TIF does not reduce the developer's property taxes. The property owner continues to pay the full property tax bill based on the property's assessed value.
The difference is how a portion of the new tax revenue is used.
For example, if a commercial property is worth $1 million before redevelopment. The property generates approximately $20,000 per year in total property taxes, of which the City of Ralston receives approximately $7,000. The remaining taxes are distributed among the school district, Douglas County, and other taxing entities.
After redevelopment, assume the property is worth $3 million. The property now generates approximately $60,000 per year in total property taxes. Without TIF, the City of Ralston's share would be approximately $21,000 per year.
The taxes generated by the original $1 million value—approximately $20,000 per year—continue to go to the regular taxing entities. This means the City of Ralston continues receiving approximately $7,000 per year during the TIF period.
The taxes generated by the new $2 million in value—approximately $40,000 per year—are called the tax increment. This includes approximately $14,000 per year that would otherwise go to the City of Ralston, along with the increment associated with the other taxing entities.
For a limited period, the tax increment can be used to repay eligible redevelopment costs or project financing.
If the TIF period lasts 15 years and property values and tax rates remain the same, the project could generate up to approximately $600,000 in tax increment over that period. Of that amount, approximately $210,000 represents the City's share of the increment.
When the TIF obligation ends, the full value of the property is returned to the regular tax rolls. In this example, the City of Ralston would then receive approximately $21,000 per year, rather than $7,000, based on the full $3 million property value.
