Urban Redevelopment Authority of Pittsburgh
Consumer Home Financing
Financial Assistance/Tools:TIF FAQs
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Click on a question to jump to the answer:
- What is a TIF?
- Do TIFs take Tax Dollars Away from the City, the County or the School District?
- Do TIFs increase my Taxes?
- Do TIFs decrease my property's value?
- How do TIFs Work?
- How are TIFs Created?
What is a TIF?
TIFs are an economic development tool used to encourage and create new increased value taxable real estate development.
TIFs are utilized in 44 states to help communities generate value and added tax revenue to previously under utilized land.
TIFs have been used across the country in virtually every major city in the United States to create increased tax generating developments.
TIFs are typically used to pay for infrastructure improvements (such as roads and parking) and clean up polluted land for previously undeveloped or underdeveloped land to help create new, higher value development.
By increasing the value of the property with new development, TIFs help generate new tax revenues for the community.
Do TIFs take Tax Dollars Away from the City, the County or the School District?
No.
TIFs take a portion of previously unrealized tax revenue to help finance the up front capital costs of creating the new development.
Without the TIF, the new tax revenue would not be realized.
TIFs do not take money away; rather TIFs help create new tax revenues.
Do TIFs increase my Taxes?
No.
In fact, TIFs decrease the tax burden of everybody in the benefiting municipality. The additional taxes gathered as a result of the increased value of the newly developed or redeveloped property will relieve the tax burden on other properties.
For example, if a vacant lot whose owners pay little property tax becomes a technology R&D facility, with a significantly higher value; the new tax revenue will decrease the burden on the other property owners in the City.
Do TIFs decrease my property's value?
No.
In fact, TIFs will likely increase your property's value. For example if your property is located next to, or in close proximity to, a vacant industrial site your property's value is likely to be dragged down.
If this vacant industrial site is redeveloped into condominiums and a small shopping plaza that has an increased property value over the industrial site, your property's value in the market place is very likely to increase.
How do TIFs Work?
Real estate in Pittsburgh and all of Pennsylvania is taxed by three taxing bodies: the County, the City, and the School District.
In Pittsburgh, the taxes collected by these three taxing bodies are determined by the assessed value, or the base value, of the property as determined by the Allegheny County office of property assessment.
Taxes generated by the base value of the property are the taxes currently collected without new development.
New development of undeveloped or underdeveloped land raises the assessed value of the property over time. The difference between the base value and the raised value is the increment.
When a TIF is used, a portion (typically 60%) of the increment is used to help pay for the substantial up front capital costs (infrastructure, environmental costs) often necessary in the redevelopment of urban industrial and commercial sites.
Let's look at a sample case study to determine how TIFs work in this framework.
TIF Case Study
Project A is a former industrial site characterized by vacant land and dilapidated buildings. The site blights the community and is dragging down property values of the properties that surround it.
The current assessed value (base value) of the property is $100,000. The annual taxes collected on the site are approximately 3% of the assessed value (note: this is based on the 2003 millage rates for Pittsburgh).
The current taxes collected annually are $3,000 (3% of $100,000).
A new development is proposed for the site that will clean up the site, build new roads, new park lands, and include new research and development offices and labs. The new assessed value of the property with the new development will be $200,000. The annual taxes collected on the site with the new development will be $6,000 (3% of $200,000).
The annual increment in the tax revenues collected is $3,000 ($6,000 - $3,000).
When a TIF is used, a portion (typically 60%) of these new taxes can be used to finance some of the up front capital costs necessary to construct the new development over the life of the TIF (a maximum of 20 years).
Because this increment is realized annually, a portion can be used to finance a bond issue used to fund the capital costs.
In this example, $1,800 (60% of $3,000) can be used annually to finance a bond.
In this example, the three taxing bodies gain $1,200 (or 40% of the increment) in new annual taxes that would not have been realized without the new development. After the life of the TIF, the three taxing bodies gain $3,000 in new annual taxes.
Without using a TIF, it would have been extremely difficult (if not impossible) to redevelop the site and over $24,000 in new tax revenues would have been lost over the life of the TIF.
How are TIFs Created?
TIFs can only be used in areas certified as "redevelopment areas" by the City of Pittsburgh's (or the relevant Pennsylvania municipality) Planning Commission. In order for the Planning Commission to declare the area as a redevelopment area it must first make a "finding of fact" based on the seven criteria defined by the Pennsylvania Redevelopment Law of 1945.
- Inadequate planning of the area
- Excessive coverage of land by buildings
- Unsafe, unsanitary, inadequate, or overcrowded conditions of dwellings
- Lack of proper light, air, and open space
- Defective design and arrangement of buildings
- Faulty street and lot layout
- Economically and socially undesirable land uses
For an area to be certified as redevelopment area, the area must meet one or more of the above criteria in the finding of fact.
The three taxing bodies (the City, the County, and the School District) must agree through public process to participate in the TIF. In other words, one or more of the three taxing bodies may choose not to participate in the TIF, thus not contributing to the value of the TIF. When the taxing body agrees to participate, they agree to allow the agreed upon portion of the increment to be used to finance the up front capital costs over the life of the TIF.