Developers and city officials often talk about “TIFs” when development projects are on the table.
TIF stands for tax increment financing. The City of Cleveland has used this finance tool on projects including the Flats East Bank, the Sherwin-Williams headquarters, and the redevelopment of the riverfront and lakefront.
Check out Cuyahoga County’s interactive map to see the locations of all the TIFs in Cleveland and in the county.
What is a TIF?
Local governments use tax increment financing to help developers pay the costs of building new offices, hotels and other development projects.
TIFs let developers use increases in property tax revenue to pay for improvements to public infrastructure, such as roads near the project. In some cases, they can also use the money to directly fund their projects.
Before getting into the details of how TIFs work, let’s break down where property taxes go when TIFs are not in play. Cuyahoga County collects property taxes and distributes that money to several places, including schools, libraries, Metroparks and social services.
When Cleveland or another local government has a TIF agreement with a developer, the property values of the area freeze. The taxing entities then receive property tax revenue based on the frozen values until the TIF expires. In other words, they receive the same amount of property tax revenue that they received before the TIF.
If property values rise above the frozen pre-TIF values, those increases in property tax revenue go into a TIF fund. The city can use the money in the TIF fund to reimburse the developer for public improvement (and sometimes private) costs. It can also issue bonds to borrow money and start development work right away.
Most of Cleveland’s property tax revenue goes to the schools. Do TIFs cause them to get less property tax money?
Cleveland primarily uses non-school TIFs, which exempt schools from the tax revenue freeze. Schools receive the amount of property tax revenue they would have received if the TIF did not exist and the same development occurred.
If the city chooses to use a TIF that does not exempt the schools from the tax revenue freeze, it has to notify the board of education and negotiate a compensation agreement. That agreement might require a portion of the property tax increases to go to the schools instead of the TIF fund.
How do TIFs get put in place? What happens if a TIF does not generate the expected revenue or agreed-upon benefits to the community?
Before a TIF fund can start collecting increases in property tax revenue, Cleveland City Council has to pass legislation approving the TIF agreement.
If property values do not increase as expected after a TIF is implemented, the developer will have less money than expected to pay for public improvements or project costs.
When finalizing a TIF contract, the city can negotiate terms that help protect itself from risk. The method the city uses to disburse TIF funds to the developer also provides some protection, according to a July 2024 presentation to council. The city reimburses the developer for public infrastructure/project costs as the developer makes and pays for improvements. This prevents the city from having to continue making TIF payments to the developer if the developer gives up on the project or stops making improvements.
Cleveland requires Community Benefits Agreements (CBAs) for projects that receive $250,000 or more in city assistance. CBAs typically include commitments to work with minority- and women-owned businesses, hire Cleveland residents, provide workforce training and make other investments in the community.
If the developer of a project with a TIF deal does not meet the requirements listed in its CBA, the city can withhold, and then reduce, payments from the TIF fund, according to the July 2024 presentation.
There are different types of TIFs. What are they?
In Ohio, there are two types of TIFs. One covers a specific project site, and the other covers a geographic area.
Project TIFs only collect property tax increases on the site of a specific development project. The city has used this type of TIF on the Sherwin-Williams headquarters and One University Circle apartments projects, among others.
Cleveland’s Chief of Integrated Development Jeff Epstein called these “garden-variety” TIFs in a 2024 presentation to city council members.
The other type of TIF, called a TIF district, covers a geographic area, rather than a singular project site. Last year, Cleveland used this type of TIF for the first time when it created the “Shore-to-Core-to-Shore TIF District,” which includes downtown and part of the near west side.
Read more about the TIF district in this Signal Cleveland explainer from April 2024.
(Project TIFs are sometimes called .41 TIFs, and the TIF districts are called .40 TIFs. Those numbers are references to the sections of state law that set the rules for how the TIFs work, Ohio Revised Code 5709.41 and 5709.40.)
How can TIF revenue be spent? Are any costs off-limits?
Project TIFs and TIF districts have different rules for spending the funds they generate. Funds from project TIFs can cover both private development costs and improvements to public infrastructure (government-owned property like roads, bridges and parks). Funds from TIF districts can only pay for public infrastructure improvements.
Cleveland’s “Shore-to-Core-to-Shore” TIF district has a few other wrinkles in how it can work. The TIF district is classified as a “remote TIF,” which means the money it generates can be spent both in the TIF district and in other parts of the city, Epstein said in a March 2024 presentation. However, the legislation approved for the TIF district bans the city from using the money on sports stadiums.
TIF projects and districts can overlap
The two types of TIFs can overlap if the site of a project TIF is located within a TIF district.
For example, Cleveland is using both types of TIF to fund riverfront development. The city committed to using $400 million of the “Shore-to-Core-to-Shore” TIF district proceeds to pay for riverfront public improvements.
It also agreed to a project TIF agreement with Bedrock. The project site for this TIF is located within the larger downtown TIF district. The TIF for the Bedrock project will collect taxes from the values of buildings that are constructed or renovated. Money from any increases to the value of the land will go to the fund that pays for public improvements in the district.
How long do TIFs last?
TIFs can last up to 60 years, per state law. They usually have a 30-year initial period and can then be extended.
Cleveland has a 60-year TIF on the books. In December 2020, the city extended a 30-year Flats East Bank TIF for another 30 years. It expires in 2071.
As for the new TIFs, the Bedrock project TIF is set to last 45 years beginning in 2027. The Shore-to-Core-to-Shore TIF district is set to end in 2075.
