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Tax Increment Financing in South Carolina

Tax Increment Financing is a public finance tool that municipalities use to help revitalize an area that has become, or is in danger of becoming, run down or blighted. A TIF allows municipalities to incur debt for the redevelopment of a project area and use the additional property tax revenue generated by the redevelopment projects to pay off that debt.

The municipality must first draft a redevelopment plan outlining the proposed projects to be financed before issuing bonds. Once the municipality adopts an ordinance approving the plan, the amount of taxes each taxing entity receives during the TIF is capped at the current tax amount.

However, the redevelopment of the project area will, theoretically, cause the assessed value of the property in the project area to increase, leading to higher tax revenue for the municipality. The municipality will use this increase in tax revenue, known as the "increment," to repay the bonds. Once the TIF is over, all taxing entities will receive tax revenue based on the full assessed value of the redevelopment project area.

What are the benefits of successful TIFs?
Not only does a TIF allow municipalities to improve or prevent blighted areas at no tax increase to taxpayers, but it also encourages additional private investment in the redevelopment project area. This additional private investment further increases the assessed value of the properties within the redevelopment project area, thereby aiding an area with challenged economic and physical development due to lack of investment, inadequate infrastructure and blighted conditions.

Municipalities across South Carolina have enjoyed the benefits of successful TIFs. For example, the City of Columbia's Innovista Redevelopment Plan provided for street, bridge and utility system improvements; construction of new public facilities including parks and promenades; and land acquisition in the area between the Greek Village and Gervais Street.

Several successful TIFs in South Carolina prove that, with proper planning, they can be greatly beneficial to municipalities. The City of Cayce implemented a TIF to help finance land acquisitions and improvements for its collaborative effort with West Columbia in creating the Riverwalk Park. The City of Myrtle Beach successfully implemented a TIF to fund parking and street infrastructure improvements to the area left vacant by the deactivation of the Myrtle Beach Air Force Base. Most recently, the Town of Lexington successfully implemented a TIF for its roadway and intersection improvements to the Corley Mill/Sunset Boulevard Gateway Corridor just opposite River Bluff High School.

Why don't we use TIF for more projects?
While TIF is a useful tool for many municipalities, both the redevelopment project area and the redevelopment plan are subject to strict state law before implementation. First, the redevelopment project area must be a blighted, conservation or agricultural area located within the municipality's boundaries.

Additionally, the redevelopment project area requirements hold an area ineligible for TIF unless the sound growth and redevelopment of that area cannot be accomplished without public intervention. State law also requires each project to be publicly owned. Examples include projects such as recreation facilities, water and sewer facilities, energy infrastructure, public transportation and more.

South Carolina law also requires that the redevelopment plan include a comprehensive proposal for redevelopment, outlining not only the reasons for the area's current underdeveloped status, but also the municipality's strategy for alleviating such conditions and thereby enhancing the tax bases of the affected taxing entities. This proposal must be approved by each taxing entity affected by the TIF, including counties, cities or towns, school districts and special purpose districts.

Additionally, municipalities may not deviate from the plan's proposed budget and must annually remit any surplus TIF funds, defined as any funds not required for payment of the bonds, to the other taxing entities. They also must formally amend the redevelopment plan by ordinance and with all taxing entities' approval in order to use excess funds for additional projects not identified in the development plan.

Parker Poe law firm provided this article.