Cityscape • March 2026 • Understanding TIF

John Danos, Partner and Practice Group Co-Leader of Public Finance and Amy Bjork, Senior Attorney of Public Finance for Dorsey & Whitney LLP. John can be reached at Danos.John@dorsey.com and Amy can be reached at bjork.amy@dorsey.com.

“TIF” stands for tax increment financing. TIF is a tool that cities (and counties) use to help fund extraordinary projects in geographic areas that have particularly high need for intervention. TIF has facilitated great development and redevelopment projects from our largest urban centers to some of our smallest rural communities. TIF is powerful and, at its margins, complex. It is a tool often accompanied by controversy and confusion. Developing a fundamental understanding of what this tool can do, what it does not do and what it requires can help elected officials make sound decisions about how and when to use it.

TIF comes from Iowa’s Urban Renewal Law, which is set forth in Chapter 403 of the Iowa Code (the “Urban Renewal Law”). The Urban Renewal Law allows city councils to establish urban renewal areas anywhere in city limits or, with county consent, up to two miles outside the city limits. The establishment of an urban renewal area must be supported by a city council finding of special need, either to promote economic development or to address slum or blight conditions. Every urban renewal area must have an urban renewal plan to identify and govern the city’s programming therein. All special projects, programs or initiatives funded through TIF must be authorized by the urban renewal plan. These are referred to as urban renewal projects.

Urban renewal projects are selected by the City Council to address the specific needs of an urban renewal area. These projects can include public improvements such as streets, utilities, water and sewer extensions, stormwater management systems, public buildings and facilities and recreational improvements such as parks, trails or community amenities. Such investments provide the infrastructure and public assets necessary to support growth and redevelopment.

Urban renewal projects may also involve partnerships with private businesses and developers. Cities may provide incentives to support job creation, business retention and expansion, housing development and the redevelopment of blighted or underutilized properties. These efforts can attract new private investment, modernize and expand housing stock, prepare land for commercial or industrial development and help reverse the effects of deterioration, neglect or long-term underuse.

Of course, cities must find a way to pay for urban renewal projects and tax increment financing, or TIF, is one of the primary tools available for that purpose. As provided in the Urban Renewal Law, TIF allows a city to capture the growth in property tax revenue within a designated TIF district inside an urban renewal area and use that revenue to repay eligible project costs.

Within an established urban renewal area, a city may create one or more TIF districts by ordinance. These districts identify the specific properties whose increases in taxable value will generate the “increment.” Normally, property taxes from increased valuations would be distributed among the city, county, school district and other taxing entities. Under TIF, however, the growth in property tax revenue is set aside and used to repay debt incurred for urban renewal projects. It is important to remember that TIF does not create a new tax levy or increase tax rates; it simply redirects future growth in property taxes for a limited period.

TIF is fundamentally a debt repayment tool. It may be used only when a city has incurred eligible debt obligations to carry out authorized urban renewal projects. These obligations may include bond issuances, bank loans, internal advances of available funds or rebate-style development agreements with private businesses. The incremental property tax revenues generated within the TIF district provide a dedicated revenue stream to repay those obligations.

Caution and planning are required when considering the use of TIF. Because TIF is a debt repayment tool, it brings credit, procedural and budgetary considerations that should be evaluated before it is implemented. Financial participation in development and redevelopment projects — particularly those that involve some level of speculation — can present risk. For that reason, cities should consider how to structure projects in ways that appropriately manage that risk while still adding value to the overall effort. One common approach is the use of “TIF rebate”- style agreements, which provide reimbursement to private developers only from the increment actually generated by the developer’s project within the district.

Cities are at the center of helping provide solutions to economic development and redevelopment challenges across Iowa. The tools outlined in this article are critical assets for cities in helping to bring about positive outcomes. Picking the right tool for a particular circumstance can be challenging. Seeking professional advice from consultants, planners, financial professionals and legal counsel is advised.

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