What the Heck is Tax Increment Financing?

The lingo may seem arcane, but the stakes are real, affecting multiple redevelopment projects in the works.

While I may claim to be a quasi expert on what’s happening with Richfield’s many redevelopment projects, I admit that all the jargon that comes along with it often perplexes me.

And apparently, I’m not the only one.

I recently received an email from resident Barry LeBlanc regarding the Pillsbury Commons housing project. LeBlanc is part of Richfield Commoners United, a neighborhood organization. Formed largely in opposition to the project as it stands, the group also aims to educate residents on what the new development will mean for the city.

“The biggest issue we have is that people are not informed what all these acronyms [such as] Section 42, and LIHTC total capital funding [mean],” LeBlanc wrote. “We are sending out replies and answering hundreds of phone calls explaining what these mean to them.“

So, in the spirit of keeping people informed, here are general definitions for some of the key terms thrown around lately in the redevelopment sphere.

Tax Increment Financing (TIF)

TIF is a financing method that uses future gains to finance developments or improvements. Theoretically, when improvements are made, the surrounding area increases in value and, ultimately, increases tax revenues for the city.

I think of TIF as an investment the city makes in its own infrastructure, in hopes that it will receive a return on its investment.

Section 8 Housing

Section 8, or the housing choice voucher program, is the federal government’s major housing program that assists very low-income families, the elderly and the disabled. The program, run through the U.S. Department of Housing and Urban Development (HUD), aims to help those people afford safe and sanitary housing.

Vouchers are issued to an individual or a family by a local public housing agency. In our case, and to my knowledge, the issuing agency would be the Richfield Housing and Redevelopment Authority (HRA). Those who receive a voucher are responsible for finding housing on their own.

In general, to be eligible, the family's income may not exceed 50 percent of the median income for that county or metropolitan area.

More details on the program are available on HUD’s website.

Low-Income Housing Tax Credit (LIHTC)

LIHTC is a dollar-for-dollar tax credit for affordable housing investments. It was created under the Tax Reform Act of 1986, which encourages private equity in the development of affordable housing, according to the Minnesota Housing and Finance Agency website. The Pillsbury Commons Project is largely being funded through this agency.

Section 42

Section 42 of the Internal Revenue Code outlines the regulations for the LIHTC program. Further, the projects that result from the LIHTC program are often referred to as Section 42 housing complexes.

Like Section 8, Section 42 allows people in the lower income brackets to obtain affordable housing. However, unlike Section 8, the rents established for a Section 42 development are already fixed.

Still, some Section 8 vouchers may be accepted at Section 42 complexes, depending on the rent.

I’m sure there are many other confusing terms being thrown around out there and, hey, maybe you can explain some of these terms better than I can. Feel free to share your knowledge, thoughts and other resources in the comments section below.

