Commentary from Comptroller Justin P. Wilson; May 8, 2012:
New Law Clarifies and Strengthens a Valuable Economic Development Tool
During the legislative session that recently ended, job creation was one of the major themes.
Early in the session and with little fanfare, lawmakers approved legislation that has the potential to create many new jobs in communities throughout our state. It’s called the Uniformity in Tax Increment Financing Act of 2012, a measure that gives economic development officials in our cities and counties an attractive incentive to offer businesses.
Tax increment financing – or TIF, as it is frequently called – is a method for paying for community improvements with future tax revenues. For example, consider what happens when a government decides to invest in new roads, street lights, water and sewer lines or other infrastructure improvements in a neighborhood. Typically, the value of the property in that neighborhood will increase, which means tax collections from the area should also increase.
TIF uses the extra tax revenues collected after the property value rises to recoup the costs of the government’s infrastructure investments. In other words, it’s a way to allow growth to pay for itself.
While we had laws on the books allowing for TIF before this year’s legislative session, they were confusing and sometimes contradictory.
TIF was referenced in four different parts of state statutes – and each different section of the law had different rules regarding creation of TIF districts. Many local government officials were confused about how TIF could be used, so they shied away from offering it as an incentive. In other cases, excess TIF funds collected after improvements had been paid for were going into slush funds for local development agencies, which clearly was not the purpose for which the money was intended.
The Comptroller’s office initially set out to draft legislation with the simple goal of making the law governing TIF clearer and more understandable. However, Sen. Jack Johnson, the bill’s sponsor, challenged us to go further.
Sen. Johnson, R-Franklin, wanted legislation that would make it easier for local governments to use TIF to attract economic development. This meant clarifying and expanding the types of expenses that could be financed.
Significantly, the new law clears the way for TIF to be used to construct new buildings for businesses as opposed to merely providing them with infrastructure. In today’s competitive economic development market, sometimes providing roads, water and sewer lines and other infrastructure isn’t enough.
Some local governments may wish to use TIF to pay for buildings for highly sought after businesses.
The new law also streamlines the approval process so local governments will get a yes or no decision on their TIF projects from the state within 30 days – or else the projects will automatically be approved.
Thanks to Sen. Johnson’s help, we now have a law on the books that will make it easier to bring new jobs in our communities.
That’s the type of service government should be providing.
Justin P. Wilson is Tennessee’s Comptroller of the Treasury.