Tax Increment Financing and Property Value

Abstract

This paper examines the impact of tax increment financing (TIF) on business property value. Using parcel-level data from Milwaukee, Wisconsin, from 1980 to1999, a semilog econometric model is estimated using fixed effects regression. A two-stage estimation process is also used to test and correct for potential self-selection bias and endogeneity associated with TIF implementation. The findings suggest that the provision of public services offered within TIF districts is capitalized into business property value over time. The magnitude of this effect is the largest of all factors considered. The analysis also reveals that self-selection bias is likely associated with TIF implementation. The endogenously determined probability that a property will be placed within a TIF district is positively correlated with the property's value. Finally, the analysis reveals that the impact of TIF might be underestimated in the absence of corrections for self-selection bias and endogeneity. T oday's municipal leaders and economic development practitioners manage a complex urban environment with a fiscal landscape shaped by several competing pressures. Facing persistent fiscal constraint, funding is often insufficient to either repair or replace decaying municipal infrastructure systems. Many of the freeway systems and related local road and infrastructure improvements constructed during the 1950s and 1960s are either approaching or have surpassed the end of their useful lives. At the same time, many states have eliminated or reduced shared revenue payments to local governments, which has resulted in the reduction of many nonessential municipal services. In response, municipalities have explored a number of alternatives to combat municipal deterioration and augment urban renewal. One such policy is tax increment financing (TIF), which is a financial management strategy to upgrade local infrastructure and stimulate economic development.

Tax increment financing: Capturing or creating growth?

“…This led him to suggest that TIF may be a budget manipulation not an economic development tool. In a study of Milwaukee TIF districts, Carroll (2008) found that the growth of business property value within the TIF district is attributable to the capitalization of higher quality public services offered in these districts. Dardia (1988) reviewed and analyzed the use of TIF in California's Redevelopment Area (RDA)'s.…”

“…In a study of Wisconsin TIF districts, Skidmore, Merriman, and Kashian (2009) determined that about half the annexations in Wisconsin at the time were of recent TIF districts. In a study of Milwaukee TIF districts, Carroll (2008) found that the growth of business property value within the TIF district is attributable to the capitalization of higher quality public services offered in these districts. Smith (2009) reports a similar effect in Chicago, with neighborhood quality influencing the magnitude of the impacts on commercial property values.…”

Predicting TIF Distress: A Statistical Analysis of Tax Incremental Finance Districts in Wisconsin

“…1 TIF also has the potential to drain needed revenue from other taxing jurisdictions, especially school districts (Weber, Bhatta, and Merriman 2003). However, others argue that TIF can indeed help property value growth, in terms of aggregate residential and commercial property values (Carroll 2008;Man 2001;Merriman, Skidmore, and Kashian 2008;Smith 2006), and has been used successfully to offset deleterious property value effects from crime and brownfields (Carroll and Eger 2006).…”

Land betterment capture revisited: A methodology for territorial plans

“…Impacts of public investments, public services, or public land use on surrounding private land has been assessed both scientifically and empirically throughout last years (Ayougu, 2007;Bhatta and Drennan, 2003;Weber et al, 2003;Canning and Pedroni, 2008;Carroll, 2008;Haughwout, 2002;Mikelbank, 2004;Moreno and Lopez-Bazo, 2007;Siethoff and Kockelman, 2002;Smith and Gihring, 2006;Taylor and Brown, 2006;Walters, 2011Walters, , 2012aWalters, , 2012b.…”