Tax Increment Financing (TIF): The Basics

An edited version of this column appeared in the October 31, 2007, issue of Urban Tulsa Weekly. The published version is available online courtesy of the Internet Archive's Wayback Machine. Posted online September 9, 2017.

Infrequently Asked Questions about Tax Increment Financing: The Basics

By Michael D. Bates

What's all this I hear about using tiffs to finance land acquisition and site preparation for river development?

Does this involve capturing and selling the heat generated by snippy arguments over nothing of significance, some kind of tiff-to-energy plant? (It would have to be heat only; tiffs shed no light.) Should we also tap into spats, quibbles, quarrels, and rhubarbs?

Can grudges be profitably mined? Is it possible to harness safely the awesome power of the blood feud, and if so, how many family joules could be generated by turning Darla Hall and her kinfolk loose in that cemetery again?

This gives a whole new meaning to "Tulsa: A New Kind of Energy."

Beyond the practical considerations, is it ethical to stir up strife and bickering just to generate revenue for entertainment and recreational amenities?

What's that you say? It's an acronym? T-I-F? Something to do with tack implements?

To quote Emily Litella: Never mind.

The discussion is not, in fact, about tiffs, but about tax increment financing (TIF), a tool available to local governments in Oklahoma to assist economic development within a small area known as a TIF district. A TIF district captures increased local tax revenues within the district to pay for improvements within the district, and it does this without diverting the revenues that the district is already generating for local government and without raising tax rates.

The cities of Jenks and Bixby are both using TIF districts to facilitate private riverfront development. Branson, Missouri, used a TIF district to acquire land, stabilize the shore, and build public infrastructure for the Branson Landing mixed-use development on Lake Taneycomo, just down hill to the east of Branson's old Main Street.

When HCW, the developers who built Branson Landing, first approached the City of Tulsa in 2006 about building a similar development on the west bank of the Arkansas River near the 23rd Street bridge, a TIF district was the obvious choice for facilitating the development.

But the TIF district idea was put on hold. Some speculate it was because Tulsa Mayor Kathy Taylor would prefer to see an upscale lifestyle center and entertainment district in east downtown rather than along the river.

Others wonder if the delay was to allow the Tulsa County Commissioners to use west bank development as a selling point for their proposed county sales tax increase for river projects.

Now that the sales tax increase has been defeated, tax increment financing is back on the table, with added momentum thanks to the Tulsa City Council's unanimous passage of a resolution urging vigorous pursuit of the opportunity.

Tax increment financing can be a complex thing, and even some public officials seem to be confused about where the money in a TIF district comes from. At a Tulsa City Council committee meeting a week after the sales tax election, Councilor Cason Carter worried that using a TIF district to finance the public part of a west bank development "would potentially come at the expense of much-needed road improvements and additional police officers."

While TIF is not a magic wand, it is a valuable tool that a city can use to bootstrap a strategic new development, overcoming the obstacles that might prevent it from going forward.

In the interest of informing the public and their elected officials, here are some answers to infrequently-asked questions about the basics of tax increment financing:

What's the legal basis for TIF?

Municipalities and counties were authorized to create tax increment financing by the Local Development Act of 1992, which has been codified as Sections 850 through 869 of Title 62 of the Oklahoma Statutes. Section 861 specifically addresses tax increment financing.
The Local Development Act was enabled by the passage of State Question 641 in 1990, which created Article X, Section 6C, of the Oklahoma Constitution. SQ 707, passed in 2004, amended Article X, Section 6C, to make it possible to borrow against future TIF revenues.

Does a TIF district reduce the amount of property tax paid by property owners or the amount of sales tax paid by consumers in the district?

No. The county assessor appraises the property and the county treasurer collects taxes using the same rates as if the TIF district didn't exist. The usual sales tax rate applies as well. The difference in a TIF district is in what happens to the money once it's collected.

Does a TIF district reduce the amount of property taxes and sales taxes that currently go to the schools, the city, the libraries, and other government entities dependent on those funds?

