Tax Increment Financing - North Carolina Arts Council

Economic Development
Financing Tools 101
Tax Increment Financing (TIF)
• Generic term for using future tax revenue to pay for
something today
• Usually used for public elements of private
development project (i.e. infrastructure)
• Usually used to bridge the “but for” gap between
project cost and project revenue
• Rules and uses vary from state to state, some very
• North Carolina on the conservative end of spectrum.
What is Tax Increment?
• The increase in taxes collected on a specific parcel
from one year to the next.
• Example:
– Year 1 = $100,000 collected in taxes on vacant
– Year 2 = $275,000 collected in taxes from new
– The Tax Increment is $175,000
• In North Carolina, the Tax Increment can be used two
 Debt
 Reimbursement
Tax Increment Used as Debt
• City issues bonds backed by projected TIF
• City uses bond proceeds to construct public
• City will likely need secondary source to backstop if
project fails to meet projections
• Typically more expensive debt than general
obligation debt
• Costs include having project valued and bonds
• Allows City to build without impacting tax rate or
capital budget
• Risk is City will have to cover bonds
Tax Increment Used As Reimbursement
aka “Synthetic TIF” (STIF)
• Developer finances and constructs required
• City designates a portion of annual tax increment to
reimburse developer for eligible costs
• Generally capped by time and total amount
• (e.g., Ten years or full reimbursement, whichever is first)
• Developer carries all risk
• Can be used creatively – not just road and sewers
• Charlotte reimbursing developers for operating losses on
needed parking decks; construction of cultural facilities
Charlotte STIF Policy
• Each City can set their own policy
• Charlotte’s Policy
 Will reimburse 90% of tax increment in targeted
neighborhoods and for critical projects
 Will reimburse 45% of tax increment in nonchallenged neighborhoods
 Mecklenburg County usually participates at % set
by city
 No more than 3% of City tax base can be subject
to STIF collection
Municipal Services District
• Enabled and regulated by North Carolina
General Statutes
• Allows designated “special tax districts”
where property owners pay additional tax
• Additional tax revenue must be used within in
the district
• Can be used for
Physical infrastructure
Grant programs like façade improvements
Cultural / public facilities

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