What is a TIF
The basic idea of TIF is that by encouraging redevelopment projects, the value of real property in a redevelopment area should increase. When a TIF plan is adopted, the assessed value of real property in the redevelopment area is frozen for tax purposes at the current base level prior to construction of improvements. The owner of the property continues to pay property taxes at this base level. As the property is improved, the assessed value of real property in the redevelopment area increases above the base level. By applying the tax rate within the redevelopment area to the increase in assessed valuation of the improved property over the base level, a “tax increment” is produced. The tax increments, referred to as “payments in lieu of taxes,” are paid by the owner of the property in the same manner and at the same time as regular property taxes. Again, property owners within a TIF area pay the full tax amount and the TIF district simply allows for the City (in the case of a City controlled TIF) to allocate funds to approved projects.
The payments in lieu of taxes (PILOTS) are transferred by the collecting agency to the treasurer of the municipality and deposited in a special allocation fund. In addition, local taxing districts transfer 50% of all incremental sales and utility tax revenues (EATS) to the treasurer of the municipality for deposit into the special allocation fund. All or a portion of the moneys in the fund can then be used to pay redevelopment project costs or to retire bonds or other obligations issued to pay such costs.