What the heck is a TIF?
I believe that cities in the Oklahoma City Metropolitan area should work together. This means collaborating on regional transportation, ecological concerns, public safety, and job creation. But understand – these same OKC metro cities are in competition to grow their individual cities. If you haven’t heard the term Tax Increment Financing (TIF) you soon will be hearing Edmond politicians and business leaders debate the subject.
The first TIF was used in California in 1952, and has been used significantly in Oklahoma City’s renaissance. TIF subsidizes development by refunding or diverting a portion of taxes to help finance development in an area or a project site. Done correctly, communities can use TIF to incentivize developers to build in areas that the city prefers or need development. Normally, TIF helps pay for infrastructure improvements such as streets, sewer, water, parking lots, streetscape, and train quiet/safety zones. It is advantageous for cities to have developers build and create in areas near the city core with existing infrastructure and city services such as police, fire, electric, gas, water, and sewer. This urban-type development instead of suburban-sprawl development aids public transportation, walkability, and biking options and is effective in increasing density with little impact on traffic.
Having done urban-style, in-fill develop in downtown Edmond, I can tell you it costs at least 20% more to develop in these environments. Required streetscape, upgrades to water, sewer, electrical, flood control, parking and other systems simply increase the cost to the builder/developer. So, if city officials want to encourage this type of development they must consider incentives for developers. The incentive of choice for other suburban cities in the metro including Del City, Midwest City, The Village, and Norman is TIF.
TIFs are politically appealing because they do not require the City to raise tax rates. TIFs generate money for development by raising the value of the property that is taxed. Simply put, the increase in taxes go into the TIF fund and is reinvested in that area.
If Edmond wants to continue to be competitive with other metro communities, fund necessary infrastructure improvements without significant tax increases, and create amenities that citizens are demanding, they will have to consider capturing the new taxes created by those developments and deploy the money in those areas.
Dr. J. David Chapman is an Associate Professor of Finance & Real Estate at UCO.