Factors that Influence the Size of Tax Increment Financing Districts in Texas
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Tax Increment Financing (TIF) is a popular method employed by city governments to spur economic development and fund necessary improvements to infrastructure. Developed in California in 1952, TIF or Tax Increment Reinvestment Zone (TIRZ) as it is known in Texas was originally proposed as a solution to redevelop blighted urban areas where private sector initiative was absent. Since its first use, TIF has become increasingly popular and municipalities across the country have established TIF districts.
Yet, the requirements that define appropriate use of TIF vary from state to state, and in states like Texas have been interpreted very broadly. Furthermore, little effort has been made to study TIF development in Texas as much of the literature focuses primarily on states in the Great Lakes region. Utilizing data provided by the TIF Registry maintained by the Texas Comptroller, this explanatory research uses multiple regression analysis to determine if factors that influence TIF adoption identified in the current body of literature also influence the size in acres of TIF districts adopted by municipalities in Texas. The four factors in this study are: (1) economic stress as measured by the county unemployment rate; (2) competitive adoption as measured by the number of neighboring TIF-adopting municipalities; (3) revenue capture as measured by the number of participating overlapping jurisdictions; and (4) path dependency as measured by whether or not the municipality has previously adopted TIF districts in the past.
This research found that the county unemployment rate in the year of TIF adoption and neighboring TIF-adopters (i.e. competitive adoption) had a positive effect on TIF size. Path dependency had a negative effect on the size of TIF districts established by Texas municipalities. The number of overlapping jurisdictions participating was not statistically significant.