TIF works by borrowing against future property tax increases. A city council selects an area for development and sells bonds for the project. Once the area is developed, the city continues to collect the original property tax, while the increased value is used to pay off the bonds (usually over a period of 20 years).
Example: An area produces $1000 a year in property taxes. Once developed and new buildings are added, it now generates $3000 in property taxes. The city continues to receive the $1000, while the other $2000 goes to pay off the bond. Once the bond is paid off, the city would receive the entire adjusted property tax value (plus whatever value the improvement has added to the city).
Some critics of TIFs feel they are used too casually or that they divert revenue away from the city to a private party. Supporters feel that TIFs allow for development in areas that would not otherwise be developed.
TIF Review Committee: Rapid City's committee providing recommendations on creation of TIFs.
Tax Increment Financing: Expanded information on what a TIF is and how it is used
South Dakota Municipal League on TIF: South Dakota specific information
Tax Increment District History: A timeline of TIF projects in Rapid City