This post originally appeared on Orphan Road.

EvergreenRailfan asked in the comments section here what the difference was between Tax increment financing (which is illegal in WA) and Local Improvement Districts (which funds the SLU streetcar). There’s a clear answer in the .pdf I linked to in my previous streetcar post:

Tax increment financing approaches (TIFs) are similar to LIDs in that they define areas within which private property owners will benefit from future infrastructure improvements. In the case of LIDs, the private sector is assessed a direct tax to support the development of the new infrastructure. In the case of TIFs, the public sector is able to increase its borrowing powers on the basis of the added tax revenues that can be anticipated as a result of the improvements.

So TIF is the government saying, “we’re going to make captial improvements in this area, the property values will rise because of that, and so we can float a bond to pay for the improvements and pay it off as the higher tax revenue come in.” LID says “we’re going to make improvements by taxing the residents of this area directly, but they also will probably see their property values rise, which will make the tax more palatable to them.”

TIF doesn’t require you to actually levy a tax on the land owners, but it assumes the city will have more revenue down the road because property values go up. So it’s riskier. But it doesn’t require you to have an existing tax base in the area you’re going to improve. This is why it’s probably used most often with eminent domain cases, where the government is coming in and condemning a whole bunch of land for a big project.