A Duration Analysis of Tax Increment Finance District Lifespans

This paper uses hazard analysis tools to examine the factors that influence the lifespans of tax increment finance (TIF) districts. As the nation emerges from its real estate crisis, it is clear that property value recovery will be slow. Further, in those communities where tax increment is used as a development tool, it appears that the growth of increments generated in TIF designated areas will be much slower than anticipated. This in turn suggests that the tax increment district (TID) lifespans will have to be extended, perhaps for many years in order for the increment to cover the costs of the initial TIF investment. Using detailed data on TID in Wisconsin over the 1988-2009 period to evaluate the factors that determine the TID lifespans.

Early in this period, the nation experienced a recession: This event is used to evaluate the degree to which the timing of TID district creation over the business cycle had an effect on TID lifespans. Evidence suggests that TIDs introduced in the wake of the recession had longer lifespans, relative to TIDs created before or after the recession. TID lifespans are also influenced by factors such as the city share of the aggregate tax rate of all overlying jurisdictions, TID type (commercial, manufacturing, residential), and number of competing TIDs in the municipality.