What is tax increment financing (TIF)?
Tax Increment Financing is generally used as an economic development tool to finance improvements needed for a project to move forward. A TIF is a bond that is used to fund public improvements (roads, garages, parks) and that is repaid or paid out of the increased local real estate tax revenues (the tax increment) generated by the creation of a project. For example, a State-owned parking lot generates zero real estate taxes for a local government. However, if ownership of the parking lot is transferred from the State to a developer through a sale or long-term lease of the property, then the property becomes taxable and generates a new stream of tax revenues. If the project is a large one with many new housing units and significant office and retail space, then it can generate a substantial new tax increment.

It is important to note that a TIF does not involve or utilize a new tax or a tax surcharge; it is simply the incremental increase in the existing taxes paid when a parcel is appraised at a higher value to account for the new project built on the site. In many cases, a project cannot proceed unless millions of dollars of infrastructure are first put into place. A TIF bond allows the local government to finance construction of the needed public infrastructure up front while using the new tax increment in the future to pay back the bond debt. It is a flexible tool that is beneficial to local governments because it is not credited toward the local government's direct debt cap and it is not guaranteed by the local government. Therefore, a TIF does not directly affect the localities ability to borrow money for other projects and a default of a TIF bond does not require the government to pay back the debt. The investor in a TIF bond bears the risk.

Finally, TIFs are only used when a project would not proceed without it (this is called the "but for" test). Because TIFs are funded with a tax increment that would not have existed "but for" the TIF and the resulting project, they do not divert existing or even potential tax revenue from the locality's general fund.

Show All Answers

1. What does the term transit-oriented development mean?
2. Why is the State involved in transit-oriented development?
3. What does it mean to be a designated transit-oriented development (TOD) in Maryland?
4. Why designate some Transit-Oriented Development (TOD) projects and not others? Should all TODs be designated?
5. What are the benefits that designation brings to a Transit-Oriented Development (TOD) project?
6. What is the process for designating a TOD pursuant to Section 7-101(m)?
7. Do the State and local government designate a project, a zone, a planning effort, or something else?
8. Have any projects been designated TODs yet?
9. Is there a limit to the number of TOD designations that can be made?
10. What new financial tools did the 2009 TOD legislation grant to local governments for use solely at designated TODs?
11. What is tax increment financing (TIF)?
12. What is a Special Taxing District?
13. What is the Maryland Economic Development Corporation (MEDCO) and what role does it plan in TOD?
14. Are there dedicated funds in the State budget for TODs?
15. What are the characteristics of a good candidate for TOD Designation?
16. What types of transit stations make a TOD project eligible for designation?
17. Is there any new State legislation that might help support TOD projects?
18. How do Designated TODs relate to Smart Sites and other programs?
19. Whom do I contact to learn more about TOD and TOD Designations?