Incremental Tax Financing in Washington State: How TIF Works and What It Means for Businesses

​Incremental Tax Financing in Washington State: How TIF Works and What It Means for Businesses

Incremental tax financing, also known as tax increment financing or TIF, is a strategy used by a city, county, or port to fund public improvements in a designated area by leveraging the projected future increase in property tax revenue from that same area. The concept is that new sidewalks, roads, utilities, parking, stormwater management, and similar upgrades can stimulate private investment. As property values rise after these improvements, the additional property tax revenue, or “increment,” is temporarily set aside to fund the public costs, often through local bonds.


For businesses, TIF can eliminate significant barriers to growth. If a commercial district lacks safe access, modern utilities, or build-ready sites, private projects might stop. When local government uses TIF to fund these essentials, it can attract new employers, support downtown storefronts, and help small businesses draw more customers and enjoy safer, cleaner streets. The downside is that TIF could shift the focus of new public funds, raising concerns about fairness if one area gets major upgrades while others are left behind.


For Washington residents, benefits can include revitalized neighborhoods, increased housing or commercial spaces, and more local jobs, especially when investment targets underused areas. There are also risks. If growth estimates are overly optimistic, the extra revenue might not cover costs as expected, which could strain future budgets. Additionally, when the revenue is used to pay off project costs, other local services may not immediately benefit from the growth in the tax base. Good project selection, realistic forecasting, and transparent public reporting are essential.


Washington’s history with TIF is unusual. Earlier efforts faced constitutional issues, including a Washington Supreme Court decision that struck down Spokane’s use of a previous redevelopment financing law in the 1990s. The state later introduced a different, limited approach called the Local Infrastructure Financing Tool, enacted in 2006, which links local revenue growth with a state sales tax credit and has been examined by state auditors.


In 2021, Washington adopted a modern local TIF framework in state law under chapter 39.114 RCW, and the state has continued to improve the rules in subsequent years. In practice, TIF can be a powerful tool when it is connected to clear community goals such as housing supply, job sites, and infrastructure that truly attract private investment.

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• Washington State Legislature, Chapter 39.114 RCW, Tax Increment Financing (Washington State Legislature)
• MRSC, Tax Increment Financing (TIF) overview and implementation considerations (MRSC)
• Washington Supreme Court, Leonard v. City of Spokane (1995) (Justia)
• Washington State Legislature, Chapter 39.102 RCW, Local Infrastructure Financing Tool (LIFT) (Washington State Legislature)
• JLARC, report materials on LIFT structure and outcomes (Washington State Legislature)
• Washington State Department of Revenue, notice on legislative changes to TIF (Washington Department of Revenue)

This article was written with contributions from AI to organize the information and improve its readability.