Like other U.S. states, tax increment financing (TIF) is an important component of the development policy landscape in Wisconsin. While the guidelines for the use of TIF are similar to those that exist in other states, some aspects of TIF policy are unique to Wisconsin. The purpose of this report is to provide a concise summary of the history and purpose of tax increment financing (TIF) in Wisconsin. The report discusses TIF in relation to controversies about sprawl, representative government, fairness to poor communities and municipal competition. This report provides important background information for those interested in evaluating the impacts of TIF on factors such property value growth and land use.

Economist David Merriman of the University of Illinois at Chicago reviews more than 30 individual studies in the most comprehensive assessment of tax increment financing (TIF) with practical recommendations for policy makers and practitioners. The report finds that while TIF has the potential to draw investment into neglected places, it has not accomplished the goal of promoting economic development in most cases. First implemented in the 1950s, TIF funds economic development within a defined district by earmarking increases in future property tax revenues that result from increases in real estate values in the district. The tax revenue can be used for public infrastructure or to compensate private developers for their investments, but TIF is prone to several pitfalls: it often captures some revenues that would have been generated through normal appreciation in property values, it can be exploited by cities to obtain revenues that would otherwise go to overlying government entities such as school districts, and it can make cities' financial decisions less transparent by separating them from the normal budget process. The report recommends several ways that state and local policy makers can reform TIF practices going forward.