This report reviews alternative sources of revenue to support new infrastructure and other development projects for which municipal funds are not readily available, reviewing two such instruments: Tax Increment Financing (TIF) and Land Value Capture (LVC).
The authors found more frequent use of TIF than LVC. TIF has largely been used to fund small-scale projects, often not exceeding one or two hundred million dollars in capital costs, but the authors could find only two TIF implementations that aimed to generate over a billion dollars in TIF revenue, and those projects fell short of meeting the revenue targets.
The evidence for TIF efficacy is mixed and depends, to some extent, on the type of methods used in the analysis. Some studies found the TIF districts reported higher rates of development and greater real estate price appreciation than comparable non-TIF districts. Three key elements were repeatedly found to contribute to TIF success:
(1) Mixed land use developments often met their intended TIF objectives.
(2) The timing of TIF implementation mattered; TIFs initiated during recessions met with limited success.
(3) Smaller TIFs were more successful in meeting revenue targets than larger ones.
The TIF experience in Chicago and at New York City’s Hudson Yards redevelopment are reviewed. The authors also simulate a 30-year TIF implementation along the Sheppard East corridor in Toronto, the route for the Sheppard subway line that started operations in 2002, and offer insights for local and higher tiers of government interested in implementing TIF.
The analysis found that the net present value of the simulated TIF revenue covered only a small portion of the capital costs of extending the subway line.