Tax Increment Financing (TIF) FAQs
Learn more about TIF and how the City of Avon Lake plans to use it to purchase lakefront property at the former power plant site and support public infrastructure improvements.
The City is pursuing the use of Tax Increment Financing (TIF) to purchase lakefront property from the Avon Lake Environmental Redevelopment Group (ALERG) at the site of the former power plant, and to support public infrastructure improvements in connection with the Sandridge Run and Harbor Crest developments. Those improvements would include the intersection of Rt. 83 and Walker Road.
These FAQs attempt to explain what TIF is and how it works in simple terms. For more in-depth information about TIF, we recommend these resources:
Q: What is Tax Increment Financing (TIF)?
A: In essence, TIF is a way for a community to pay for big public infrastructure projects without raising taxes on all residents. The main idea behind TIF is to use future taxes generated by a new development to pay for the public infrastructure that made the new development possible in the first place.
In Ohio, local governments are allowed to designate TIF areas under Ohio Revised Code (ORC) 5709.40, 5709.41, 5709.42, and 5709.43. A TIF area can be as small as a single parcel, or they can encompass a larger area known as a “district.” There are approximately 1,850 active TIFs statewide.
How it works
- Establish the location – City Council creates legislation to establish a TIF district, i.e., a specific geographic area designated for redevelopment.
- Freeze the “baseline” tax – the property taxes within the TIF district are "frozen" at their current level for a set period. TIF is not permanent in Ohio and durations may vary. TIF has a maximum term of 30 years, but it can be extended under certain circumstances. In TIF, the frozen property tax is often called the “baseline tax.”
- Fund the project – City government borrows money to pay for the public improvements and infrastructure needed for the project (e.g., roads, sewers, utilities).
- Collect the tax increment – as the new development is built, property value increases, generating new property tax revenue. The new tax revenue (i.e., the “increment”) is diverted to a special TIF fund created for the purpose of paying for public infrastructure improvements or property acquisition for redevelopment. Only the new tax revenue goes into the TIF fund. The frozen “baseline” tax is paid to the usual recipients as before.
- Pay back the loan – the money collected in the TIF fund is used to repay the bonds that were issued to finance the project.
Q: What are the benefits of TIF?
A: TIF benefits cities by providing a tool to finance public improvements needed for new development projects, encouraging private investment, and boosting economic growth. Cities can use TIF to capture the future increase in property taxes from a project and use those funds for public infrastructure improvement projects like roads and sewers, or to purchase property for redevelopment. TIF is typically used to fund projects that might not otherwise be financially feasible.
Q: How does TIF impact schools?
A: When TIF is established, school districts still receive all of the tax revenue from the “baseline” value of the property — meaning they do not lose any of their existing funding. In addition, school districts benefit from additional revenues above “baseline” tax levels through School Compensation Agreements (SCA). An SCA is an agreement between a city, school, and developer to provide an agreed upon level of compensation to the schools. This is new revenue for the schools that would not be available without the TIF in place.
Q: Is TIF a tax increase?
A: No, TIF is not a tax increase for current residents. It is simply a method of capturing future tax revenue increases from new development to pay for public improvements in a specific area.
Q: Is TIF permanent?
A: No, TIF is not permanent in Ohio and durations may vary. TIF has a maximum term of 30 years, but it can be extended under certain circumstances. When a TIF expires, tax revenues revert back to their original recipients.