Exploring Portland’s Six Proposed TIF Districts: Will These Be a Win for Developers?

This article offers information on Tax Increment Funding (TIF) districts and examples of how they have revitalized Portland in the past. It includes how commercial real estate developers benefit and how it has been successfully applied in Portland previously.

On August 28, 2024, Prosper Portland approved the creation of six new TIF districts comprising about 8,500 acres. The proposed districts will be up for public hearing on October 23, and the City Council is scheduled to vote on October 30.

Here are the names and total acres of each proposed district:

• Downtown + Old Town/Chinatown: 493 acres
• Lloyd District: 261 acres
• The Central Eastside Corridor (11th & 12th from Burnside to OMSI and train tracks to the south): 485 acres.
• Sumner, Parkrose, Argay, Columbia Corridor: 1,578 acres
• East Portland: 82nd Avenue: 1,868 Acres
• I-205 East: 3,730 Acres

For example, Portland’s urban revitalization policy created the Pearl District Urban Renewal Area (URA) in 1998. TIF investment improved roadways, parks, and affordable housing, attracting private developers. This transformed the Pearl District from an industrial area with warehouses and rail yards into a thriving mixed-use community with residential, commercial, and cultural facilities.

In the Pearl District, TIF funds were used to build parks, streetcar lines, and street improvements. These public investments made the neighborhood popular, attracting developers who built market-rate apartments and other mixed-use projects. High property values and housing demand in the Pearl District are due to TIF-funded upgrades.

Other Pearl District Building Incentives. In addition to TIF, various incentives and policies helped establish the Pearl District:

• Density Bonuses: Developers could create higher-density buildings for affordable housing or green spaces.
• Tax Incentives for Historic Preservation: Some local buildings were eligible for tax incentives for preservation and rehabilitation.
• Zoning Changes: The city rezoned the area for mixed-use development, encouraging industrial property conversion into homes and businesses.

Other Portland neighborhoods that have used TIF districts for urban regeneration include:

• South Waterfront: The 1999 North Macadam Urban Renewal Area used TIF funding to build roads and parks for residential and commercial structures. The neighborhood now features high-rise residential towers, OHSU facilities, retail, and green spaces and is growing rapidly.
• Central Eastside: The Central Eastside Urban Renewal Area was designed to boost industrial job growth and infrastructure. TIF funding for transit improvements, company development, and environmental cleaning created a thriving mixed-use district with industrial, office, and residential applications.
• Interstate Corridor: The Urban Renewal Area revitalized North Interstate Avenue areas. TIF monies were used for housing, business development, and infrastructure upgrades, attracting investment and growth; however, gentrification and displacement of longtime residents have been criticized.

TIF districts aid private developers in building market-rate apartments by providing a financial structure that encourages development in numerous ways:

• Infrastructure Enhancements: TIF monies are mostly utilized to repair district roads, utilities, parks, and public areas. Infrastructure improvements make the area more appealing and functional for development, decreasing private developer costs and risks. For instance, a developer may create market-rate apartments in a community with city-built roadways, sidewalks, and green areas, making it more desirable for inhabitants.
• Reduced Development Costs: TIF districts cover developer expenses, lowering private developer development costs. TIF funding can be utilized for environmental remediation, utility upgrades, and other improvements that a developer cannot afford alone. Due to lower upfront expenditures, developers can build market-rate flats more affordably.
• Enhanced Property Values: Property values rise when TIF-funded public investments improve the region. Since the area is more desirable, developers can charge higher rents or sell houses at a premium. The TIF district’s better returns tempt developers to build market-rate units.
• Obtaining Additional Funding: TIF districts can help developers obtain bank and investor finance. Public investment and rising property values communicate to lenders that the TIF district is improving, reducing the risk of funding projects there. This can improve lending terms or help developers finance market-rate apartment buildings.
• Tax Incentives or Rebates: Developers may receive tax rebates or incentives from TIF districts. TIF districts use future tax money to pay for present public works, while some may offer property tax abatements or refunds to encourage market-rate housing. These incentives can immediately lower development running costs, increasing profitability.
• Mitigating Risk: TIF districts reduce new development risks by investing in the area. A developer may be wary of building market-rate flats in a devastated region due to low demand or resale value. TIF districts lessen these risks by committing to upgrading the region, making them safer for developers.

In conclusion, TIF districts reduce development costs, improve infrastructure, increase property values, provide tax incentives, and mitigate risks, making market-rate apartment buildings more attractive to private investors.

Definitions: Urban Renewal Area (URA) vs. TIF District: The terms urban renewal area (URA) and tax increment financing (TIF) district are closely related, but they are not exactly the same thing.

1. A URA is a geographically designated area within a city where urban renewal strategies, such as economic development and infrastructure improvements, are implemented. TIF is one of the primary financial tools used within URAs to fund these improvements. In a URA, the city typically works with developers to encourage new investments in housing, businesses, and public spaces.
2. A TIF district is a financing mechanism used to fund the redevelopment projects in a URA.

• TIF captures the increase in property tax revenues (a/k/a “tax increment”) that result from rising property values after improvements are made.
• These additional tax revenues pay for public improvements, such as roads, parks, or utilities, which in turn attract private development.
• A TIF district is a financial tool used within a URA to fund development projects. URA refers to the area, and TIF refers to the funding mechanism used to finance improvements in that area.