What Is A Tax Increment Financing (TIF)?

Tax Increment Financing or TIF, is a financial tool used to assist a municipality in the redevelopment of a specific area. This page addresses some of the most frequently asked questions regarding TIFs.

How Is a TIF District Established?
In order to establish a TIF district, a municipality must determine if the area is eligible. Eligibility is determined by the state statute which is the enabling legislation for TIFs in Illinois. Certain criteria must be met to designate an area as a TIF district.  The area must be blighted or it must show signs of becoming blighted.  The concept is such that development in the TIF would not occur “but for” the use of TIF funds.

Also, the municipality must develop a redevelopment plan for the TIF District. A redevelopment plan contains goals, objectives, and a budget for expected redevelopment costs.  The municipality must hold a public hearing of the Redevelopment Commission to hear testimony from the public.

How Does a TIF Work?
When an area is designated a TIF district, the amount of property tax the area generates is set as a base Equalized Assessed Valuation (EAV) amount. The EAV is the county assessor’s way of assigning similar taxes to similar structures and spreading the property tax burden equally.  As property values increase, all property tax growth above that amount can be used to pay back bonds issued to pay upfront costs, or can be used on a pay-as-you-go basis for individual projects.  At the conclusion of the 23-year period, all property taxes are collected at the increased levels and the increment is no longer collected. 

For example, if a TIF district is designated and the total EAV is 100,000, then after a few years of redevelopment and investment, the total EAV is 175,000.  The property tax paid on the incremental EAV of 75,000 goes into a TIF fund that can be used to pay eligible costs of the redevelopment.  The base year amount of property taxes is still distributed to the many taxing bodies.  Essentially, that amount is frozen and is paid to the taxing bodies for the life of the TIF or 23 years.

How Long Can TIF Districts Last?
Typically  a TIF lasts 23 years. However, in some specific individual cases the State Legislature has extended this time to cover the taxes levied.

What Happens When a TIF District Expires?
During the life of a TIF, the base year of tax revenues are distributed to the various taxing bodies with the increment in tax revenues distributed to the TIF fund.  Once the TIF expires, then the full property taxes paid by each property owner in the TIF are distributed to the various taxing bodies.  With a successful TIF, the taxing districts will receive a windfall in tax revenues, particularly the elementary and high school districts – which have the highest tax rates.