Waco 101: What the heck is TIF?

By Ashley Bean Thornton

(Have you ever been a part of a conversation where you just nodded and pretended you knew what was going on, when really you had no idea what people were talking about?  If you do this long enough, you eventually get to the point that it’s embarrassing to ask, and you just make peace with stumbling along in ignorance.  I know this from personal experience! For example, even though I think of myself as a fairly well informed citizen of Waco there are still some basic things about how the city works that I only vaguely understand. And – even though it probably only takes 5 minutes to Google it – I just never get around to it.

Assuming that I’m not the only one out there with this particular character flaw, Act Locally Waco is starting a blog series called “Waco 101.”  The idea will be to use a blog post every now and then to explain some aspect of how the city works – maybe some term or process you read about in the paper all the time, but don’t really understand.  It’s for those of us who want to be informed citizens, but are just too dang busy (or lazy!) to look stuff up.  Do you have ideas for topics for this series?  If so, send me an email at [email protected] and we’ll try to find someone to write about it.  No one needs to know it was you who asked!  Thanks!  — ABT)

If you have ever read an article in the Trib about downtown Waco, you have probably come across the acronym “TIF,” as in…

Or, most recently…

…but, what the heck is “TIF?”

The acronym “TIF” stands for “Tax Increment Financing.”

Tax Increment Financing (TIF) is a way for the city to encourage development in an economically distressed area by investing tax revenues.  The basic idea is that there are certain areas in the city that would be beneficial to develop, but, to be frank, they are in such bad shape that it is difficult to entice investors to take the plunge.  To help with this dilemma, the City of Waco can encourage investment by agreeing to pay some of the cost of the development.  But, where would the money come from to do that you ask?  Enter TIF!

The basic concept of TIF is that a distressed property has a certain original value that generates some amount of tax dollars. After it is renovated, it will have a new, higher value that will generate more tax dollars. This difference in the amount of taxes paid is the “increment” in Tax Increment Financing.  The Tax Increment Financing model uses this projected increment to finance improvement projects.

Here’s how it works:

The city identifies a particular area that is economically distressed, but has potential for profitable development. This area is designated as a “TIF zone” for up to forty years.  For example, in 1982 the City of Waco established “Reinvestment Zone #1,” which includes part of downtown and a large part of the river front (map). That area is designated a TIF zone until 2022.

Taxes collected the year the TIF zone was established are considered the “baseline” taxes for the zone.   The Taxing entities (in our case, the City, McLennan County, McLennan Community College and WISD) agree that, for the length of the TIF agreement, they will take only that baseline amount each year.  Any taxes collected above that baseline will be put into a fund to be reinvested in the TIF zone.  This difference between the baseline taxes and the actual taxes collected is the “increment.”

TIF funds can be used for variety improvements: affordable housing, transit facilities, demolishing a building, or preserving the façade of a building, among others.  (Here’s the link to the city’s TIF Guidelines.)

Developers who are interested in investing in the TIF zone can ask for TIF funding to help with eligible parts of their projects.  This reduces the developer’s expenses and helps encourage renovation in the zone.   When the renovation is complete, the property is more valuable, which results in higher property taxes, which replenishes the TIF fund.

Developers who are interested in receiving this kind of funding start the process by checking with the City Manager’s office to see what parts, if any, of their projects are eligible for TIF funding. If some parts are eligible, the developer may submit an application for formal consideration of funding.

Eligible funding requests are presented to the Board of Directors for the TIF zone.  The Board of Directors is appointed by the taxing entities.  There are eight members on each TIF board in Waco: one each appointed by Waco ISD, McLennan County, and McLennan Community College and five appointed by the Waco City Council.   This board reviews the proposal and makes a recommendation to the City Council as to whether or not to accept the proposal.

If the City Council does accept the proposal, the city enters into a contract with the developer to reimburse the agreed upon TIF-eligible work.

This reimbursement might happen in any one of several ways, for example:

  • The developer might pay the cost of the approved improvement, and then be reimbursed over time from the increased tax revenues, or…
  • The city might pay for the improvement directly out of the existing TIF funds, or…
  • the improvement might be paid for by the sale of a bond, that would then be repaid over time out of the tax increments.

This model of funding has been used to help incentivize all kinds of downtown Waco development projects from the MLK Pedestrian/Bike Trail, to the American Football Coaches Association parking lot to – more famously –  parts of the McLane Stadium project and The Magnolia Silos project.   The most recent big TIF commitment is for the “Brazos Promenade” riverfront development scheduled to break ground in 2017.

Clearly this model of funding has had a huge impact on Waco especially in downtown.  It will be interesting to see what the future holds between now and 2022 when TIF zone #1 reverts back to the regular tax rolls!

Ashley Thornton French FryThis Act Locally Waco blog post is by Ashley Bean Thornton, she works at Baylor, helps out with Act locally Waco, and facilitates the Waco Foundational Employment Network which is a part of Prosper Waco.  She likes to walk and doesn’t mind at all if you honk and wave when you see her.

 The Act Locally Waco blog publishes posts with a connection to these aspirations for Waco. If you are interested in writing for the Act Locally Waco Blog, please email [email protected] for more information.






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