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.

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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