Affordable Housing Development by Jaime P. Luque & Nuriddin Ikromov & William B. Noseworthy

Author:Jaime P. Luque & Nuriddin Ikromov & William B. Noseworthy
Language: eng
Format: epub
ISBN: 9783030040642
Publisher: Springer International Publishing

Current property tax

$47,000

New property tax

$270,000

Tax increment

$223,000

Life of TID (years)

23

Interest rate

5.20%

TIF amount

$2,952,052

In this example, the building (or buildings) in the area designated as a TID currently pay $47,000 in property taxes annually. When the proposed development within the TID is completed, the annual property tax is expected to be $270,000. Thus, the tax increment is $223,000—the property tax would be higher by $223,000 per year due to the new development. The TID will close after 23 years. Assuming the city can borrow at 5.20% interest, the total TIF amount would be about $2.95 million, as shown in the table. The city would give this amount to the developer at the start of the project. This is a big boon for the developer, because they would have to pay the same property tax regardless of whether the project is within a TID. The difference is that the developer gets a large injection of cash ($2.95 million in our example) if the project is within the boundaries of a TID. Therefore from the perspective of developers, TIF is often a necessity for financially feasibility, as TIF funds reduce the required loan amount, and thus the annual debt service.

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