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Tax Incentive Financing in Local Government

By Marisa Pangaro

Tax Incentive Financing, also known as Tax Increment Financing (TIF) is a critical tool for local governments striving to stimulate economic growth, revitalize communities, and enhance community infrastructure. TIF programs play a vital role in attracting private investment into your community, fostering job creation, and even bolstering property values within designated community areas. By leveraging tax incentives strategically, local governments can fuel development projects that might otherwise languish due to financial barriers.

Tax incentive financing allows local governments to channel resources directly into areas that need development or revitalization, stimulating economic growth, creating jobs, and enhancing the overall quality of life for residents. However, tax incentive financing can seem like a complex task for governments to tackle because it involves so many aspects of local governance and important financial planning. 

Local government officials face challenges when attempting to stimulate local economic growth due to possible limited financial resources, infrastructure deficiencies, and a lack of community buy-in. This guide aims to help you to understand TIF and how to leverage it in your municipality for community growth and environmental stimulation. 

Read on to learn how tax incentive financing can help strengthen investment in the local economy and improve community life for all citizens in your community. 

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What Is Tax Incentive Financing?

Tax incentive financing is a financial tool used by local governments to promote development and redevelopment within specific areas of a municipality through taxes on future gains in real estate values to pay for new infrastructure improvements. TIF creates funding for public and/or private projects by borrowing funds against the future increase in these property-tax revenues that are sure to come. The intent of the TIF is for the improvement to enhance the value of existing properties and encourage new development in the district.Learn more about Improving Local Economic Development and how it can improve TIF.

How Can Governments Harness Tax Incentive Financing? 

Governments can enhance and improve Tax Incentive Financing (TIF) programs to maximize their effectiveness and ensure optimal outcomes for economic development and community growth. Here are several strategies to achieve this: 

1. Transparency and Accountability

Establishing clear guidelines and criteria for TIF eligibility, usage, and reporting makes all the difference in pushing transparency throughout the government to the public. Emphasize transparent reporting on how TIF funds are utilized and the direct impacts the funds have on the community. Keeping constituents in the loop and informed about where money is being allocated is vital to gaining citizen’s trust and establishing a culture of transparency within the community. Establishing credibility to citizens is the best way for elected government officials to get re-elected for another term! 

2. Public Engagement and Input

Public engagement is vital for government officials to gain insight into where constituents want to see funds and resources allocated in the community. Involve the community in deciding where to allocate the generated money to ensure that your community truly represents the shared vision of your constituents. Gauge public onion through local public meetings, consultations, and feedback mechanisms to ensure that TIF projects align with community needs and priorities. 

Ensure that any community decisions regarding resource allocation ensure Equity For All Community Members and reflect the values of your community.

3. Targeted Allocation of Funds

Directing tax incentive financing strategically toward projects that align with the community's long-term development goals such as affordable housing, infrastructure resilience, and sustainable development will ensure the community grows in a positive and intentional direction. 

Learn all you need to know about Budgeting In Local Government with our resource for more knowledgeable insight. 

4. Performance-Based Incentives

Implement performance-based incentives where businesses and developers only receive benefits if they meet predefined performance targets that will generate revenue for the community. Incentives like this drive local economic development amongst business owners, giving them more reason to meet goals and maximize business performance. 

5. Perform Impact Assessments

Conduct thorough economic and social impact assessments of TIF projects to measure the effectiveness of the incentives when it comes to job creation, economic growth, property value increase, and community development. These assessments are meant to assess all potential positive and negative effects of proposed projects to complete with the funds. 

6. Flexibility and Adaptability

Design Tax Incentive Funding programs that can adapt to changing economic conditions and evolving community needs ensures the program can remain relevant and effective over time. Review data that will likely suggest funding towards projects that will be valuable and adaptable even if the economic conditions of your community changes. 

The Benefits of Tax Incentive Financing 

There are many key benefits of tax incentive financing for local governments and communities as a whole. Here are some of the benefits: 

  • Stimulates Economic Growth 

Tax incentive financing incentivizes private investment by redirecting tax revenues back into your area, encouraging businesses to develop, expand, and create jobs in your community for better business opportunities. When businesses see positive effects from TIF, they are more incentivised to expand and grow their businesses. In addition to already established businesses being incentivised to expand operations, new businesses will be incentivised to open up locations in your community, further driving your community’s economy. 

Keep reading about Incentivising New Businesses To Move To Your Community here.  
  • Infrastructure Development 

TIF funds can be intentionally allocated to improve infrastructure within your locality, such as roads, utilities, public transportation, and community facilities. Infrastructure in your community should be updated, safe, and accessible for all citizens. Ensure your communities physical infrastructure is disaster resilient and can withstand natural disasters as they climb to an all time high in the U.S. 

