Tax Increment Financing (TIF) is a public financing tool that municipalities can use to encourage development in areas where investment might not otherwise occur. In the context of building an arena at Grand Sierra Resort, TIF allows cities to capture the increased tax revenues that result from the new development (the "increment") and use those funds to help finance the project, in this case, $97,000,000. TIF financing helps local governments fund direct subsidies to developers (or in more ideal cases, infrastructure such as subways, river improvements, etc), without needing to raise general tax rates.

Types of TIF Financing

Sales Tax TIF

In this case, the tax increment is the increase in sales tax revenue generated by the new development, such as a sports arena.
Example: Let's say a city helps a developer build a baseball stadium in a struggling downtown district. As a result, new restaurants, bars, and retail shops open up nearby, leading to increased sales. The city can capture this sales tax growth divert it back to the developer to pay for the costs of constructing the arena.

Here's how it works: 

1. Establish a TIF District: The city designates a district around the proposed arena, typically including areas expected to see significant increases in economic activity.
2. Baseline Sales Tax Revenue: The sales tax revenue collected in that area is measured at the current level (the baseline).
3. Development of the Arena: As the arena is built and opens, it attracts events, visitors, and surrounding businesses, which generate more economic activity.
4. Increase in Sales Tax Revenue: The new arena, restaurants, ice rink, etc and spending from visitors attending events at the arena increase sales tax collections in the area.
5. Capturing the Increment: The city captures the difference between the new, higher sales tax revenue and the baseline (the increment) and diverts back tothe developer to finance the arena's construction or related public improvements.

The Pros of the Sales Tax TIF

1. No Immediate Burden on Property Owners: Since sales tax revenue is generated by consumer spending, it doesn’t directly impact property owners or require a tax increase on residents.
2. Leverages Visitor Spending: An arena typically attracts out-of-town visitors for events like concerts, sports games, or conventions. The sales taxes from these visitors are captured and reinvested in the arena or surrounding area.
3. Encourages Local Business Growth: With more foot traffic around the arena, nearby businesses like restaurants, bars, and shops can thrive, contributing to the local economy and further increasing sales tax revenue.
4. Potentially Higher Revenue: For popular arenas that attract significant numbers of visitors, sales tax TIF can generate substantial revenue, making it a viable tool for financing the arena and its associated projects.
5. Direct correlation with the arena's success: If the arena is successful, drawing people to events, surrounding businesses (restaurants, hotels, shops) benefit, and sales tax revenues rise.
6. Easier to project revenues: Sales tax collection is more predictable because it’s tied to consumption, and cities often have historical data on local sales tax patterns.

The Cons of a Sales Tax TIF

1. Risk of Overestimating Revenue: If the arena doesn't attract as many visitors or events as expected, the projected increase in sales tax revenue may fall short. This creates a risk that the TIF will not generate enough funds to pay for the arena’s costs. 
2. Competition with Other Areas: Sales tax revenue from an arena may not represent entirely new economic activity. Instead, it could be money that residents or visitors would have spent elsewhere in the city, meaning other areas might see a decline in sales tax revenue.
3. Delayed Benefits for the General Fund: Like property tax TIF, the sales tax revenue increment is diverted for a set period (often 20-30 years), meaning the city’s general fund won’t benefit from this increased sales tax revenue until the TIF district expires.
4. Public Costs for Private Gains: Similar to property tax TIF, using sales tax TIF to build an arena can be seen as using public money to benefit private entities, such as sports teams or concert promoters. Critics argue that the public might not get enough return on investment, especially if the arena's economic benefits are overhyped.
5. Impact on Local Businesses: Depending on the location, some existing businesses might not benefit from the increased traffic or could be displaced by rising rents or property values near the new arena.
6. Risk of over-reliance: If the arena doesn’t attract the anticipated number of visitors, sales may not increase as expected, leading to a shortfall in revenue.
7. Economic fluctuations: Sales tax revenue can be highly sensitive to broader economic conditions. In times of economic downturn, consumer spending decreases, impacting the available tax increment.

Property Tax TIF

The Redevelopment Districts as a whole, function as TIF districts for property taxes. This is how our redevelopment agency in the past, got into a bit of trouble. Quite a few projects were financed using TIF, including the Whitewater Park, Riverwalk, Believe/City Plaza and others in the hopes that future property tax would come in and pay these projects off. That eventually happened, but after the huge real estate crash of 2009, the development of downtown Reno didn't go as quickly as expected, and the Redevelopment Agency essentially became a only a debt payor for 10 years after, and is just now reaching a point where it's solvent again. So for RDA2, in which GSR lies, the tax increment comes from the increased property taxes due to the higher property values in the area after the arena is built.

