What is TIF?
Tax Increment Financing (TIF) is a state-authorized funding tool used by the DDA to develop, construct and maintain critical public infrastructure that supports and promotes economic development downtown. It is used by thousands of municipalities nationwide, primarily in downtown areas. Traverse City and several other communities in Michigan like Ann Arbor and Grand Rapids have been credited for effectively and responsibly using TIF as an economic development tool that promotes growth and contributes to a vibrant downtown.
How does TIF work?
Under TIF, the DDA “captures” property tax revenue on incremental increases in assessed property tax values within the downtown district over time. For example, when TIF 97 was established in 1997, a base value for each downtown property was set and “frozen” for the 30 year duration the TIF. This means that the amount of money distributed to various taxing jurisdictions (the city, county, BATA, NMC, etc.) as part of standard property tax assessments remains the same throughout the life of TIF 97. As properties within downtown increase in value over the life of the TIF plan, tax revenue on that increased value is “captured” by the DDA and utilized for public improvement projects in the defined district.
In the generic example shown below, the DDA captures the taxes on increases in assessed value (shown in orange) over the duration of the TIF plan, while the various taxing jurisdictions continue to receive taxes on the green baseline value.
Why capture at all?
If the DDA wasn’t around to “capture” the increase on the values of downtown properties, that tax revenue would flow to the other taxing jurisdictions that continue to receive their share of the initial base value. But without the TIF system in place, the burden of paying for improvements throughout the city would lie entirely with city residents. TIF allows for fair and equitable tax revenue sharing to support improvements that are used by countless thousands of non-city residents who travel to the economic and cultural capital of our region for work or pleasure.
How is TIF Funding Spent?
BY LAW, NO TIF DOLLARS CAN BE GIVEN TO PRIVATE DEVELOPERS. All TIF expenditures must be for projects that benefit the public.
Major projects include the Hardy and Old Town Parking Garages, Pine Street Pedestrian Bridge, numerous streetscapes (sidewalks and street trees), bridge replacement/repairs (all bridges in Traverse City are in the DDA District) and riverwalks. TIF has also funded park improvements at Clinch Park, Jay Smith Walkway, and Lay Park, along with public restrooms downtown. Dozens of other smaller projects have been completed in whole or in part with TIF dollars. TIF also can be used for non-infrastructure public benefits. For example, TIF funds a Traverse City Police officer who is solely dedicated to downtown.
What are the benefits?
Investing in the city center and utilizing tools such as TIF increases the tax base. In fact, Downtown TC generates three times more taxes per acre than the rest of the City. A vibrant downtown increases property values not only in the district, but beyond. Ultimately, Downtown TC serves as a revenue generator for the city and the county.
In addition, large infrastructure projects such as the Hardy and Old Town Parking Garages would not have been possible without TIF as a funding tool. The city general fund would not be able to support such projects of this magnitude on its own should TIF not be utilized.
TIF dollars are also utilized to leverage other funds. For example, when bridge work takes place, TIF is used as the required match for MDOT and federal funding.
Finally, TIF is used to levy funds for environmental clean up and serve as a catalyst for private investment. The Iron Works property in the Old Town District was one of the first TIF projects. TIF dollars were utilized for public improvements surrounding the property while a private investment was made to redevelop the property.