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What is a TIF District? Tax Incremental Financing explained

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The City of Rochester’s Director of Economic Development and Deputy Finance Director are working together to summarize the complexities of TIF Districts and their benefits to taxpayers. 

“We wanted to take the opportunity to clarify what the TIF program does for development and its effect on taxpayers in Rochester,” said Deputy Finance Director Mark Sullivan. “We want to clear up any misconceptions regarding the program and its benefits.”

Tax Incremental Financing (TIF) Districts provide a means for municipalities to offer an economic incentive without burdening the general property taxpayer. The benefits are the creation of new assessed values and public infrastructures in an area where development may not have otherwise occurred.

“We view the TIF program as an important tool for attracting investment dollars to the city,” said Economic Development Director Michael Scala. “TIF’s allow us the flexibility to support projects that may not otherwise be economically feasible. TIF’s also provide for the creation of jobs, improvements to infrastructure, growth of the tax base, and overall improvements to the quality of life in the area.”

Sullivan states that the City’s TIF’s are performing well from a financial perspective and that “none of the related debt or operating expenses are funded through the general fund property taxation process.”

“For example, regarding the Granite Ridge Development District TIF’s additional new development whether commercial or residential, would certainly provide a boost to district assessed values and cash reserves,” said Sullivan. “The GRDD TIF district would likely be able to avoid issuing new long-term debt. This would shorten the duration it would need to stay open. When the time comes to close the district the retained assessed values, along with any cash surplus, will be returned to the general fund. This action will have a lowering effect on the tax rate.”

A Deeper Dive:

New Hampshire state law RSA 162-K Municipal Economic Development and Revitalization Districts provide the means for a municipality to establish special economic development districts.  The district provides developmental incentives by allowing the municipality to fund necessary infrastructure components. Tax Incremental Financing Plan (TIF) 162-K-9 is a subsection of RSA 162-K that allows the municipality to identify what public infrastructure within the district it will consider building, how it will be financed, and the duration the district will remain open. There are several other provisions and conditions in the RSA 162-K law that a municipality must meet before it can proceed with a declaration of a district and begin developmental activities. Once the district is opened it’s commonly referred to as a “TIF District”.

TIF Districts provide special financing mechanisms that allow property tax revenues generated from new development to be retained by the district. These retained property tax revenues are used as the basis to fund the related infrastructure projects within the district. The manner in which this is accomplished has several sub-components and conditions. 

The first component is establishing a current baseline of assessed value within the district before any new development occurs. The baseline assessed value remains included in the net assessed valuations used to set the tax rate. New property assessed values created from new development are retained by the district. 

“These new assessed values are excluded from the general fund net assessed valuations, or tax rolls, and referred to as retained assessed value,” said Sullivan. “It’s important to note that all properties within the district are still subject to full property taxation. It’s only the portion above the baseline created from new development, or other factors that increase assessed values, that are allowed to be retained by the district.”

The retained assessed values and related tax revenues are held in a special fund and segregated from the general fund. The revenues held in these special funds are referred to as “retained revenues”. 

The municipality can also decide what percentage of new assessed value it wants the district to retain. Currently, all of the City of Rochester’s Tax Incremental Financing Districts retain 100% of assessed value increases. The retained tax revenues generated within the district can now be used to fund new public infrastructure, related maintenance expenses, additional land or property acquisitions, or used to be pay related bonded debt service.  Again, all of these expense activities are excluded from the general fund net assessed valuations or tax rolls. The general taxpayer is not burdened with these expenses. 

Even though a TIF District extends developer incentives the premise is without that economic development incentive new development in the district area would not have occurred. The benefit to the community is once the TIF District is closed all of the retained assessed value return to the general fund’s net valuations. This return of assessed value to the general fund has a lowering effect on the tax rate. 

For inquires and additional information regarding TIF Districts, contact Deputy Finance Director Mark Sullivan at (603) 335-7609 or visit https://www.rochesternh.net/economic-development/tax-increment-financing-tif-information to learn more.

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