Pros of Property Tax TIF for Building an Arena

1. Stimulates Economic Growth: A new arena can attract businesses, tourists, and events, leading to more jobs and increased spending in the area. This can generate long-term economic benefits for the city or region.
2. No New Taxes for Residents: TIF doesn’t directly raise taxes on residents; instead, it captures the extra tax revenue generated by the increased property values.
3. Supports Public-Private Partnerships: TIF allows cities to collaborate with private developers or sports teams, where public financing (via TIF) can help fund the arena while private investors contribute to the cost.
4. Revitalizes Underdeveloped Areas: This is a 'typical' use case scenario for property tax TIFs, however it could be argued that the area the GSR is in is not 'underdeveloped' like downtown Reno is. This is one reason I was never a proponent of the second RDA district that GSR resides in from the get-go. 
5. Long-term growth potential: Property values tend to increase over time, so the property tax increment is likely to grow, providing a steady revenue stream.

Cons of TIF for Building an Arena

1. Public Funds for Private Gains: It can be argued that arenas often benefit private entities like sports teams or event promoters more than the general public, with the city shouldering much of the financial risk.
2. Uncertain Economic Impact: While arenas can generate economic activity, studies show that the benefits may not always meet expectations. Some argue that new arenas don’t create as much new economic activity as projected but rather shift existing spending from other areas of the city.
3. Diverts Funds from Other Public Needs: Since the "increment" in property taxes is used to pay for the arena, those funds are not available for other important public services like infrastructure, or emergency services. This can be a drawback for residents outside the TIF district.
4. Long-Term Financial Risk: If the development around the arena doesn’t increase property values as expected, the tax increment may fall short, leaving the city with debt or financial obligations related to the project.
5. Potential Gentrification: The development surrounding the arena can drive up property values and rents, displacing long-time residents or small businesses, especially in lower-income neighborhoods.
6. Uncertainty of appreciation: The projected increase in property values might not happen as planned, especially if the arena fails to drive the expected level of local investment or neighborhood development.

Local Example: Greater Nevada Field 
In 2008, SK Baseball and Nevada Land broke ground on the new stadium for the team they co-owned that would eventually be named the Reno Aces. The $55 million stadium was partially financed with $30 million in Washoe County issued bonds that were backed by a 2% tax on rental cars.  In addition, Nevada Land asked the city of Reno to kick in $2 million per year for the next 20 years to help fund an entertainment district surrounding the new stadium (Aces Park). That public contribution was to be paid back by Nevada Land in the form of property taxes which were supposed to increase as the 'district was built out.

However, Nevada Land was delinquent on its taxes since the stadium opened, there was a huge real estate crash, they did not build out as the district as planned and envisioned, and by 2012, owed the local and state governments $1.6 million.The Aces owners then looked to the public to bail them out, threatening that the Aces would otherwise leave Reno. They proposed the public help refinance their distressed $55 million construction loan was due 14 months from the date they proposed the new changes to the deal. They specifically wanted the public to kick in $1.5 million per year for the next 30 years. Ultimately a new deal was made that would keep the Reno Aces in Reno for 30 years until the debt was paid off. 

Examples of when TIF Financing went wrong: 

There are several examples where TIF financing for private projects ended up costing municipalities significantly more than anticipated. These cases often involve overly optimistic projections of economic growth, slower-than-expected development, or a failure to generate sufficient tax increments to cover the debt. Here are a few examples:

St. Louis Mills Mall (Hazelwood, Missouri)

- What Happened - In 2003, the city of Hazelwood used TIF financing to support the construction of St. Louis Mills, a large outlet mall. The project was expected to revitalize the local economy by attracting shoppers and increasing sales tax revenue.
 - Outcome: The mall failed to meet expectations. Retail vacancies grew over time, and customer traffic dwindled. In 2015, the mall was sold to a developer, and by 2020, it was largely vacant, with the property value plummeting.
 - Cost to the City: The TIF-backed bonds that the city issued to finance the project were still outstanding. Because the projected sales and property tax revenues didn’t materialize, Hazelwood had to make up the shortfall using general funds. This placed a burden on the city’s budget, diverting resources from other critical services.

