MISSISSIPPI GULF COAST — There have been a lot of news reports revolving around TIF bonds in Gulf Coast cities and counties, but not everyone understands what it means. In this article, we will make it easy for anyone to understand, so you can get involved in the discussion and help decide what is best for your community. We will go over practical uses versus not so practical – or even nefarious – uses.
Tax Increment Financing, called a TIF for short, can be a powerful tool for economic growth — when used correctly.
The shortest way to define a TIF: it is a way for local governments to help pay for development projects by using future tax revenue that the project is expected to generate. Instead of the developer paying for things like roads and utilities, the city covers those costs upfront and repays itself with the increased property taxes from the new development over time.
Now, let’s delve into a couple of examples – how to use TIFs the right way and then the wrong way. We will use examples for a big box store and another for a condominium development.
How a TIF Bond Works for a Big Box Store
To better understand how a TIF works in practice, let’s walk through a hypothetical example of a big box store. Let’s call it ShopSmart Superstore.
Step 1: The Developer Proposes a Project
A retail developer approaches the city with plans to build ShopSmart Superstore, a 100,000-square-foot retail space expected to bring in significant sales tax revenue, create jobs, and boost economic growth in the area.
However, there’s a problem: the land where ShopSmart wants to build is undeveloped and lacks necessary infrastructure, such as:
- Paved roads and turn lanes for customer access
- Sewer and water lines
- Parking lot drainage
- Street lighting and sidewalks
The developer doesn’t want to foot the bill for all of these improvements, so they request a TIF bond to help cover those costs.
Step 2: The City Approves a TIF Bond
The city reviews the proposal and determines that ShopSmart will bring long-term benefits, including:
- Job creation (construction jobs, retail employees, management positions)
- Sales tax revenue from every item sold in the store
- Increased property values for surrounding businesses
Seeing the potential benefits, the city approves a TIF bond worth $8 million to help pay for the infrastructure improvements needed to support the development.
Step 3: Infrastructure is Built, Store is Developed
The city issues the TIF bond, using that money to fund the necessary roads, utilities, and public infrastructure around the ShopSmart Superstore site. Meanwhile, the developer moves forward with construction.
Step 4: The Store Opens and Generates Revenue
Once ShopSmart opens, it starts bringing in millions in sales each year. That means:
- The city collects sales tax revenue on every purchase
- The property itself is now worth much more, so property taxes increase
- The area around ShopSmart attracts more businesses (restaurants, gas stations, shopping centers), leading to further development
Step 5: Paying Back the TIF Bond
Instead of the increased property tax revenue going into the city’s general budget right away, it is used to pay off the TIF bond over a period of years (often 10-20 years).
Once the bond is fully repaid, all the new tax revenue goes to fund city services like schools, police, and roads.
Why This Makes Sense
This type of TIF deal is a smart investment because:
- The city gets a major employer and economic hub
- Sales tax revenue starts flowing immediately
- The public improvements benefit more than just the developer—surrounding businesses and residents also gain from the new roads and utilities
In this case, the TIF serves its intended purpose — it helps kickstart development that wouldn’t have happened otherwise, and the entire community benefits.
When a TIF Becomes a Developer Handout
Now, let’s look at a different kind of city — one that uses TIF bonds not to attract retail stores or job-creating businesses, but to lure condo developers. At first glance, it might sound like a good idea — after all, new condos mean more housing, right? But when you break down the numbers, the benefits to the community just aren’t there.
Step 1: The Mayor Offers a TIF to a Condo Developer
A real estate developer proposes to build a luxury condo complex in the city. The mayor, eager to show support for “growth,” dangles a TIF bond as an incentive to move the project forward.
But here’s the problem: condos don’t generate sales tax revenue the way a big box store does. There are no daily transactions, no shopping rushes, no increased consumer spending. Unlike a retail development, condos are not an economic engine—they are just housing.
Step 2: The City Issues a TIF Bond Anyway
Instead of requiring the developer to pay for their own infrastructure costs—such as roads, utilities, and drainage—the city issues a multi-million-dollar TIF bond to cover those expenses. The developer gets the benefit of taxpayer-funded improvements without having to put up the cash themselves.
Step 3: The Condos are Built, But No New Revenue Streams
Once the condos are completed, a few residents move in, and that’s about it. Unlike a shopping center that attracts hundreds or thousands of customers a day, a condo complex houses the same small group of people indefinitely.
Here’s what doesn’t happen when a city gives a TIF to a condo project:
- No significant job creation – After construction is done, there are only a handful of permanent jobs (maybe a maintenance worker or two).
- No sales tax revenue – The city gets nothing from condo sales, HOA fees, or property management costs.
- No surrounding business boom – Unlike a big box store that drives foot traffic, a condo development does not attract new businesses to the area.
Step 4: The Public Pays for Private Profits
Meanwhile, the city’s property tax revenue from the new condos is tied up repaying the TIF bond for years—meaning the tax money that should be going toward schools, roads, and emergency services is instead being used to pay off a bond that never benefited the public in the first place.
So, who really wins in this scenario? The developer.
- They didn’t have to pay for their own infrastructure — the taxpayers covered it.
- They sell the condos for a huge profit while the city sees little to no financial return.
- They walk away with millions, while the public is left footing the bill.
The Bottom Line
A TIF bond for a big box store makes sense because it creates jobs, boosts local businesses, and generates ongoing tax revenue.
A TIF bond for condos? That’s just a developer handout, shifting costs onto taxpayers while delivering little to no economic return.
Cities should use the TIF wisely — as an investment in public growth, not a subsidy for private profit. Now that you know more, you can participate in the discussion the next time your city holds a public hearing on whether or not to issue a TIF to a development.
