Tax increment financing (TIF) is a tool that local governments can use to publicly finance needed structural improvements and enhanced infrastructure within a defined area. These improvements are associated with economic development; i.e., they usually are undertaken to promote the viability of existing businesses and to attract new commercial enterprises to the area. The statues governing tax increment financing are located in Chapter 311 of the Texas Tax Code.
Tax increment financing is based upon the pledge of future real property (not personal) taxes generated by new development within that defined geographic area. The public improvements make development of the area possible, which in turn enhances the value of the property. The taxes generated as a result of the enhanced property values are used to fund the public improvements within the area and other incidental costs.
In areas designated as TIF districts, tax-base increases are removed from the general tax rolls, and the revenue from the "captured" tax base is used to finance site improvements or other economic development costs.
In the standard model, public-sector bonds are used to raise the money needed to finance site improvements at the beginning of the project. The revenue from the captured tax base is then used to repay the bonds. When the bonds have been retired, the captured tax base reverts to the general tax rolls.
The Texas Municipal League has assumed editing and publication of the Economic Development Handbook. The publication, originally prepared by the Texas attorney general’s office, had become out-of-date. League staff, as well as several recognized legal experts, have updated the handbook and posted it online. It will be updated following each session of the Texas Legislature. The publication is only available online and can be downloaded in PDF format.