No. The taxes being generated by the property value and retail activity already present in the district when the district is established will continue to go the same government entities. It's only the new, incremental revenues generated by increased retail activity and property values that can be captured for use within a TIF district.

How many TIF districts does Tulsa have?

Tulsa has six TIF districts:

1. Brady Village: Denver to Elgin, I-244 to the Frisco tracks. Established 1993, expires 2008.
2. Central Park: Approximately Elgin Ave. to Peoria Ave., 5th Pl. to 11th Pl. Established 1994, expires 2009. This district includes the downtown Home Depot, Centennial Park, and the Village at Central Park.
3. Technology: Denver Ave. to Detroit Ave., Frisco tracks to 3rd St., plus the block south of 3rd between Boulder and Cheyenne, and the half block south of 3rd between Boston and Cincinnati. Established 1999, expires 2014.
4. North Peoria Ave.: Approximately Midland Valley right-of-way to Utica Ave., Pine St. to Apache St, plus the old Brainerd Chemical site just south of US 75 and Peoria. Established 2002, expires 2017. This district includes the shopping center surrounding the now-closed Albertson's on the northeast corner of Pine and Peoria.
5. Blue Dome: Detroit Ave. to Greenwood Ave., Frisco tracks to 3rd St. Established 2003, expires 2018.
6. Tulsa Hills: East of US 75 between 71st St. and 81st St. Established 2006. Unlike the other Tulsa TIF districts, this district will expire as soon as it generates sufficient revenue to pay off the $16.5 million in revenue bonds used to fund infrastructure for the development. That could happen in four to five years after the shopping center opens.

Although state law allows for a 25-year maximum term, all of Tulsa's districts were set up with a 15-year term. All of Tulsa's TIF districts capture incremental property tax and two pennies of the city's three-cent sales tax on incremental retail sales. In some districts, there's a cap on the amount of incremental revenue - anything above the cap is treated like normal sales and property tax revenue.

What generates the money in a TIF district?

The key is the "I" in TIF, which stands for "increment." TIF districts can capture incremental revenues from property tax, local sales tax, and other local government fees.

When a TIF district is established, the county assessor determines the base assessed value for taxable property in the district, and city government determines the base level of taxable sales already occurring in the district. The sales taxes and property taxes generated by this baseline will continue to go to the government entities that are receiving them now. But some or all of the tax revenues over and above the baseline - the incremental revenue - can be "captured" for use within the TIF district.

What can be done with TIF revenues?

The Local Development Act has a long list of qualified purposes for TIF revenues. They include acquiring land, clearing land, building public facilities or improvements such as roads, sidewalks, water lines, sewer lines, and drainage facilities.

In Tulsa, TIF revenues have been used for streetscaping and lighting, parking garages, and improvements to on-street parking. In the Central Park TIF district, the money helped to set the stage for the Village at Central Park townhouse development and helped to fund the beautiful new Central Community Center and Centennial Park lake, the first step in the plan to reduce flooding risks in the Elm Creek basin.

TIF funds from the North Peoria district have been used for improvements to Booker T. Washington High School and Lacy Park. In the Brady Village and Blue Dome districts, TIF money encourages adaptive reuse of historic buildings through the Fire Suppression Vault Installation assistance program.

The Tulsa Hills TIF district is funding sewer, street, and storm drainage work in the hilly 146-acre tract.

How much money could a TIF district generate?

Branson Landing was a $306 million project projected to generate $116 million in local TIF funds. (It also qualified to capture incremental state sales tax, because the project, which includes a convention center, was expected to bring new dollars into the State of Missouri.)

Jenks' proposed River District is a $1 billion project, and the TIF district is expected to capture $220 million.

Tulsa's TIF districts have been much more modest in scope. Tulsa Hills is the biggest by far, a $130 million development projected to generate $5 million annually in new city sales taxes and $1.1 million in property taxes.

That's TIF Districts 101. The advanced course will cover the process of setting up a TIF district, how one might be used to encourage river development in Tulsa, obstacles, and objections.

If you have questions or concerns about tax increment financing, drop me a line at mbates at urbantulsa dot com, and I'll try to respond in a future column.