Local governments can use Tax Increment Financing (TIF) as an economic development and redevelopment incentive in targeted locations, such as blighted areas. TIF is often used to buy and prepare land for development (e.g., putting in utility connections or demolishing old buildings).
Before a TIF project begins, the local government calculates the “base” property tax revenue generated by the property. The government or an associated governmental entity – typically an Industrial Development Board (IDB) – then issues bonds or takes out a loan to finance the project.
After the project is completed, the bonds or loans are paid off with “incremental” property tax revenue, or the additional property tax revenue over the base amount that is generated from the new construction. In other words, the TIF project “pays for itself” through reallocated property tax revenue, and the business does not have to pay some of the costs associated with its property.