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What is a TIF?

In the world of economic development, we are hearing more and more about TIFs. A TIF does not refer to a quarrel with someone or a time in the future...

TIF stands for Tax Increment Financing and is a tool created by the state's Economic Development Incentive Program (EDIP) as a means to stimulate business growth and job creation right now. The information contained in this article may be found on the two state websites cited below.

A TIF is first and foremost a partnership between public and private entities: state and municipal government and private developers. The first step in this process involves a town being designated as an Economic Target Area (ETA) by the state's Economic Assistance Coordinating Council (EACC). Provided certain criteria are met, a town may then designate a certain parcel(s) within their community as an area of particular need and priority development - an Economic Opportunity Area (EOA).

At this point, private developers may submit project applications for the EOA which meet the Smart Growth criteria for redevelopment, expansion of business, and/or new development. If their plan is approved by the EACC it becomes known as a Certified Project and is then eligible for state and municipal tax incentives. As many towns review their economic health they may find increasing or stagnant unemployment rates among their residents and land use that may include abandoned or contaminated sites, underutilized pieces of property and infrastructure that needs improvement. With the availability of TIFs, it becomes much more attractive to a developer to work with a town that has EOA status. Developers utilizing TIF benefits also become eligible for additional state financial incentives.

A TIF is a "five to twenty year property tax exemption based on the increased value of the project property due to new construction or significant improvements." (website #2) The terms of the TIF agreement between the town and the private developer(s) are negotiated by the designated persons from each side (often members of the Economic Development Committee in a town) and then approved by the governing body of the town (normally the Town Meeting on a recommendation from the Board of Selectmen and the EDC). TIF agreements usually include a small percentage of real estate tax relief in relation to the total project. The percentage of tax relief also tends to decrease annually through the life of the TIF.

So, you ask - the developer obviously gains an advantage from a TIF in that he has more capital available to him to put towards construction of the project - BUT... what is the advantage to the municipality? There are many benefits to consider. When a municipality is willing to enter into a TIF arrangement the following improvements may occur: the town begins to receive increased tax revenue when previously underutilized property becomes developed and new and/or expanding businesses arrive; infrastructure is improved through mitigation agreements with developers and the actual site changes necessary for the new development; additional jobs are created for those in the community; and transportation issues may be improved which in turn fosters growth in housing and retail interests. In general, although a TIF may mean a short-term loss of some tax revenue for a community, the long-term benefits normally outweigh any short-term losses and have been shown to certainly improve the financial and personal quality of life for a municipality.

For additional information regarding the TIF process and specific examples from towns who have implemented this economic incentive, please see the following websites.
(1) http://www.mass.gov/envir/smart_growth_toolkit/slideshows/DIFTIF-EOEA-RC.ppt
(2) Commonwealth of MA Executive Office of Housing and Economic Development

It is also worth noting that many towns in the Neponset Valley region have designated Economic Opportunity Areas and have taken advantage of this program, for example: Canton, Norwood, Westwood and Walpole.