of the district, commonly 20 to 25 years, 23 years is the standard term under Illinois law,1 every other taxing body, school district, park district, county, library, still collects its normal share of taxes on that frozen base value. But any tax revenue generated by value growth above the base, the "increment," gets diverted into a special TIF fund controlled by the city, used to pay for infrastructure, land acquisition, or subsidies within the district.
The theory is that the redevelopment itself is what causes the value growth, so without TIF that increment would never have existed. That's the legal "but-for" test cities must document: would this development have happened without TIF assistance? In practice, this test is often applied loosely, using boilerplate blight findings or generic feasibility studies rather than rigorous counterfactual analysis, which is the central critique of TIF nationally.
Because schools typically rely on property taxes for 42-45% of their budgets nationally, a TIF district freezing growth for two decades can mean real forgone revenue for a district with no seat on the city council that created it. In Chicago, TIF districts have diverted several hundred million dollars a year2 from overlapping taxing bodies including Chicago Public Schools, according to Illinois Policy Institute analysis of county TIF reports, though the Civic Federation, a more neutral fiscal watchdog, argues the net effect on CPS is smaller than headline numbers suggest once state aid formulas are accounted for.
A concrete dispute shows the friction directly. Township High School District 214 sued the Village of Mount Prospect, Illinois after the village created a new downtown TIF district overlapping one that had just expired, a move the district argued would keep its share of rising tax revenue locked up for possibly decades more.3 The village later offered to share revenue with the district starting in year 12 of the new TIF.
Who holds the power
The city council or a dedicated TIF authority approves the district and redevelopment plan, usually after review by a joint board that includes representatives of the affected school and park districts, though that board's recommendation is often advisory only.
Where you come in
Illinois and most states require a public hearing before a TIF district is created, with the redevelopment plan posted for public review at least 45 days beforehand. Annual TIF fund reports, showing how much was collected and spent, are public records in most states with TIF statutes, see how to request local public records. TIF is heaviest in Illinois but exists in some form in nearly every state, the "but-for" enforcement problem and overlapping-taxing-body friction are common across jurisdictions, not unique to Illinois.
Related
- Tax increment financing (TIF)
- Where your property taxes actually go
- How your city budget actually works
- How to request local public records