Tax Increment Financing

Community Revitalization Action Group Recommendations

TIF Manual

What is Tax Increment Financing (TIF)?

TIF is a financing tool used to attract development or redevelopment to areas that are currently not benefiting from private-sector investment. The area in which TIF is being used is known as a Tax Increment Reinvestment Zone (TIRZ).

The City of San Antonio's highest priority use of TIF is the revitalization of inner-city neighborhoods and commercial districts, particularly in those areas located inside Loop 410 and south of Highway 90.

Tax Increment Reinvestment Zones act as economic stimuli to surrounding areas. By leveraging private investment for certain types of development within a targeted area, TIF can be used to finance new and/or enhanced public improvements and infrastructure. These improvements and infrastructure, in turn, attract additional private investment in surrounding areas.

The TIF Mechanism

A TIRZ is one of the few planning tools available to the City that contains a built-in mechanism to finance implementation. TIF allows future ad valorem and sales tax revenue to pay for the construction of public infrastructure improvements. A Finance Plan is drawn up to show how new development or redevelopment will generate new tax revenue ("tax increment"), and to what extent that tax increment can pay for the public infrastructure that is required to support the new development.

Since Zones are created with defined life spans – maximum 25 years – development has to take place fairly quickly. Tax increment is a relatively small amount of money: the City’s share is $0.58 per $1,000 of value, for example. Increment does not include any existing value – only the new value that is created as a result of the Zone. So the longer a Zone can collect increment, the better. But in order to collect increment, development has to take place first, to create the increment. A successful use of TIF depends on bringing a developer who is ready to build a project that meets City standards to a part of town that needs investment. That is why the creation of a TIRZ is an important planning process in itself.

TIF works best where it is possible to create substantial property value. If values are growing quickly prior to the Designation of a Zone, the TIF incentive will be underutilized. If values are low and declining or growing slowly, compared to the rest of the City, then the TIF incentive can be maximized.

Eligible Project Costs

Tax increment collected in a TIRZ can only be used in certain ways as specified by Texas statute. These uses, known as “eligible project costs”, include the acquisition and construction of public works, public improvements, and new public buildings. They also include rehabilitation costs of existing buildings, financing costs, and administrative costs. Eligible project costs do not include the costs of private improvements, like the construction costs of individual houses. Each TIRZ creates a Finance Plan that explains in detail the specific costs associated with that Zone, per phase of development.

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