Ensure that alongside physical infrastructure improvements, digital infrastructure is prioritized in your community as innovative technology solutions can positively impact your communities municipal service delivery and even streamline local government workflows

Learn about how the 2021 Infrastructure Bill Funds can improve your community!

  • Property Value Increase 

As your community develops and improves, property values tend to rise very quickly. The increased property values often generate additional property tax revenue for your community, creating a self-reinforcing cycle of growth and funding for community projects. Improving property values directly impacts the tax funding received by your local government that can be used to improve constituent services and community infrastructure. 

Check out GovPilot’s Housing Department Software to learn more about these tech solutions.  

  • Job Creation

Development projects supported by TIF often lead to job creation, reducing unemployment rates and improving the economic well-being of the community. Job creation is a vital part of government operations as the creation of new jobs provides more opportunity for community members. New jobs benefit both residents and the overall local economy by giving more spending dollars to citizens that can then be spread around the community. 

Learn everything about Upward Mobility Planning in Local Government and how your locality can help citizens climb the socioeconomic ladder. 

  • Revitalization of Blighted Areas 

TIF can revitalize deteriorating or blighted areas by transforming them into vibrant, economically viable regions. This not only improves the physical appearance of the community but also increases property values and enhances quality of life for residents which continues the prosperous circle of creating more TIF funds.

Learn more about our Vacant Property Management Software and how it can help municipalities capitalize on TIF.  

  • Incremental Revenue for Public Services

Oftentimes, local governments have an issue doling out and budgeting enough funds to ensure their municipality can deliver sucessful municipal services. Although a portion of property tax revenue is allocated to fund development projects, the remaining increment generated by TIF can be used to support essential public services such as schools, public safety, healthcare, and more. 

Utilize TIF funds to your advantage, and any funds that the municipality doesn’t use for infrastructure developments can be allocated towards improving municipal services for citizens such as providing public health screenings, maintaining public spaces and improving transportation services

Check our our resource on Understanding Government Software for Municipalities & Counties

  • Long-Term Financial Sustainability 

Tax Incentive Financing is an investment in your own community and can help establish a sustainable financial framework for a local government, leveraging increased tax revenue to fund ongoing public services, infrastructure maintenance, and future development initiatives. Extensive planning for long term financial success in your municipality should include TIF as the benefits to your community are plentiful and the funds produced by TIF will positively impact all community-members. 

Government Software Solutions That Can Help

Government software solutions are made to make government management simpler, and more innovative to save time and money for local governments. Various software solutions can increase TIF in your community, here are a few: 

Economic Development software from GovPilot is specifically designed to aid your municipality in its efforts to promote new business growth, give your local economy a boost, and stay ahead of regional competition with cloud-based economic development software.

Tax software offered by GovPilot streamlines local government employees' ability to respond to residents and improve their local tax revenue base. Further, digital records that are automatically stored in the government cloud enhance efficiency, transparency, and productivity for your taxing processes to ensure they run smoothly.

Learn even more about GovPilot’s Azure-Based Cloud Storage.  

Do not overlook GovPilot’s Construction software and its ability to streamline infrastructure improvements and projects in your municipality. A vital part of TIF is is improving local physical infrastructure, which is often not manageable without the help of government construction software that simplifies inspections, planning, and building new infrastructure developments. 

Check out GovInspect, GovPilot’s own mobile inspection app. 

Make your Planning and Zoning Board more efficient, responsive, and capable of delivering community and economic development at scale with GovPilots Planning and Zoning software. The software has the power to eliminate paper forms and the need to update records back at the office manually. GovPilot's Planning and Zoning Software modernizes the community development process for officials and residents alike so new infrastructure can be developed successfully.

Prioritize Tax Increment Financing Now

Book a consultation with GovPilot to experience a digital transformation of your local government and receive all the tools you need to prioritize tax incentive financing in your locality. Tax incentive financing will bring renewable funds to your locality and allow your local government to operate more efficiently and conveniently for citizens. 

Tax Incentive Financing FAQs

  • Why Is TIF Beneficial To Communities? 

Tax Increment Financing offers significant benefits to communities by providing tools that foster local economic growth and revitalization. TIF will enable communities to target specific areas that need redevelopment or improvement, then leveraging public investment to stimulate increased private investment. By utilizing the increased property tax revenues resulting from development within the TIF district, communities can reinvest those funds back into the area to finance infrastructure improvements, affordable housing, public facilities, and other community projects that citizens care about.

  • How Can Local Governments Boost TIF Funds? 

Promoting economic development and attracting businesses to the designated TIF districts is essential for boosting a communities TIF funds. Offering incentives such as tax breaks, and streamlined permitting processes can entice local and non-local businesses to invest in the area, increasing property values and tax revenues. Conducting infrastructure improvements, such as enhancing transportation networks or upgrading public spaces, can stimulate property value growth, which will result in higher tax revenues captured by the TIF methods.

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Tags: Government Efficiency, More Money or More Problems, Constituent Experience, Digital Transformation