Tax Increment Financing (TIF): A Powerful Tool for Brownfield Redevelopment
Tax Increment Financing (TIF):
A Powerful Tool for Brownfield Redevelopment
June 2023
Note: The Bank of New York Mellon and the Council of Development Finance Agencies (CDFA) partner on a monthly series called the CDFA // BNY Mellon Development Finance Webcast series. Guest speakers and a BNY Mellon moderator share insights, trends and expertise with state, county, and local development agencies on a wide range of development finance topics.
Understanding TIF and Its Role in Redevelopment
Brownfields are abandoned or underutilized properties that were previously used for industrial or commercial purposes and contain hazardous substances, pollutants or other contaminants. An April 2023 CDFA webinar, sponsored by BNY Mellon, explored multiple perspectives on using Tax Increment Financing (TIF) and franchise and excise tax credits (F&E) to support the redevelopment of brownfields in several localities, including the state of Tennessee, and the cities of Milwaukee and Detroit.
Given the need to recover contaminated spaces, approaches such as TIF and F&E credits offer a powerful tool to create shared incentives between public and private interests. TIF can help bridge the gap between stretching tax dollars and incentivizing developers to take on such projects whose time period for revenues and income is much longer than that for typical development projects.
A panel of four experts, introduced and moderated by Troy Pitman, vice president and relationship manager at BNY Mellon, discussed specific uses of TIF and F&E as financing mechanisms for development. These programs represent new strategies that local governments are employing to address challenging public finance scenarios.
Panelists included:
- Bart Kempf, partner, Bradley Arant Boult Cummings
- Debbie Clabo, director of Tax, Tennessee Department of Economic and Community Development
- Jennifer Kanalos, vice president of Board Administration and Government Affairs, Detroit Economic Growth Corporation
- David Misky, assistant executive director, City of Milwaukee
How TIF Supports Various Redevelopment Projects
Clabo described Tennessee’s approach to using F&E tax credits as a complement to TIF. As background, on March 31, 2023, Tennessee Governor Bill Lee signed legislation amending Tennessee's brownfield redevelopment laws. The legislation incentivizes brownfield redevelopment through tax credits and TIF. These initiatives will start on July 1, 2023, creating significant opportunities for the cleanup and renewal of industrially contaminated sites. They will help lay the foundation for local economic growth and community well-being. “These are exciting times in Tennessee for brownfield redevelopment,” said Clabo.
Tennessee tax authorities and state agencies will provide credits for up to 75% of the purchase price of a brownfield property, depending on location and purchase price. Credits are dependent on the determination of the best interests of the state.
Kempf described the role of the TIF mechanism. TIF captures the increase in property tax revenue generated by new development and allocates it toward financing project costs. This financing mechanism can be helpful for brownfield projects since they may not be financially viable otherwise, especially in economically struggling areas.
TIF has not yet been utilized for Tennessee brownfield projects, but, Kempf explained, “Legislation in 2019 and 2023 lowered key impediments and added more user-friendly eligibility requirements.” In addition, for brownfield redevelopment, TIF can include both sales and property tax, a feature that can help localities absorb the impact of dedicating a portion of their tax revenue.
Detroit is also using TIF to address brownfield remediation and mitigation. The Detroit Economic Growth Corporation (DEGC), represented by Kanalos, designs and implements innovative solutions that attract inclusive investment, create jobs, support neighborhoods and advance Detroit's economy. The DEGC manages three public authorities that utilize TIF to redevelop sites and promote economic development initiatives including the Downtown Development Authority, the Eight Mile Woodward Corridor Improvement Authority and the Detroit Brownfield Redevelopment Authority.
Kanalos described several substantially complete projects that have delivered improvements to Detroit, resulting in new residential, retail and commercial square footage for the city. “TIF is a crucial component in getting some of these projects over the finishing line. It is meant to not only provide for cleaning up but also to correct urban conditions,” said Kanalos.
The City of Milwaukee is also using TIF to address conditions that inhibit neighborhood reinvestment. Misky described how the creation of brownfield TIF districts in Milwaukee has helped make urban spaces usable with commercial space and community parks. In addition, TIF can help drive additional project funding. “We leverage these TIF districts to secure other state, federal and philanthropic grant and loan dollars,” said Misky.
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