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e TAX INCREMENT FINANCING May 31, 1 985 Page 2 How Tax Increment Financing Works Tax increment funds are generated by the incremental value of the property in the renewal district. At the time of the adoption of the tax increment district, the real property value is considered "frozen" for purposes of calculating how much incremental value is generated. As the value of the property rises due to the stimulation caused by the public improvements to correct deficiencies in the area, incremental funds are generated. That increased value over the frozen base is multiplied by the consolidated tax rate for that area. The assessor collects the property tax and returns that portion of the incremental value to the district so that the funds can be used to implement the adopted renewal plan in accordance with State statutes. In order to obtain funds to initiate projects, a renewal district can receive grants, borrow funds, or sell tax increment bonds based on expected increment to be generated. The financial analysis in the renewal plan report outlines how tax increment revenues and other funds can be used over a period of time to pay for the public improvements. The size of a bond can be determined based on this analysis. This financial plan must demonstrate that the renewal project is financially feasible. e How Long Can Tax Increment Districts Last? The State statutes require a completion date for each renewal project. The completion date is usually determined by the financing plan and would not terminate prior to any bonded indebtedness obligation for which tax increment revenue is pledged. A renewal district would be expected to be closed out when both the debts have been satisfied and the objectives of the project have been met. Effect of Tax Increment Districts on Other Taxing Subdistricts The formation of a tax increment district and the segregation of funds does not take tax money away from other tax jurisdictions; thus, other taxing districts do not lose money as a result of tax increment districts. The tax rate is affected because the assessed value over the frozen base of the renewaT district is available only to the renewal district. Usually the difference in the tax rate is about a few cents on the dollar per thousand of assessed value. When the renewal district is terminated the other taxing jurisdictions will not receive additional revenue, but the tax rate should decrease as a result of the assessed value not available to those districts. The State statutes require a report on the fiscal impact of the renewal district to other taxing jurisdictions. . e