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Leveraging public money to incite commercial development has paid off for some U.S. cities.

Tax increment financing has become a popular way for cities and counties around the nation to leverage growth. TIF funds have paid for better streets, parking and sidewalks in blighted downtown areas. The money has also been used to build access roads and parking areas for new shopping malls in suburbia. Such improvements can be considered economic incentives to developer interested in retail, manufacturing and other projects.

How TIFs Work

• Government leaders designate an area slated for improvement.
• As improvements are made, a portion of the real estate taxes generated by a project is placed into a fund used to pay back infrastructure costs and public improvements that make the project happen.
• In theory, the property and infrastructure improvements will cause property values, and taxes, to rise, accelerating the repayment of the improvements’ costs.

Laws governing TIFs vary state-to-state. Some forbid TIF financing for retail projects, allowing them only for office or industrial development. Other states have introduced legislation that would prohibit TIF incentives for projects that would relocate a store or business from a neighboring community.

The first TIF, or tax-increment financing district, was created in the 1952 to provide matching funds for federal urban-renewal funds. About 35 states have TIF laws today.

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