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What is a TIF?

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What is a TIF?

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In 1985, the Village of Mount Prospect designated part of the downtown area as a TIF district. TIF stands for Tax Increment Financing. It is a way for municipalities to maximize the potential land value of designated underdeveloped areas, commonly known as a TIF District. TIF is one of few remaining economic development tools used by local governments to revitalize communities. It is a popular and effective tool in Illinois, used in over 250 cities, and around the country, used in 44 states. There are approximately 400 TIF districts in Illinois.

How does an area become a TIF?
For an area to qualify for TIF, it must, as defined in state law, have some of the following characteristics: excessive vacancies, buildings below code standards, lack of physical maintenance, generally a blighted area that is not being invested in. The TIF district generates the funds needed to make necessary improvements without raising taxes throughout the community or using other Village funds to foster development. All the money generated by the TIF district must be spent within the TIF District.

How does a TIF work?
A TIF generates money through increased equalized assessed values (EAV) of the total property within the district. The EAV is the County Assessor’s way of assigning similar taxes to similar structures and spreading the property tax burden equally. Properties in TIF areas have lower EAVs than similar uses outside the TIF areas because of the physical and economic problems of the TIF and, therefore, contribute less to the overall tax base. Once the TIF is designated, the total EAVs are calculated and become the base. As properties are improved, the EAV or values of the properties increase. The difference between the base EAV and the new EAV, after development, is the increment.

For example, a TIF district is designated and the total EAV is $100,000. This is the base. After a few years of development and improvements, the total EAV is $150,000. The property taxes paid on the increment EAV of $50,000 goes back into the TIF; the property taxes paid on the base EAV of 100,000 is collected by the varying taxing bodies.

A TIF can be in place for 23 years. After the TIF expires, all property taxes are collected and distributed regularly. After 23 years, the increment is no long collected.

Graph courtesy of City of Chicago
Department of Planning and Development.
Used with permission

What types of projects use TIF funds?
Municipalities can use funds raised through a TIF for a range of uses that spur redevelopment and enhance the TIF area. The Village of Mount Prospect is using TIF funds to acquire property for redevelopment, the streetscaping in the downtown, façade renovations and environmental clean up of contaminated sites.

Why does Mount Prospect have a TIF?
The Village decided to create the TIF because it is a catalyst for development that would not otherwise occur. Even to be able to designate a TIF, under state law, evidence must be presented that the area could not develop without help from the TIF. This is often called a “but for” test – but for the incentive of the Tax Increment Financing District, the development would not occur.

Will the TIF increase my taxes?
Having a TIF does not increase taxes of the entire community. In fact, the additional taxes collected as a result of any newly developed or redeveloped property lessens the tax burden on other properties. For example, if a vacant lot becomes a shopping center, which has a significantly higher value, then the new tax revenue will decrease the burden on other owners once the TIF expires.

What are the benefits of a TIF?
The advantage of a TIF is the new revenue it generates. Without the TIF funds, the money for redevelopment would have to come from other sources within the Village affecting other services. More likely, the redevelopment and beautification that occurs in these areas with the help of T IF funds would not occur because neither private developers or municipal general funds could justify the unique costs associated with redevelopment sites. As well, when the TIF expires in 2008, all new property tax revenue will return to the taxing bodies, creating new revenue for the park district, schools, and county.

If you have any questions about TIF or the downtown redevelopment project, contact the Planning Division at 818-5328.