Tax Increment Financing (TIF) Explained

What is Tax Increment Financing?

Tax Increment Financing is an economic development tool used to spur development or redevelopment of blighted or underperforming areas that would otherwise remain stagnant. 

When a TIF district is created, the value of the property (equalized assessed valuation, or EAV) in the defined area is "frozen" and established as the base amount for taxing purposes. The property taxes paid on the base amount continue to go to the various other taxing bodies (schools, libraries, park districts, etc.). The local taxing bodies are all involved in the TIF approval process.

It is the growth of the value of the property over the base that generates the tax increment. This increment is collected into a special fund managed by the Village and used to make additional investments in the TIF project area. This reinvestment generates additional growth in property value, which results in even more revenue growth for reinvestment.

Illinois law allows a TIF district to exist for a period of up to 23 years, which can be extended up to 13 more years if certain conditions are met. After the 23 years are up, the properties in the TIF district are released to the tax rolls so that the taxing bodies are able to collect tax revenues based on the updated value of the properties. To learn more about Tax Increment Financing, visit the Illinois Tax Increment Association’s web page.

Typical TIF Projects

TIF funds may be used for costs associated with the development or redevelopment of property within the TIF, allowing blighted, declining and underperforming areas to again become viable. Typical projects include: 

• Redevelopment of substandard, obsolete, or vacant buildings
• Financing of general public infrastructure improvements, including streets, sewer, water, etc., in declining areas
• Cleaning up polluted areas
• Improving the viability of downtown business districts;
• Providing infrastructure needed to develop a site for new industrial or commercial use
• Rehabilitating historic properties

Roselle’s Town Center TIF: Projects & Success

Increases in property values included in the Village’s Town Center TIF (1989-2012) far outpaced community averages during the same time period. In fact, the EAV of properties in the TIF District increased nearly twice as much as properties throughout the rest of Roselle. As a whole, the EAV of properties in the Village of Roselle rose 372 percent between 1989 and 2009, from $231 million to $861 million. The properties in the 35 acre Town Center TIF collectively saw increases of 630 percent, from $4.3 million in 1989 to $27.5 million in 2009. See this article in the September/October 2011 issue of The Roselle Reporter newsletter for more information about how these projects positively affected EAV in the area.

Types of Eligible Costs

The eligible uses for TIF funds are provided in the Illinois Tax Increment Allocation Redevelopment Act, also known as the TIF Act. The Illinois TIF Act generally authorizes that TIF funds may be used for the following:

• Administration of a TIF redevelopment project
• Property acquisition
• Rehabilitation or renovation of existing public or private buildings
• Construction of public works or improvements
• Job training
• Relocation
• Financing costs, including interest assistance
• Studies, surveys and plans
• Marketing sites within the TIF
• Professional services, such as architectural, engineering, legal and financial planning
• Demolition and site preparation

Some restrictions may apply, so review the TIF Act for the full list of TIF-eligible costs.