TAX INCREMENT FINANCING "WATERFALL" ANALOGY
Suppose your neighbor is proposing to build a new swimming pool at his home with a beautiful waterfall. The neighbor donates to a lot of political campaigns and so is able to convince government officials to create a new special zone on your entire block and establish a “TIF revenue sharing agreement” on all property taxes that are collected by you and your neighbors. "Mr. Waterfall" argues that ALL properties on the block will have their property values rise due to his beautiful new water feature. Your neighbor even pays to have a very thorough economic study done, showing exactly how his new pool and waterfall will allow everyone to benefit. He convinces government that, without his new swimming pool, property taxes wouldn’t go up at all and so public taxes must be expended to help him build the waterfall.
Because the area is in a special government-created zone, any increases, or 'increment' in property taxes (regardless of whether they would have occurred anyway) will still be collected by the county, the city, the library district and your school district. However, the governing boards for each of these taxing entities (many of whose members’ political campaigns received contributions from your waterfall neighbor) all signed off on the agreement. In this special zone, the increased taxes that you and every other neighbor will pay won’t fund the county, the city, the library district or the school district. Instead they’ll get transferred to a special organization who will transfer the increased taxes directly to your neighbor to assist him with the huge cost of construction for the new waterfall and swimming pool. You’re told not to worry—that those taxes can only be used for the side of the waterfall that faces the street and for the drainage system that keeps the swimming pool from flooding the entire neighborhood—these are “public improvements,” of course.
Since your waterfall neighbor and his colleagues have homes in many areas, many similar zones get created all over the region and any increase in tax collections (increments) are siphoned off to build the beautiful new waterfalls. Some of them are even in commercial business zone and so they have opened store fronts in the zones. Now new sales taxes can also be transferred to help build more waterfalls.
Because the waterfalls are so nice, people that used to go to restaurants and shops that aren’t near the beautiful waterfalls in the special waterfall zones begin to start patronizing businesses in the waterfall zones instead. Since the increased property and sales taxes in waterfall zones are used for waterfalls and their accompanying “public improvements,” less and less tax money is available to pay for the county sheriff’s office, roads, stormwater, the city fire department, the city police department, or public parks. Pretty soon, the roads deteriorate, police and fire response times increase and the local parks become dilapidated. Your waterfall neighbor and his fellow waterfall colleagues then urge citizens to raise their taxes to pay for the failing state of affairs. They spend a lot of money on the tax increase campaign convincing citizens it’s their duty to raise their own taxes for these critical government needs. Citizens get so many postcards and see so many billboards and ads, they vote for the tax increases. Shortly thereafter, new waterfall zones quietly get approved.
Welcome to Colorado Springs.
Suppose your neighbor is proposing to build a new swimming pool at his home with a beautiful waterfall. The neighbor donates to a lot of political campaigns and so is able to convince government officials to create a new special zone on your entire block and establish a “TIF revenue sharing agreement” on all property taxes that are collected by you and your neighbors. "Mr. Waterfall" argues that ALL properties on the block will have their property values rise due to his beautiful new water feature. Your neighbor even pays to have a very thorough economic study done, showing exactly how his new pool and waterfall will allow everyone to benefit. He convinces government that, without his new swimming pool, property taxes wouldn’t go up at all and so public taxes must be expended to help him build the waterfall.
Because the area is in a special government-created zone, any increases, or 'increment' in property taxes (regardless of whether they would have occurred anyway) will still be collected by the county, the city, the library district and your school district. However, the governing boards for each of these taxing entities (many of whose members’ political campaigns received contributions from your waterfall neighbor) all signed off on the agreement. In this special zone, the increased taxes that you and every other neighbor will pay won’t fund the county, the city, the library district or the school district. Instead they’ll get transferred to a special organization who will transfer the increased taxes directly to your neighbor to assist him with the huge cost of construction for the new waterfall and swimming pool. You’re told not to worry—that those taxes can only be used for the side of the waterfall that faces the street and for the drainage system that keeps the swimming pool from flooding the entire neighborhood—these are “public improvements,” of course.
Since your waterfall neighbor and his colleagues have homes in many areas, many similar zones get created all over the region and any increase in tax collections (increments) are siphoned off to build the beautiful new waterfalls. Some of them are even in commercial business zone and so they have opened store fronts in the zones. Now new sales taxes can also be transferred to help build more waterfalls.
Because the waterfalls are so nice, people that used to go to restaurants and shops that aren’t near the beautiful waterfalls in the special waterfall zones begin to start patronizing businesses in the waterfall zones instead. Since the increased property and sales taxes in waterfall zones are used for waterfalls and their accompanying “public improvements,” less and less tax money is available to pay for the county sheriff’s office, roads, stormwater, the city fire department, the city police department, or public parks. Pretty soon, the roads deteriorate, police and fire response times increase and the local parks become dilapidated. Your waterfall neighbor and his fellow waterfall colleagues then urge citizens to raise their taxes to pay for the failing state of affairs. They spend a lot of money on the tax increase campaign convincing citizens it’s their duty to raise their own taxes for these critical government needs. Citizens get so many postcards and see so many billboards and ads, they vote for the tax increases. Shortly thereafter, new waterfall zones quietly get approved.
Welcome to Colorado Springs.