The Ultimate Guide to Financial Feasibility: Tax Increment Financing And Tax Credits

When it comes to financing development projects, there are various options available to public and private entities. Two popular methods are Tax Increment Financing (TIF) and Tax Credits. These financial tools have played a significant role in boosting economic growth and development in many areas. In this comprehensive guide, we will explore the concepts, benefits, and applicability of both TIF and Tax Credits, shedding light on their financial feasibility.

Understanding Tax Increment Financing (TIF)

Tax Increment Financing is a financing mechanism that enables municipalities to invest in infrastructure and development projects within a specific designated area. It works by capturing the increase in property tax revenues generated by the development and using them to cover the project expenses. TIF plays a crucial role in revitalizing blighted areas, creating jobs, and stimulating local economies.

The financial feasibility of TIF is apparent through its long-term impact on communities. By leveraging future property tax revenues, municipalities can attract private investment, which would otherwise be hesitant to fund projects in economically distressed areas. This generates a multiplier effect, leading to increased property values, job creation, and improved public infrastructure.

Affordable Housing Development: Financial Feasibility, Tax Increment Financing and Tax Credits

by Jonathan Rodden (1st ed. 2019 Edition, Kindle Edition)

4.1 out of 5

Language	:	English
File size	:	11514 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	150 pages

FREE

Benefits of TIF:

• Facilitates economic growth and development in underserved communities
• Attracts private investment that may not have been possible without TIF
• Improves public infrastructure and amenities
• Increases property values, thus boosting tax revenue in the long run
• Creates employment opportunities

Exploring Tax Credits

Tax Credits are another financial tool widely used to incentivize private investment in various sectors. They provide a dollar-for-dollar reduction in the amount of tax owed by individuals or businesses, offering a significant incentive to invest in specific projects or activities.

The financial feasibility of Tax Credits stems from their ability to stimulate economic activities and achieve policy goals. Governments issue Tax Credits to address various issues, such as affordable housing, renewable energy, historic preservation, and job creation. By reducing the tax burden, both individuals and businesses are encouraged to engage in activities that benefit the economy and society as a whole.

Types of Tax Credits:

1. Historic Preservation Tax Credits:

Designed to preserve and rehabilitate historic buildings, Historic Preservation Tax Credits provide an incentive for property owners to renovate and restore historic structures. They play a crucial role in preserving cultural heritage while revitalizing communities and attracting tourism.

2. Renewable Energy Tax Credits:

Renewable Energy Tax Credits encourage the adoption of clean and sustainable energy sources. By reducing the financial burden of renewable energy projects, these credits contribute to reducing carbon emissions, improving energy independence, and creating green jobs.

3. Low-Income Housing Tax Credits:

Low-Income Housing Tax Credits aim to address the affordable housing crisis by incentivizing the construction or rehabilitation of affordable rental housing. These credits attract private investors to invest in low-income housing projects by offering a tax benefit over a specific period.

Comparing TIF and Tax Credits

Both Tax Increment Financing and Tax Credits have proven to be effective tools in driving economic growth and development. However, they differ in their mechanisms and the objectives they serve.

Tax Increment Financing primarily focuses on funding public infrastructure projects by capturing the increase in property tax revenues generated within a designated area. It aims to revitalize blighted neighborhoods, attract private investments, and create sustainable economic development.

On the other hand, Tax Credits provide direct financial incentives to individuals or businesses that engage in activities aligned with specific policy goals. They encourage private investment in areas such as affordable housing, renewable energy, and historic preservation.

Choosing the Right Financial Tool

When considering the financial feasibility of a project, it is essential to evaluate the specific objectives and requirements. These may include the scope of the project, desired outcomes, available resources, and local regulations.

For projects centered around targeted economic development, Tax Increment Financing (TIF) could be a better fit, as it allows municipalities to capture future tax revenues for funding. TIF is particularly effective in revitalizing blighted areas and attracting private investment.

On the other hand, if the project aligns with specific policy objectives, Tax Credits can provide the necessary financial incentives to encourage investment. Whether it is affordable housing, renewable energy, or historic preservation, Tax Credits can help achieve those goals by reducing the tax burden on individuals or businesses.

Financial feasibility plays a vital role in determining the success of development projects. By utilizing tools like Tax Increment Financing and Tax Credits, communities can strategically fund and incentivize projects that drive economic growth, improve living conditions, and achieve policy objectives.

Whether it is through capturing future tax revenues or offering direct tax incentives, these financial tools have the potential to transform blighted areas into thriving communities, create job opportunities, and promote sustainable development.

By understanding the concepts, benefits, and differences between Tax Increment Financing and Tax Credits, decision-makers can make informed choices and select the right financial tool to ensure the success and financial feasibility of their projects.

Affordable Housing Development: Financial Feasibility, Tax Increment Financing and Tax Credits

by Jonathan Rodden (1st ed. 2019 Edition, Kindle Edition)

4.1 out of 5

Language	:	English
File size	:	11514 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	150 pages

FREE

This book explains the nuts and bolts of affordable housing development. Divided into two complementary sections, the book first provides an overview of the effectiveness of existing federal and state housing programs in the United States, such as the LIHTC and TIF programs. In turn, the book’s second section presents an extensive discussion of and insights into the financial feasibility of an affordable real estate development project. Researchers, policymakers and organizations in the public, private and nonprofit sectors will find this book a valuable resource in addressing the concrete needs of affordable housing development. 

“Luque, Ikromov, and Noseworthy’s new book on Affordable Housing Development is a “must read” for all those seeking to address the growing and vexing problem of affordable housing supply.  The authors provide important insights and practical demonstration of important financial tools often necessary to the financial feasibility of such projects, including tax-increment financing and the Low-Income Housing Tax Credit.  Further, the authors provide important backdrop to the affordability crisis and homelessness. I highly recommend this book to all who seek both to articulate and enhance housing access.” 

By Stuart Gabriel, Arden Realty Chair, Professor of Finance and Director, Richard S. Ziman Center for Real Estate at UCLA

"Over several years Jaime Luque, Nuriddin Ikromov and William Noseworthy applied their analytical bent, and no small measure of empathy, to homelessness as actually experienced in Madison, Wisconsin – and they inspired multiple classes of urban economics students to join them. “Homelessness” is a complex web of issues affecting a spectrum of populations, from individuals struggling with addiction or emotional disorders, to families who’ve been dealt a bad hand in an often-unforgiving economy.  Read this book to follow Jaime, Nuriddin, and William as they evaluate a panoply of housing and social programs, complementing the usual top-down design perspective with practical analysis of the feasibility of actual developments and their effectiveness. Analytical but written for a broad audience, this book will be of interest to anyone running a low-income housing program, private and public developers, students, and any instructor designing a learning-by-doing course that blends rigor with real-world application to a local problem."

By Stephen Malpezzi, Professor Emeritus, James A. Graaskamp Center for Real Estate, Wisconsin School of Business, University of Wisconsin-Madison, and Dean, Weimer School of the Homer Hoyt Institute.