Kansas City Power & Light District (Kansas City, Missouri)

- What Happened: The Power & Light District was a major downtown redevelopment project in Kansas City, funded in part by TIF and other public subsidies. The city issued $295 million in bonds, expecting increased sales tax revenues from the district to cover the bond payments.
- Outcome: For several years after the district opened, it failed to generate the expected level of revenue. Foot traffic was lower than anticipated, and many businesses struggled or closed. This shortfall in sales tax revenue meant that Kansas City had to cover the difference with its general fund.
- Cost to the City: By 2015, the city was spending more than $10 million per year from its general fund to cover the bond payments for the district. This created a long-term financial strain and limited the city's ability to invest in other infrastructure and services.

Mesa Riverview (Mesa, Arizona)

 - What Happened: In the early 2000s, the city of Mesa used TIF financing to help fund the development of the Mesa Riverview shopping center. The city expected the retail complex to drive economic growth, boost property values, and increase sales tax revenue.
 - Outcome: The project did not attract the level of retail tenants or shoppers that the city had hoped. Several anchor tenants, including Walmart, moved in, but much of the center remained vacant. The expected increase in property values and sales tax revenue failed to materialize.
 - Cost to the City: Mesa was forced to dip into its general fund to cover the bond payments associated with the project. The city faced criticism for overestimating the economic impact of the development and for the long-term financial commitment required to subsidize the project.

Tri-City Crossing (Villa Park, Illinois)

- What Happened: In the 1980s, the village of Villa Park in Illinois created a TIF district to help redevelop the Tri-City Crossing area, hoping it would become a bustling shopping and entertainment hub. The project included a hotel and retail spaces.
 - Outcome: The development did not achieve the expected level of commercial success. Many retail spaces sat vacant for years, and the hotel struggled. Property values in the district remained stagnant, and the anticipated tax increments never materialized.
 - Cost to the City: Villa Park faced a significant financial shortfall. The village had to redirect general funds to cover the debt service on the TIF bonds, leaving less money for other municipal services and capital improvements.

Block 37 (Chicago, Illinois)

 - What Happened: Block 37 was a long-anticipated mixed-use development in the heart of Chicago’s Loop. The city used TIF financing to support the project, expecting that it would revitalize a critical part of downtown and generate significant property tax and sales tax revenue.
 - Outcome: The development was plagued by delays and financial issues from the start. Multiple developers took over the project, and many of the retail spaces remained empty for years. The project's overall economic impact fell far short of expectations.
 - Cost to the City: Chicago invested over $170 million in TIF funds into the project, but the return on that investment has been minimal. The TIF district has not generated the expected increase in property tax revenue, leaving the city with a substantial financial burden. Critics have argued that the funds could have been better spent on infrastructure or other public needs.

Chesterfield Outlet Malls (Chesterfield, Missouri)

- What Happened: Chesterfield, Missouri, issued TIF financing to help fund two competing outlet malls—St. Louis Premium Outlets and Taubman Prestige Outlets—located within a few miles of each other. The city hoped to draw shoppers from the St. Louis region and beyond.
 - Outcome: The malls struggled to attract enough shoppers to meet revenue projections. By 2020, the Taubman mall was largely empty and up for sale. The expected increase in sales tax and property tax revenue never materialized.
 - Cost to the City: The city faced financial difficulties as the revenue from the TIF district was insufficient to cover bond payments. As a result, Chesterfield had to explore ways to make up the shortfall, potentially cutting other services or raising taxes.

In these examples, TIF financing for private projects failed to deliver the anticipated economic benefits, leading to substantial costs for the municipalities involved. The common problems include:

1.  Overly optimistic projections: Cities often base TIF financing decisions on optimistic assumptions about property values or sales tax growth, which may not materialize.
2.  Economic downturns: Broader economic conditions can negatively impact the success of TIF-funded developments, especially if consumer spending declines or businesses leave the area.
3.  Lack of demand: In some cases, there is insufficient demand for the new development, causing retail spaces or other facilities to sit vacant, reducing the tax increment.

In these situations, municipalities were left covering the shortfalls, often diverting funds from other critical services or projects, ultimately impacting residents and the city's financial health.

