Tax Increment Financing (TIF)
Frequently Asked Questions
What is TIF?
Short for “tax increment financing”, TIF is a state authorized funding tool used by the Downtown Development Authority (DDA) to develop, construct and maintain critical public infrastructure that supports and promotes economic development as well as placemaking and cultural amenities throughout the downtown area. The TIF tool is utilized by municipalities to support their downtown throughout Michigan and nationwide.
How does TIF Work?
The property tax generated within the district at the time of the TIF district’s formation is set as the “baseline”. As development occurs within the TIF District over time, the property values increase, generating additional tax revenue. That additional revenue (above the baseline), is then used by the DDA to finance public infrastructure projects identified in the city-approved TIF district plan.
Downtown Traverse City has Two TIF Districts – “TIF 97” was established in 1997 and covers the majority of downtown. “Old Town TIF” was established in 1985 (and renewed in 2016) and covers the Old Town area. See a map of these two districts HERE.
Click HERE for a graphic example of how TIF works.
How is TIF funding spent?
TIF funding is spent on public infrastructure and public improvement projects throughout the TIF districts. TIF dollars cannot be used to directly fund private developers. TIF helps fund only the public infrastructure needs that both leverage and support private investment in downtown (e.g., streetscaping, snow-melt) and benefit the entire downtown district.
What infrastructure projects has TIF previously funded?
Previous public infrastructure projects funded under TIF include the Hardy Parking Deck, pedestrian kiosks, way-finding signage, structural and mechanical improvements to the City Opera House, improvements to Clinch Park, boardwalks along the Boardman/Ottawa River, the Pine Street pedestrian bridge, public restrooms, bridge rehabilitation and our downtown police officer. In addition, TIF-97 has funded street and sidewalk improvements (e.g., sidewalks w/brick ribbon, mid-block crossings, flower planters, and trees) throughout the downtown district.
How were the public infrastructure projects funded by TIF chosen?
Each public infrastructure project was developed through an extensive public engagement process, including the recent Moving Downtown Forward planning process. Some projects include large capital improvements like the Old Town Parking Garage, while other projects include daily activities like washing sidewalks and watering planter boxes. Each project is listed in a “TIF Plan.” The DDA has two Tax Increment Financing (TIF) plans, TIF 97 and Old Town TIF.
Who oversees TIF expenditures?
The DDA board is responsible for forming and recommending the DDA’s annual budget, which includes (among other items) TIF expenditures for public improvement projects. The City Commission has final approval the DDA’s budget, as required by statute.
Who funds TIF and how does it impact me?
TIF captures property tax revenue only on the incremental increases of assessed property values within the downtown district. Individual taxpayers remain unaffected by TIF.
Under TIF, regional taxing jurisdictions like Grand Traverse County, BATA and several others also contribute, by statue, their portion of the taxes above the baseline. In practical terms, this means properties located within the TIF-97 District contribute 53-cents on the dollar with the remaining 47-cents coming from a variety of regional taxing jurisdictions that benefit from having a strong and healthy downtown and are also sharing in covering the costs of public infrastructure improvements. Last year, the contribution to TIF-97 from the regional taxing jurisdictions totaled just over $1.7 million
What are the benefits of TIF?
TIF is the only municipal revenue-sharing tool available that uses funds from regional taxing jurisdictions to fund and maintain public downtown infrastructure that supports the entire region. While Traverse City’s population hovers around 16,000 people, roughly 50,000 people from throughout the region come into or pass through the city each day (not to mention the millions of tourists each year). This influx of people places tremendous stress on the city’s infrastructure.
What happens if TIF goes away?
If TIF-97 expires, Traverse City will lose regional tax revenue and assume 100% of the obligation for downtown infrastructure improvements. Future infrastructure projects, as well as needed maintenance and upgrades to existing infrastructure would come directly from the city’s General Fund. City tax payers would assume the cost of public infrastructure projects within the downtown, rather than just the downtown property owners as it exists today. This would mean that hard choices would need to be made and critical infrastructure as well as needed maintenance and upgrades throughout downtown, as well as the entire city, may be eliminated or delayed.
Common Myths about TIF
“TIF funds are given to private developers.”
False. By law, TIF dollars can NOT be used to directly fund private developers. TIF money can only be used to fund critical public projects that leverage and support private investment in downtown.
“TIF impacts my taxes.”
TIF captures property tax revenue only on the incremental increases of assessed property values within the TIF district (e.g. downtown). The tax burden of property owners throughout the city (downtown or otherwise) is unchanged by TIF. Taxes would not go down if TIF was eliminated.
“The variety of regional agencies that contribute toward TIF need the revenue more than the downtown.”
Beyond the City of Traverse City, the amount of funds captured by the Downtown TIF is a very small fraction of funds raised by the regional partners involved. The counter-argument is simply that the regional benefits from a vital downtown serving as the economic engine of the region outweigh the marginal cost. The value proposition is particularly high to a region that houses the vast majority of residents that actually work, visit and enjoy Downtown. Furthermore, Downtown remains essential to the future of the regional economy, particularly as the region struggles to attract younger demographics, primary employers and achieve environmental sustainability goals.
“TIF 97 was originally provided with a commitment to end after 30 years.”
While it is true that some policy makers at the time identified a 30 year commitment for TIF 97 back in 1997, we are now living amidst new economic realities, and Downtown, while certainly more viable, is not “done.” The recent Covid-19 pandemic revealed how fragile economic vitality can be, and how important a vital downtown is to long-term economic resiliency. Regional economic challenges for the future – lack of affordable housing, workforce and business recruitment challenges, aging demographics, climate change and resilience – could not have been envisioned 30 years ago. This is precisely why the Michigan statute allows DDA’s to be extended, allowing regions to reassess current and future needs and continue to utilize TIF to steer regional prosperity. Furthermore, in Traverse City, the Moving Downtown Forward process revealed that the community does not see Downtown as a finished product. Based on community perspectives shared through this process, there is widespread support for a new series of investments that will meet the guiding principles stated in this report.
“The City of Traverse City needs to capture TIF funds to fund basic services.”
Some community voices have lobbied for the dissolution of TIF to help fund basic services within the City of Traverse City; however, the Downtown TIF is highly leveraged by regional funding sources. The City contributes 53 cents on the dollar for TIF, with the remaining 47 cents coming from a variety of regional authorities that directly benefit from a vital downtown. If the City walks away from this arrangement, it will keep only 53 cents on the dollar while assuming 100% of the obligation for downtown improvements. Traverse City residents need to understand that ending TIF is a dramatic civic investment decision, walking away from regional funding leverage and placing tens of millions of future public projects solely in the hands of Traverse City’s roughly 16,000 residents.
Convenient One-Pagers On TIF and the Moving Downtown Forward TIF Plan