Learning Tour - About Redevelopment
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What is tax increment and how does it work?
Tax increment is the primary source of revenue for redevelopment projects.

It is based on the assumption that a revitalized project area will generate more property taxes than were being produced before redevelopment.

Redevelopment does not change the tax rate in the project area. The only increase is caused by the improvement to the property made by the owner or by the resale of property at a higher value.

When a redevelopment project area is adopted, the current assessed values of the property within the project area are designated as the base year value. Tax increment comes from the increased assessed value of property, not from an increase in tax rate. Any increases in property value, as assessed because of change of ownership or new construction, will increase tax revenue generated by the property. This increase in tax revenue is the tax increment that goes to the Agency.

Using tax increment financing does not mean property taxes will be raised. Until a property is improved or sold, assessed values and tax rates remain unchanged in redevelopment areas. Additionally, they are restricted by Proposition 13 limitations.

How are other jurisdictions affected by tax increment financing?
Taxing entities such as the county, school districts, and special districts that serve the project area continue to receive all tax revenues they were receiving the year the redevelopment project was implemented (the base year). A redevelopment agency only has access to tax that surpasses the base year amount. In addition, the county receives a portion of the redevelopment tax increments in the original part of the project area. For the portion of the project area that was added in 1997, all of the taxing entities receive a portion of the tax increment. The total amount distributed to all entities starts at 20 percent of the gross tax increment, which is divided amongst each taxing entity. That percentage increases over time.

What are tax allocation bonds?
The most common bond instrument used by redevelopment agencies to finance projects is called a tax allocation bond. These bonds, which are a loan of money to an agency, are not a debt of the community or the general taxpayer. Rather, they are repaid solely from tax increment revenue generated within the project area. In other words, increased tax revenues generated through redevelopment activities are funneled back into the project area to stimulate more development as well as to pay the costs involved.

Are there any financial advantages for a redevelopment agency to partner with a developer?
Redevelopment agencies may not have the necessary funding to undertake the costs of a redevelopment project. A developer can advance funds to an agency for any redevelopment purpose, including preliminary studies and agency administrative costs. In many cases, it is often more cost effective for the agency to acquire the land and deliver the property to the developer “as is,” leaving demolition and site preparation costs to the developer, who can usually do the work more cheaply.

Are there other sources of funds?
In addition to the aforementioned funds, an agency can receive loans, grants, or other financial assistance from the City/County or other agencies, as well as from the federal government.