Tax increment financing (TIF) is the most important fiscal instrument for local development initiatives in this country. However, in many cases its growth has been accompanied by “moral hazard,” or incentives for the misallocation of resources. By earmarking taxes on future increases in property values to pay for redevelopment costs, TIF can function as a type of unrecognized municipal debt, sharing the problems of accountability and repayment capacity raised by state and local debt of all kinds. This paper by Joan Youngman was published in State Tax Notes on May 2, 2011 (Vol. 60, No. 5).
