How TIF Works: Understanding Tax Increment Financing
Tax increment financing (or TIF) is a commonly used economic development tool used by cities across Ohio and the U.S., but it's new to Avon Lake. Here's what residents need to know about TIF.
It's NOT a Tax Increase
TIF is a public funding method that freezes the property tax base and diverts future property tax increases to a special fund for public infrastructure upgrades.
It Helps Attract Investment
Local governments use TIF strategically to encourage economic growth and solve funding challenges without raising taxes on residents.
It's NOT a corporate subsidy
Subsidies provide developers with tax breaks, grants, loan guarantees, and other forms of financial assistance. TIF doesn't provide developers any of these incentives.
TIFs are one of the most common economic development tools used by local governments to support complex projects in the State of Ohio and throughout the United States. According to the Ohio Department of Development, there are currently approximately 2,500 active TIFs statewide.
Avon Lake established a TIF district last December in conjunction with the Sandridge Run and Harbor Crest residential subdivisions, and plans to use TIF to purchase 23 acres of lakefront property at the site of the former power plant to create a lakefront park and improve public access to Lake Erie. Without TIF that plan cannot move forward.
Frequently Asked Questions
What is Tax Increment Financing (TIF)?
TIF is NOT a tax increase. It's a specific type of financing tool that focuses on using the increase in property value from new development to pay for public improvements. While TIF is new to Avon Lake, it is commonly used by municipalities all throughout Ohio and the United States.
Here's how it works:
- When a TIF district is established, the existing property taxes within the district are "frozen" at their current level, while any new property tax revenue generated by development is diverted to a special fund that can be used to pay for infrastructure improvements and other public costs related to the project.
- The frozen property taxes are called the "baseline tax". The baseline tax continues to go to normal local taxing bodies like schools, counties, and cities.
- The new property tax revenue that's generated by development inside the TIF district is called "the increment." Only the increment goes into the TIF fund.
- The increment revenue that goes into the TIF fund is used to pay for infrastructure improvements.
Typical TIF-funded public infrastructure improvements include:
- Roads, intersections, and sidewalks.
- Water, sewer, and stormwater upgrades.
- Public parking, streetscapes, and utilities.
- Other public facilities that directly support the area that is being developed.
Why do cities use TIF?
Cities in Ohio and across the U.S. often choose to use TIF when they need to:
- Build or upgrade public infrastructure that their General Funds cannot support.
- Ensure that "growth pays for growth" rather than shifting the cost to existing taxpayers.
- Coordinate private development with long-term infrastructure plans.
Because TIF still generates an revenue stream, it can also be used to negotiate revenue-sharing or compensation agreements with school districts and other affected jurisdictions.
Does TIF eliminate property taxes?
No. Baseline taxes on the original property value are still paid to normal local taxing bodies (e.g., schools, county, city). TIF applies only to the increase in value from new construction.
What's the difference between TIF and tax abatements?
TIF is NOT a tax abatement. Tax abatements reduce taxes on increased property value. A TIF doesn’t reduce or eliminate the additional taxes from increased property value, it redirects taxes from the increased value into a dedicated fund specifically to support public infrastructure.
Does TIF affect schools?
TIF can take a few different forms. In some cases, agreements are made to provide additional funding to schools. The TIF approved by Avon Lake City Council for the Sandridge Run and Harbor Crest residential subdivisions fully supports our school district funding via compensation payments, ensuring that their revenue remains intact. In the case of the TIF proposed for the former Avon Lake Power Plant site, the schools will continue receiving existing property tax revenue, and additional compensation agreements may provide schools with new funding.
Does Avon Lake use TIF?
Yes. Last December, City Council approved a new TIF district for the Sandridge Run and Harbor Crest residential subdivisions that was structured to protect local education. Under this particular TIF agreement, the schools continue to receive all of the property tax revenue they would have normally received if the TIF weren’t in place. The property tax revenue generated by the Sandridge Run and Harbor Crest developments will be placed into a dedicated city fund specifically to address traffic concerns in and around the Avon Belden and Walker Road intersection. It is important to note that the developer receives absolutely NO MONEY from this TIF arrangement.
The city also intends to use TIF to purchase 23 acres of lakefront property at the site of the former power plant from the site’s owner — Avon Lake Environmental Redevelopment Group (ALERG). The TIF for the power plant property will be negotiated between the developer and the schools. Any agreement they reach will put the city in a better position than if the development does not move forward. You can learn more about TIF and the power plant property on our Power Plant FAQs page.