What Is a Tax Increment Finance District?
Under a tax increment finance district plan, a town or city borrows money to purchase land and make infrastructure and other improvements in a designated geographic area in combination with planned private development with the expectation that those public investments will spur private development.
The additional property tax revenue captured from that private investment — above the assessed value in place when the TIF is created — is used to pay the annual bond payments and other expenses, including marketing the properties. Once the TIF expires and the bond or bonds are paid off, the full assessed value of the district becomes part of the city’s grand list, which is used to calculate the tax rate for the city, schools and county.
“They really are a pretty powerful tool for economic development in New Hampshire,” said Carmen Lorentz, director of economic development with the state Department of Resources and Economic Development. “New Hampshire doesn’t usually allow for property tax abatements, so TIFs can help and they have produced some very good results.”
On River Road, Claremont made the investments first (buying land and later upgrading infrastructure), hoping to attract new industry. The downtown TIF, on the other hand, was a collaboration — infrastructure upgrades went hand in hand with a commitment from private developers for three mill buildings on Water Street.
Stuart Arnett, the city’s planning and development director from 1991 to 1998 who now runs a consulting outfit, said his firm does not recommend incurring costs upfront the way the city did on River Road.
That’s because if there is no private investment, the debt payments have to be made using general tax revenue.
“Put everything in place, get (infrastructure) designed, but don’t incur costs until there is (private sector) commitment,” Arnett said. “It is a powerful tool because it shows you are ready to do something.”
The downtown TIF district was created in the late 1990s, but bonds were not issued for infrastructure improvements — including a new parking garage — until private investment was guaranteed.
But not all of the development materialized in the downtown TIF, so the district has struggled to meet its annual debt payments. That resulted in the need to borrow from the annual surplus of the River Road TIF, which expired June 30, for the last several years.
During this spring’s budget discussions, City Manager Guy Santagate proposed using the River Road TIF’s $1.5 million surplus to pay off an accumulated deficit of $1.2 million from loans to the downtown TIF and use the rest to help pay a portion of the downtown TIF’s roughly $900,000 in annual expenses for the 2016-17 fiscal year, mostly for debt service. The downtown district generates nearly $600,000 in annual revenue.