Tax increment financing: Capturing or creating growth?

Abstract

This research examines tax increment financing (TIF), a widely used economic development tool, and property values to determine whether TIFs capture activity that would have occurred anyway. Using 2003–2012 data from Indiana counties, we test a two‐stage model focusing on TIF adoption (stage 1) and impact on assessed value within the TIF district and outside the TIF district (stage 2). Model results show that TIF adoption is positively related to TIF use in surrounding counties, median household income and employment growth, which suggests that TIF is used to capture existing growth. The results of the impact model show that as the share of county assessed value in TIF increases, assessed value in non‐TIF areas decreases and assessed value within TIF districts does not increase, which raises concerns about the efficacy of TIF.

Does Tax Increment Financing Pass the “But-for” Test in Missouri?

“…However, the degree to which TIF affects property value varies by the type and timing of the expenditures, with subsidies for commercial and residential projects and community development being most quickly capitalized into property values. Hicks, Faulk, and Quirin (2015) compared TIF and non-TIF districts within Indiana counties from 2003 to 2012. They found that TIF districts were associated with a small but positive increase in assessed valuation but negatively associated with employment, number of business establishments, and sales tax revenue.…”

Tax Increment Financing in Chicago: The Perplexing Relationship Between Blight, Race, and Property Values

“…The extensive range in blight scores supports claims that several of the city’s TIF districts would not be considered blighted according to the conventional definitions from which the “but-for” standard for TIF adoption emerged. Projects in nonblighted areas generally would occur without TIF designation (Dye & Merriman, 2000; Hicks et al, 2016). Also, many critics of Chicago’s TIF program complain that the least blighted TIF districts experience the most growth.…”

“…However, findings on the effectiveness of TIF in cities across the nation are mixed (Byrne, 2006, 2010; Carroll, 2008; Carroll & Eger, 2006; Dye & Merriman, 2000, 2003; Hicks, Faulk, & Devaraj, 2016; Hicks, Faulk, & Quirin, 2015; Lester, 2014; Man & Rosentraub, 1998; Merriman, Skidmore, & Kashian, 2008; Smith, 2006, 2009; Weber, Bhatta, & Merriman, 2003; Weber, Bhatta, & Merriman, 2007; Yadavalli & Landers, 2017). The same is true of studies specifically examining the relationship between blighted conditions and TIF performance in Chicago.…”

Growth Management Effectiveness: A Literature Review

“…Some scholars, though, have documented a negative impact on property values (2003; Weber, Bhatta and Merriman 2003 & Dye and Merriman 2000). A recent study showed that as the share of county assessed value in TIF increases, assessed value in non-TIF areas decreases and assessed value within TIF districts stays the same, which raises concerns about the efficacy of TIF (Hicks et al 2019).…”