Steven O. Lindgren February 21, 2012 at 12:19 PM
Caitlin: Tax increment financing (TIF) is not a four letter word. We have been using it in Richfield since the mid 1970's to redevelop and revitalize our community. Without this important redevelopment tool, Richfield would not be what it is today! I have defended the use of TIF while on the Richfield Planning Commission, the Richfield School Board, on the floor of the MN State Senate and for nearl twenty years now with the Richfield Chamber of Commerce. If you have readers who want to learn more about this critical redevelopment tool, I would be happy to spend time with them.
Matt Peiken February 21, 2012 at 03:11 PM
Steven, can you explain why some businesses receive TIF and others don't? From my pedestrian view, it seems that cities apply it subjectively—in effect, favoring certain kinds of business over others. If this isn't true, please set me straight. I just want to better understand the application of it.
Mike McLean February 21, 2012 at 04:54 PM
From what I've seen, cities seem to use it against each other. Is it true that after construction the taxes paid to the city remain the same as what they were prior to construction while the increase above the original tax goes to help pay down the construction debt??
Ghislaine Ball February 21, 2012 at 08:20 PM
TIF is a tool and only as effective as the person responsible for it. Kind of like guns don't kill people, people kill people. TIF can be great if used correctly - unfortunately it feels like too often it's being used to socialize risk and privatize profit - as with the proposed Pillsbury Commons project.
Barry L. February 22, 2012 at 05:59 AM
Gordon Hanson Said People asked me how I would approach the use of tax increment financing when I ran for the city council in 2008. I always said I would evaluate and place development projects into three categories. 1) Projects we don't want under any circumstance, 2) Projects that are acceptable but not extraordinary, and 3) Projects that advance the livability and character of the city and need an extra push to make them happen. I believe we should only approve TIF for category number 3.
Barry L. February 22, 2012 at 06:03 AM
I cut and paste the above statement. I could not have worded this better thank you Gordon Hanson who ever you are, we need more people to think this way on city council, mayor office and commissioners.
Barry L. February 22, 2012 at 06:07 AM
Hi Could you please explain why you would use TIF in funding a 100% fixed income building? Could you explain how this would benefit the average citizen of Richfield? Could you put some math behind this project and show how the City of Richfield would benefit from this project? The last question I would like to ask is where are the jobs for these people? Thank You and please call me if you would like to explain over the phone or coffee. Cell number 612.272.7893 Thank You Barry LeBlanc
Pat Elliott February 22, 2012 at 01:55 PM
It would be nice if every TIF application broke down to such neat little boxes.
Susan Means Rosenberg February 23, 2012 at 01:02 PM
As a former City Counci Members, I know that TIF is essential for redevelopment in a city like Richfield. Developments such as Woodlake Pointe, Shoppes at Lyndale and Best Buy are here because TIF was a tool to help these developments come to be. I am very proud of these projects and glad that I was there to vote for them.
Barry L. February 23, 2012 at 01:38 PM
Susan, TIF is not a bad thing but some projects are not worth TIF to apply to. Building a vibrant community is a good way to apply TIF.
Gordon Hanson February 24, 2012 at 03:11 PM
I originally made my comment posted by Barry on the Richfield, Minnesota Facebook page. I'm perfectly fine having it pasted here, too. But here is the comment I'd like to add. I agree with Susan. TIF is an important tool, especially for a fully developed city like Richfield. I have many times supported TIF for worthy projects. But having a system for evaluating projects is not "neat little boxes," but rather a starting point for evaluation.
Pat Elliott February 24, 2012 at 05:47 PM
Then why didn't you say that?
Gordon Hanson February 24, 2012 at 07:21 PM
Well because I guess you can't say everything in these online comment columns. I never said in my original comment that I am opposed to TIF. I said I am opposed to TIF for 1) Undesirable projects and 2) Average projects. I am supportive of TIF for good projects that enhance the city. Everything I have said is consistent. I'm not sure why this comment stirs controversy.
Drew Miller February 24, 2012 at 07:40 PM
Interesting discussion going on here this morning and afternoon. I'm wondering what the rubric is for delineating "undesirable" projects from those deemed merely "average." Who would get to make those kinds of decisions? What makes a project enhance the city (anyone who has attended an HRA meeting knows there are wildly different ideas about this)? I'd honestly like to hear people's opinions, hope some are still reading and respond.
Barry L. February 24, 2012 at 10:01 PM
It is good to have these discussions. As I have learned allot about council members, past and present and some that want to be. I fully do not under stand understand the whole mechanics of TIF. Piecing it together almost becomes a ideological line. If you view the October 2011 HRA Meeting about Pillsbury Commons you would see how quickly a TIF conversation starts. As a Richfield citizen it is like a maze of procedures and terms that the average person dose not know. Thank you for opening up this discussion.
