American Institute of Certified Planners (AICP) Practice Exam

Financing improvement in a specific area with bonds that are secured by increases in property taxes is referred to as?

1. Special assessments

2. Impact fees

3. Revenue bonds

4. Tax increment financing

The correct answer is: Tax increment financing

The financing method that involves using bonds secured by future increases in property taxes associated with improvements made in a specific area is known as tax increment financing (TIF). This approach is designed to stimulate economic development in targeted districts. When a municipality issues TIF bonds, they are often funding infrastructure improvements with the expectation that these enhancements will increase property values. The expectation is that as property values rise, property tax revenues will also increase. These anticipated increases in tax revenue are then used to repay the bonds. This financing tool allows local governments to attract private investment and develop underutilized areas without requiring upfront capital. Understanding TIF is crucial, especially in urban planning and development scenarios, as it links funding improvements directly to the anticipated economic benefits. It provides a practical solution for municipalities to invest in areas that might otherwise struggle to secure the funding necessary for growth.