“TIF better matches those who benefit from new infrastructure with those who pay for it,” commented Found.
March 29, 2016 – Cities across Canada should consider new and innovative approaches to financing their share of infrastructure spending, according to a new C.D. Howe Institute report. In “Tapping the Land: Tax Increment Financing of Infrastructure,” author Adam Found shows how cities could use tax increment financing (TIF) to finance infrastructure ranging from sports arenas to public transit.
Under TIF the benefits conferred to nearby properties by new local infrastructure are transformed into additional property tax revenue, which is then used to finance that same infrastructure.
TIF’s key virtue is its ability to capture infrastructure-induced increases in land value without increasing general tax rates. TIF can finance infrastructure without worsening the existing negative impacts of property taxation on investment. Another potential virtue of TIF over general revenue taxes is its enhancement of equity by aligning location-specific infrastructure benefits (such as a transit station within walking distance) with costs.
“TIF better matches those who benefit from new infrastructure with those who pay for it,” commented Found. “Otherwise, using general taxes to finance infrastructure that brings benefits to specific areas only will subsidize those near the infrastructure at the expense of all other taxpayers.”
The author notes Toronto’s proposed SmartTrack transit plan as a leading example of a municipality looking at how to use TIF for a major investment. Using a hypothetical case study, the author investigates the potential for Toronto to pay its share of SmartTrack’s cost using TIF and finds that, depending on SmartTrack’s impact on property values and the design of the program, TIF can potentially finance a significant share of the City’s investment cost.
Found concludes: “The successful application of TIF to SmartTrack could pave the way for more extensive consideration and use of TIF throughout Ontario, and perhaps the rest of Canada.”
Click here for the full report.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Adam Found, Metropolitan Policy Fellow, C.D. Howe Institute, and Course Instructor, Trent University; 416-865-1904, or email: kmurphy@cdhowe.org.