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Developers call for trials of US scheme to fund infrastructure

An American model for funding infrastructure by borrowing against future tax revenue is gathering increasing support across the property industry, the head of the British Property Federation (BPF) will say today at a MIPIM debate hosted by PricewaterhouseCoopers LLP.

Developers and planning consultants are calling for tax increment financing (TIF) pilots to be run across the UK to fund the infrastructure that is needed to make key regeneration projects economically viable.

Without new sources of funding it believes the regeneration of our cities that has taken place in recent years will come to a halt.

TIFs raise finance by borrowing against future increases in property taxes to fund current development. They work on the basis that new development within a TIF district will generate additional tax revenue which can be used to repay the cost of the infrastructure that has enabled the development to go ahead.

The USA has thousands of TIFs across ever state except for Arizona. Some of the most notable can be found in Barack Obama’s home state of Illinois which now has more than 900 TIF districts, many around Chicago.

Liz Peace, chief executive of the BPF, will say:

“Tax increment financing is a flexible tool that could be used to help a wide range of regeneration schemes that do not currently stack up because of the upfront infrastructure spending needed. The TIF approach is gathering an increasing range of support across the UK, with strong backing from many of the country’s leading cities and developers.

“At a time when development is at such a low ebb the Government should be paving the way for TIFs and other vehicles which could kick-start the regeneration sector as soon as the recession eases.”

Notes for editors

The British Property Federation has launched a discussion paper (read it below) on tax increment financing as a mechanism for using future gains in taxes to finance the current improvements (such as new or improved infrastructure) that will create those gains. In simple terms, it enables a local authority to trade future tax income for a present benefit.

TIF schemes are favoured by local leaders because of the prospect that they offer for attracting investment to sites that might not otherwise get it. Sometimes the remediation and infrastructure related costs of brownfield sites can be so large that property developers are reluctant to get involved. In these circumstances, the only way forward may be for the public sector to help prepare land for development through up-front investments.

TIF is the mechanism by which this usually happens in the US.
TIF works on the principle that the supply of new or improved infrastructure usually leads both to new development and to an increase in the value of surrounding property, both of which serve to increase the level of property taxation in the area.

Within a designated TIF district this increased taxation (the “tax increment”) is captured and used to pay for the infrastructure that has been provided. Financing debt issued to pay for the project by utilising increased tax revenues can take up to 20-25 years but in other cases the timeframe can be much shorter.

Download

BPF TIFs paper