Richfield Commoners United March 05, 2012 at 12:52 PM
Gretchen, Having a "Separate but Equal" building for the low income tenants of the project is not the way to go. It still is stigmatizing to them. Even the developer of the Lyndale Garden site doesn't like 100% low-income housing or thinks its good for the tenants. Quote from the Developer at the Special session: "I absolutely agree with Fred (Wroge) I believe that the absolute best way to provide affordable housing in the community is to build a development and include affordable housing in the development. There is a problem with that, but I think that is a better way to make it happen. It does not stigmatize anybody, it not like its -- there's that building over here and their is another building over their, the problem is the way it is financed. And we have been having some of the conversation with some of the folks that buy the tax credits, because the real issue is you sell these tax credits to investors and the investors says - I only want to buy low income housing tax credits I don't want to buy into your market rate housing. That is not what I am looking to do. (Continued)
Richfield Commoners United March 05, 2012 at 12:54 PM
So we need to circle a different kind of market for this product and that's not a simple thing to do. The way the market works right now is people buy tax credits or they buy into a market rate housing project and the ones that buy into the market rate housing project don't want to take tax credit risks and the ones that take tax credit risks don't want to buy into a market rate housing project. I agree with Fred that that is the wrong way to develop affordable housing in a community and we are working on trying to solve that. So the better thing from my opinion would be to build a hundred and (inaudible) just like we have been talking about and have affordable housing mixed in amongst all the others. The reality of the way it gets financed right now is that is not possible." Listen to it yourself: http://soundcloud.com/richfieldminnesota/lyndale-gardens-life-college.
Richfield Commoners United March 05, 2012 at 12:58 PM
The above conversation is about Lyndale Gardens and TIF, So how will this benefit Richfield? This Group has already filed Bankruptcy on their last Richfield Project and if she starts this and can not finish it you will have a major low income- fixed income in the city center. What guarantees do you have that this can be done ?
Richfield Commoners United March 05, 2012 at 12:59 PM
Richfield Commoners United March 05, 2012 at 05:47 PM
Mayor Debbie Goettel later said she has faith in Cornerstone and Carey, who held several meetings to gather public input about what should be included on the site. The mayor said Carey is not the only developer who has had issues with projects that have gotten caught in the financial crisis. "Things are not like they were five years ago," Goettel said. "She has a lot of ideas we like in this city. ... Colleen has been really transparent about funding. We know where she's at." Goettel called the project "vital." "I actually courted Cornerstone for it because I like [Carey]," she said. "She has got to do one thing at a time. It takes some time to pull things together." http://www.startribune.com/local/west/128533583.html?page=2&c=y So The Mayor Knows or was she duped?
Barry L. March 09, 2012 at 05:13 PM
In dealing with Pillsbury Commons there seems to be confusion over the issue of just what "affordable housing" and low income housing are. The use of "low income housing " is not being derogatory. It is important to realize that all low income housing is affordable but not all affordable housing is low income. To prove the point, can a tenant be "affordable" or "low income"? Many of the apartments in Richfield are affordable - that is, they are affordable to people with low incomes but can be rented by people with high incomes. A low income housing development like Pillsbury Commons is housing that is set aside for people who meet low income guidelines. Richfield is very affordable and has quite a bit of affordable housing. Edina is not affordable has no affordable housing which is why it really needs affordable housing so people with low incomes can afford to live their.
Richfield Commoners United May 29, 2012 at 06:04 PM
So lets drag the city residents around and around, Thank you for being the developer you are. My be the city of Richfield will name a gift shop after you like they did in EDINA. for " AN excellent way to win hearts and minds developer" here in Richfield...oh yea we dont have a Art Gift shop but if you have your way we will have the very first SECTION 42 Shelter..Please visit http://ci.edina.mn.us/content/facilities/art_center/facilities/clark_gift_shop/index.htm
Richfield Commoners United June 01, 2012 at 02:33 PM
So now we need to ask if TIF sheds some tax dollars to the school system. In all Ron Clark will only pay $3900. per year in taxes on the land for 30 years, what will the school get in cash for the next 30 years? The next question that should be asked is this, Kennisington Place on 76th and Lyndale was given $500K in up front TIF but now the courts have decided that Richfield was a second mortgage and we not getting one cent back ? How much did the school system loose on that one? Ron Clark is the only one walking away with the cash in hand!


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