What is a TIF?
Tax Increment Financing or TIF has been around in Iowa since the 1970s and has been a cornerstone in public financing of developments since then.
The concept is simple, a government entity designates an area as a TIF district - and virtually the entire city of Atlantic is included in some kind of TIF district - and at that point, the taxable valuation is frozen for the purposes of TIF. It’s called the base. All the usual taxing entities, city, county, schools hospitals etc. continue to collect taxes as usual.
When a request for TIF financing comes in, generally, the city and the developer agree on a minimum assessment. That is an agreement between the two on the minimum amount of taxable valuation the property will have after the project is completed. Think of it as floor and not a ceiling, the actual assessment can go up, but thanks to the agreement, it will not go below that amount.
The amount of the minimum assessment is usually set high enough to cover the city’s bond payments and expenses. The difference between the base and the agreed upon minimum assessment, or actual assessment if it is higher, is called the increment and the city is allowed to keep the taxes collected on the increment until the improvements are paid off.
A city can choose to pay for the improvements “up front” by selling a bond, which often includes related expenses. Again, that bond will then be paid off by collecting the taxes from the increment. In the event that the increment produces more taxes than the bond payment requires (it will not produce less because of the minimum assessment agreement) that amount goes into the general fund.
While the increment is being collected to pay for improvements other taxing entities do not have access to that money, but once the TIF if paid off, the business goes back on the tax rolls and everyone can then collect their full amount of taxes based on the actual taxable valuation.