The Property Tax, Land Use and Land Use Regulation

The Property Tax, Land Use and Land Use Regulation

Studies in Fiscal Federalism and State–local Finance series

Edited by Dick Netzer

Dick Netzer, a leading public finance economist specializing in state and local issues and urban government, brings together in this comprehensive volume essays by top scholars connecting the property tax with land use. They explore the idea that the property tax is used as a partial substitute for land use regulation and other policies designed to affect how land is utilized. Like many economists, the contributors see some type of property taxation as the more efficient means of helping to shape land use. Some of the essays analyze a conventional property tax, while others consider radically different systems of property taxation.

Chapter 2: The effect of tax increment financing on land use

Richard F. Dye and David F. Merriman

Subjects: economics and finance, public finance

Extract

2. The effect of tax increment financing on land use Richard F. Dye and David F. Merriman 1 INTRODUCTION A municipality may use tax increment financing (TIF) to promote economic development by allowing certain areas, designated as TIF districts, to use the tax revenue generated by increases in the assessed value of properties within them for investment in the district.1 Unlike some other development incentives, TIF requires no explicit expenditure of local tax revenues. Also the opportunity to pledge incremental revenues provides access to borrowing that might otherwise not be available. In recent years TIF has become extremely popular among state and local governments around the United States. (For a general introduction to tax increment financing, see Klacik and Nunn, 2001, or Chapman, 1998.) Despite the virtues mentioned above, TIF is controversial for a number of reasons. In most states overlapping local governments share the property tax base. In Illinois, for example, school districts, municipal governments and county governments all levy property taxes. Economic development that is favored by one type of government (for example, a municipality) will not necessarily benefit others (school districts). Illinois municipal governments can establish TIF districts with little input from other units of government. Some analysts have expressed concern that TIF may allow municipalities to appropriate school district revenue for their own purposes. A second, even more fundamental, concern about TIF is that it may simply change the location of economic development rather than stimulate new growth. After state enabling legislation makes TIF...

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