What is Tax Increment Financing (TIF)?
What is Tax Increment Financing (TIF)?
The primary tool used in La Junta and throughout the state to finance redevelopment efforts is tax increment financing (TIF). TIF, the net new tax revenues generated by a redevelopment project, is used to fill the gap between the total cost of a project and the level of private financing the project can support.
TIF enables redevelopment agencies like LJURA to pledge tax increment generated by redevelopment to pay off bonds or reimburse developers for eligible project costs if the project brings in new revenue. In either case, TIF revenues generally are used for improvements associated with the redevelopment that benefit the public, including site acquisition and clearance; construction and/or reconstruction of streets and parking, utilities, parks or other public infrastructure; and the removal of hazardous materials or conditions.
Under this financing mechanism, the level of property and/or municipal sales tax collections in a project area before redevelopment is set as a base and the new tax revenues expected to be generated are estimated. The difference between the base and the increased taxes collected as a result of the redevelopment project constitute the “tax increment.” The base, adjusted every two years in connection with the reassessment process, continues to be paid to the normal taxing entities, while the increment is used for a specified period of time to pay off bonds or to reimburse a developer for a portion of their costs.
Urban renewal authorities (URAs) are authorized by state law to use TIF. The authorization is contained in the Colorado Urban Renewal Law.
TIF many only be used for redeveloping an area that is blighted, based on criteria contained in state law (see Section 1 for blight criteria).
The amount of TIF varies from project to project. In order to determine the level of TIF funding a project is eligible for LJURA typically uses the eligible costs as a beginning factor. From there, funding is provided in the form of a loan of 12.5% of the eligible costs at a rate of 3.5%. The length of the loan is to be determined by the commissioners.
The length of the period in which TIF may be used in a redevelopment project is tailored to each specific project. The maximum length of a TIF project area is 25 years, but many have shorter durations. Once the monetary obligations related to a project are fulfilled, the increased revenues generated by the project revert to the normal taxing entities.