Economic Development: Compete or Stagnate

As Peoria continues to grow, I’m often asked to explain the need for—and mechanics of—various development incentives. Some of the best-known incentives are Tax Increment Financing (TIF) and the Enterprise Zone (EZ). But there are others as well, such as Peoria Promise. The fact is that if Peoria doesn’t use all of the development tools at our disposal to attract new investment and spur redevelopment, we will not be competitive with our peer communities in Illinois and elsewhere. We will lose out on the ongoing quest for added community wealth to support an improved quality of life—a quality of life that comes with a price tag. And that price tag can’t always be borne by additions to real estate and sales taxes.

Let’s face it—if we aren’t competitive, we stagnate and decline as a vibrant, high-quality community. So, how do these incentives work? What value do they contribute to Peoria? The following summarizes our most useful programs.

Tax Increment Financing (TIF). The most important—and at times misunderstood—program for urban redevelopment is Tax Increment Financing, which can help redevelop older neighborhoods. In a TIF district, dollars for improvements are generated by businesses—new and old—attracted by the TIF benefits. Money for infrastructure improvements and other incentives comes from the growth in property tax revenues—the tax increment.

TIF can help cities rebuild and restore their most run-down areas. Governments can make the improvements they need, like new roads or sewers, and provide incentives to attract businesses or help existing businesses expand, without tapping into general funds or raising taxes.

Without the TIF benefits, a declining neighborhood will not improve. Businesses do not invest into decaying areas, and the city cannot afford the needed costly improvements without raising taxes. But in a TIF district, dollars for improvements are generated by businesses—new and old—attracted by the TIF benefits. Specifically, money for infrastructure improvements and other incentives comes from the growth in property tax revenues—the tax increment.

Taxing bodies are often confused about the impact of TIF, but they are not harmed by a properly developed TIF. All taxing bodies continue to get the same tax revenue from the original real estate. Newly increased taxes from new development in the TIF are used to help the project. Eventually, when the TIF is complete, all taxing bodies share in the new revenue.

The City of Peoria has developed nine TIF districts and is considering a tenth. The market value of the TIF areas was very low, with disinvestment. The TIF helped these areas redevelop, and their value has gone up, while nearby areas without the TIF have had little improvement in value. And, of course, the redeveloped areas created jobs and vitality.

Depending on the rate of taxation, taxes paid by the new development may equal more than half of the total investment by the developer. The city can provide some or all of that incentive back to the developer to help make the project a reality.