TIF is a wonk's delight, from the almost meaningless words (tax increment financing) it stands for, to the presto-chango magic of how TIF operates - a subsidy program that somehow pays for itself.
Here's how it works: The city pays upfront to aid a developer, or for public improvements, then recaptures the money from the property taxes ("tax increment") generated by the new development.
Since the tax base is frozen when a Tax Increment District is created, the other taxing bodies (notably the schools) don't share in the new tax base until the TIF subsidy is paid off and the district is dissolved.
Why allow that? Because, in theory at least, the new development wouldn't occur without the subsidy. To that end, developers must satisfy the state's "but for" requirement - that is, make a convincing case that the new development wouldn't happen "but for" the city subsidy.
First authorized in Wisconsin in 1975 as a redevelopment tool to combat downtown blight, TIF has been expanded over the years to include subsidizing industrial development, mixed-use projects and housing. Once seen as a tool to let downtowns compete with the cheap land of sprawl development, TIF is now being used by villages and even towns.
TIF has become, in fact, the state's pre-eminent subsidy for fostering economic development. Around 1,500 TIF districts have been created statewide; 826 were active in 2005, generating a $243.8 million tax increment or 4.5% of total city and village equalized property value in Wisconsin.
