RAPID CITY, SD — Following the TIF approval by the city council and Mayor Salamun the controversy around the creation of a TIF district came to a head. To be quite frank, while there are some potential objections to this, many are still confused about what a TIF even is at this point. Is it a subsidy, a tax, a handout, a secret third thing?
In many cases for those who are not adept in the existing jargon of public finance, simply looking up “What is a TIF?” can yield contradictory or confusing results. While debate is of course natural and should be welcome in this and any community, if we want to have any productive discussion we first need to establish what a TIF is in no uncertain terms.
What is a TIF?
A Tax Increment Financing (TIF) district is a complicated concept primarily because it requires us to put ourselves in a position we most likely have not, nor will ever fill: that of a city council member.
In its most basic terms, it is a tool by which a city can encourage development via agreeing to use a certain amount of the land tax revenue to improve facilities around the demarcated district.
Confused yet? That’s fine, I’ll break it down less vaguely.
At the moment the land donated for libertyland generates around $5600 worth of property tax revenue per year, with property taxes after the construction of libertyland estimated to amount to around nine million dollars. This is a considerable boon to the city budget, however given how relatively underdeveloped the area is in terms of roads and utilities, the land is not inherently desirable for development.
This is where a TIF comes in. In essence, the city government willingly caps taxes on an area they wish to see developed at the “Base” rate (what the tax is prior to development). As property taxes increase in an area, this base is allowed to continue to flow into the general city budget. The rest (known as a tax increment) is still taxed from the developer, but is put into a special fund which the city uses to improve infrastructure around a given area, such as paving or expanding roads in the edge of a growing city such as ours.
This diversion of revenue continues usually for a certain time period, or until the incremental tax reaches a certain total amount. In the case of Libertyland the total incremental revenue is capped at 100 million dollars, which means the TIF district being in place should last a little bit over a decade.
To put an analogy to it, if the tax revenue from a district is a river, a TIF is a dam which allows the river to be mostly diverted temporarily
This is desirable to a business, as it means they can count on a consistent pattern of support from a city over a certain time period. This is desirable to a city, because while they are not able to spend the increment as broadly as they may like for a time, it leads to overall increased revenue over time from sales and property tax, and allows them to focus on the development of an area with the assurance that private development will occur and make that development worthwhile. This may also be desirable to surrounding businesses and residences uninvolved in the initial TIF District’s creation, as further development in an area can increase the value of a home and the traffic around a business.
Should We Be For Or Against TIFs?
I can’t tell you what to think obviously, however an argument could be made on either side. It could be argued that this restriction of government funding might take away from services which could benefit from it, it could be seen as a more subtle form of subsidy or handout, or as a driver of gentrification.
I am not here to challenge these views, however what I can say is that a TIF is not going to be an extra tax on the general public in Rapid City. A TIF is not going to be money going back into the pockets of developers. It is a confusing tool and can be used for public good or ill depending on circumstance, but it is a tool which by itself does not risk the general populace.
We are able to have discourse about this and should have discourse about this, as the future of our city is something we should care about, however it will be vastly more productive to talk about what a TIF is rather than what it could be, or even what it overtly is not.