Success stories with TIF Financing

In these cases, the projected tax increments were met or exceeded expectations, and the developments spurred additional growth and investment in the area. Here are a few prominent examples:

Denver Union Station (Denver, Colorado)

 - What Happened: Denver used a combination of TIF financing and other public funds to redevelop the historic Union Station into a multimodal transportation hub and surrounding mixed-use area, including retail, office space, and residential units. The project aimed to revitalize the downtown area and create a central hub for regional transportation.
 - Outcome: The redevelopment has been a major success, spurring billions of dollars in private investment in the surrounding area. Property values around Union Station increased significantly, and new businesses moved into the area. The project also helped transform downtown Denver into a more vibrant and walkable urban area.
- Success Factors: The city was able to meet the bond payments through the increased property tax revenues, and the project did not end up costing Denver additional funds. In fact, the area has become one of the most desirable parts of the city, attracting both businesses and residents, which continues to generate strong property tax revenues.

Minneapolis North Loop (Minneapolis, Minnesota)

 - What Happened: The North Loop area in Minneapolis, once a warehouse district, was targeted for redevelopment through TIF financing in the early 2000s. The city used TIF funds to help attract private developers to build residential, office, and retail spaces. The goal was to transform a struggling part of the city into a thriving mixed-use neighborhood.
 - Outcome: The North Loop redevelopment has been highly successful. The area has seen a significant increase in both property values and population. New restaurants, retail stores, and apartment buildings have sprouted up, and the neighborhood has become a popular destination for young professionals and families. Property tax increments were more than sufficient to cover the city's bond obligations, and the development has provided long-term economic benefits without burdening the city’s budget.
 - Success Factors: The combination of public investment and private development led to a successful revitalization, with property values growing rapidly, exceeding initial projections. The TIF district performed well, generating enough revenue to pay off the bonds without impacting the general fund.

Kansas City Sprint Center (Kansas City, Missouri)

 - What Happened: The Sprint Center, an arena in downtown Kansas City, was part of a larger effort to revitalize the downtown area. The city used a combination of TIF financing and other public funding to support the development. The goal was to bring in more visitors, events, and businesses to the downtown core.
 - Outcome: The Sprint Center has been a success in terms of both attracting events and revitalizing downtown Kansas City. The arena hosts a wide range of events, including concerts, sports, and conventions, drawing visitors from across the region. The surrounding area has experienced significant private development, including hotels, restaurants, and entertainment venues, which have generated the anticipated increases in both sales and property tax revenues.
 - Success Factors: The development helped boost the downtown area, and the increased tax revenues from surrounding businesses and new developments have been enough to meet the city’s bond obligations. The city did not need to tap into its general fund to cover the costs of the project.

Chicago Navy Pier (Chicago, Illinois)

 - What Happened: Chicago used TIF financing to support the redevelopment of Navy Pier, one of the city's most iconic tourist destinations. The funds were used to upgrade the infrastructure, improve public spaces, and attract private investment in retail and entertainment spaces. The goal was to enhance Navy Pier's appeal as a year-round destination.
 - Outcome: Navy Pier has become one of the most visited tourist attractions in the Midwest, drawing millions of visitors annually. The increased sales tax revenues from retail and entertainment on the pier, as well as surrounding developments, have exceeded the projections. Additionally, the redevelopment has spurred further private investment in the area, including hotels and restaurants, which have boosted the local economy.
 - Success Factors: The project generated strong returns for the city, with no need to rely on general funds. Increased tax revenues from the development helped repay the bonds, and the pier continues to be a major economic driver for Chicago, contributing to its tourism industry.

Stapleton Redevelopment (Denver, Colorado)

- What Happened: After Denver’s Stapleton Airport was decommissioned in 1995, the city used TIF financing to help redevelop the area into a mixed-use community. The Stapleton redevelopment included residential, commercial, and retail components, and the city aimed to turn the large, unused space into a vibrant urban area.
 - Outcome: The Stapleton redevelopment has been highly successful, becoming one of the largest urban infill projects in the country. The area has attracted significant private investment, and property values have increased substantially. New homes, schools, parks, and commercial developments have transformed Stapleton into a thriving community. The project has generated the anticipated property tax increments, which have been sufficient to cover the TIF bonds.
 - Success Factors: The combination of strong public planning, private investment, and market demand led to rapid growth in property values. The city has not faced any financial shortfalls related to the project, and Stapleton has continued to generate strong economic benefits for Denver.