The TIF Vocabulary

Keith McBride on February 11, 2014 in Uncategorized

The reality is that TIFs, as a financing structure, are very complicated.  And, like anything complicated, they are misunderstood.

So, for those in need of a handy reference for TIFs in Maine, I provide the following primer on TIF vocabulary.

Every tax increment financing district has an Effective Date, which is the date that the district is established.  Each TIF also has an Original Assessed Value (OAV).  The OAV is the tax assessor’s value of the property in the TIF district on the Effective Date.

Any increase in value to the district is called the Incremental Value, and every TIF designates a percentage of that increment that will be “captured” in the TIF.   The Captured Assessed Value (CAV) is the increment multiplied by this percentage.  So:

(Effective date: March 31, 2013)
OAV:  $500,000
Current value: $1,500,000
Incremental Value:  $1,000,000     ($1.5m minus $500k)
TIF’s percentage of capture:  60%
Captured Assessed Value:  $600,000  (Incremental value times capture rate)

So, what does this mean?   The current value of the property is $1.5 million, according to the town assessor.  The TIF has captured $600,000 of that value.  What does that mean?  And what happens to the other $900,000 of value?

The importance of understanding Captured Assessed Value cannot be overstated, because this is the amount of value which is held out of the community’s general fund.  The remaining portion of the property’s value  (OAV plus uncaptured value, or in this case, $900,000) is taxed by the community just like any other house, commercial property or vacant private land in town.  So, for revenue purposes, our calculations continue:

Captured Assessed Value:  $600,000
Municipal Mill (tax) rate:  .2000  (for argument’s sake . .  a nice round number)
TIF Revenue:  $12,000

Uncaptured Value: $900,000
Municipal Mill (tax) rate: .2000
General Fund Revenue:  $18,000

The distinction between TIF Revenue and General Fund Revenue is in how these tax revenues resulting from the same development, can be spent by the town.  Each has their drawback in this scenario.

General Fund revenues can be spent any way that the Council/Board of Selectmen see fit.  Schools, police/fire, municipal facilities, parks, parking garage, or whatever.   The downside of having Uncaptured Value in a TIF is that it is not “sheltered” from the total municipal valuation, which is used by the state to calculate revenue sharing (for education, among others) and by the County for determining county taxes.  So, while it is revenue, it also costs  the town a bit more in county taxes, and earns the town a bit less in revenue-sharing from the state.

TIF revenues can only be spent in ways permitted by state law.   Improvements to public infrastructure inside the district (sidewalks, roads, sewer/water, etc.) are always okay.  Improvements to infrastructure OUTSIDE the district made necessary by development INSIDE the district are also okay.  Otherwise, TIF revenue can only leave the district for certain municipal purposes; among them,  environmental conservation/remediation, and funding economic development activities.

Some communities have returned portions of  TIF funds to a business or a developer through a Credit Enhancement Agreement, as an enticement or incentive for locating their business/project in that town, but in Maine, this is the exception and not the rule.  Most TIFs in Maine result in public infrastructure improvements, because TIFs allow municipalities the option of making these improvements without issuing bonds and taking on debt.   In Franklin County recently, applicants received TIF revenues generated by a nearby wind farm to improve walking trails, and allowed a resident to complete business courses at a community college, in the hopes of starting a new business.

As a financing mechanism, TIF is complicated, but understanding the vocabulary is critically important for anyone trying to determine whether or not their municipality is using it effectively.