|tax increment financing: overview|
|The "tax increment" or "increment" for the district is determined by multiplying the original tax rate by the captured tax capacity. This roughly equals the additional taxes paid by the captured tax capacity or the increase in taxes that occur as a result of the development.|
The tax increment is used to finance development in two ways.
1. The city can sell bonds repayable from the increment and invest the bond proceeds in the development.
How is TIF used for affordable housing?
In Minnesota TIF traditionally was used as a means of redeveloping urban areas that had old or worn-out buildings in need of replacement or rehabilitation. It was initiated as a tool to help with urban renewal (redeveloping "slums" and "blighted" areas). Its use has since spread to other purposes such as cleaning up pollution and providing economic development incentives.
TIF has also become an extremely useful tool for development of low and moderate income housing. TIF bond proceeds can be used to make housing more affordable for lower income households by subsidizing the cost of the development of the housing or of infrastructure required for the housing. Or pay-as-you-go TIF can permit lower cost to residents by reducing the taxes that rents must cover.
What problems are solved by Tax Increment Financing policies?
Housing TIF districts permit collection of the increment for 25 years in order to finance projects which are at least partly to be occupied by lower income households. Click here to learn about minimum requirements for Housing TIF districts.
In short, State TIF statute sets income limits for projects assisted with housing TIF, but does not specify rent or ownership cost limits. Cities should impose these limits at no higher than 30% of the maximum income level. The statute does not require that income limits be imposed on ownership housing after the first buyer. Cities should consider requiring income limits for the first and future buyers to ensure long term affordability. Otherwise, the benefits of the TIF investment may last for only a few years, with the first buyer benefitting from the TIF subsidy if they sell prior to the duration of the TIF.
Housing TIF districts also have the unique feature that the increment generated can be used anywhere in the city to assist housing occupied at least in part by lower income households.
In the City of Chaska, the Clover Ridge TIF district was created to meet an affordable workforce housing need within the growing suburban community. The district initially provided resources to provide assistance to owner occupants within the district, but since has continued to generate funds for the City’s Housing Trust Fund Click here [PDF] to learn more about the original Clover Ridge TIF policies.
|Solutions in Action|
The city stepped in with TIF funds to assist with demolition of the old building and for infrastructure around the site. The rental units are affordable through funding from the Metropolitan Council, Hennepin County, and tax credits from the Minnesota Housing Finance Agency.
For more information contact
Jeanne Andre, city of Golden Valley Department of Planning, Zoning, and Development
Click here to view a Google Streetview of the Golden Valley Town Square development
|Click here to leave the Minnesota Toolbox and learn more about tax increment financing on the national version of HousingPolicy.org|
Go back to learn about other finance tools