Tax Increment Financing is a concept that a lot of people think is difficult to understand. It's really quite simple but when the levy rates are 8 digits to the right of the decimal point panic can set in. I set up a couple of graphs so that you can see what happens with the tax revenue that is collected.
There's a couple of things you need to know:
- TIF does not directly make levy rates go up, however, it is highly restricted in its use so it cannot be mingled with the general fund.
- It is illegal to use the taxes from TIF for maintenance or City Salaries.
- Any growth or increased value goes ONLY to the TIF and no other taxing district. There are actually several taxing districts but with stuck with only the County and City of Chubbuck and made round easy numbers so it's easy to see the effect. We did not use the actual levy rates.
First pay attention to the orange and grey columns. Orange is the County, Grey is the City General Fund. Notice that over 5 years both these columns stay the same. They will not get any tax revenue from the growth in the TIF District.
In this example the TIF district gets nothing the first year but by the 5th year, the district gets $12,000 in tax revenue with an overall total of $30,000. The County in the fifth year will get only $1,000 in tax revenue - the same that it got in the first year for a 5 year total of $5,000. The City tracks the same as the County and would receive $2000 every year for a total of $10,000.
The problem with this issue stems from the issue that $15,000 cannot be used for anything other than development and administrative costs of the district. None of this money can go into the General Fund which takes care of everything from salaries to street maintenance.
Usually growth will cover the costs of a growing city; however, with TIF that money goes away and can not be used again until the District closes.
The above graph shows the total taxes received after 5 years. Compare Orange to Blue and Gray to Brown to understand how the Purple (TIF) impacts income.
What happens when a District closes? Usually the levy rate will decrease. Just so you know the real numbers we're talking about here, if the District was closed and reopened in a more responsible manner, the County would receive somewhere between $600,000 to $800,000 more in revenue. The City would receive somewhere between $800,000 to 1,200,000 in revenue. Conservatively.
Do you think we would have any issues with maintaining our streets our getting the proper safety equipment for our employees with $1.2 million? So, why don't we even talk about this?