New city policy requires portion of TIF to be used for affordable housing

A new city policy aims to provide a boost to affordable housing efforts.

Rochester recently adopted a resolution to set aside 5 percent of tax increment financing for affordable housing initiatives. Under the policy, all developments within the Destination Medical Center district that don't include affordable housing units will contribute to the fund.

As City Council President Randy Staver explained to us via email: "What the council decided to do in cases of non-affordable housing projects is to earmark 5 percent of the incremental tax revenues to be set aside in a fund to be used to encourage affordable housing projects."

The policy has only been in effect for a short while, so not much has been accrued as of yet. But with some big projects in the pipeline, the city will soon face a decision on how best to use the funds.

 "The funds could be used perhaps to offset development fees, for example, on future projects," noted Staver. "That will be a future discussion once we actually have some funds available."

At a recent DMC board meeting, Paul Williams, who was appointed to the board primarly because of his experience with affordable housing, praised the new policy. “Very few communities across the state, or across the country, are doing this," said Williams. "[It is] really leading-edge work."

In addition to the new resolution regarding TIF, the city, along with partners such as Mayo Clinic and the Rochester Area Foundation, have also formed a coalition to address affordable housing locally.

What is TIF?

Tax increment financing (TIF) has become a common tool used by cities, including Rochester, to encourage new development/redevelopment. In exchange for the assistance, the developer must provide some sort of public benefit, such as new green space or increased public parking, or prove the project would not be possible but for the additional support. 

In the case of TIF, money is not simply handed over to the developer at the taxpayer's expense. Instead, the funding comes from the additional tax revenues created by the new project. Once the funds have been repaid, then the tax revenues are available for other public expenses.

In recent years, Rochester has leveraged TIF to incentivize a number of affordable housing projects (783 units from 2015-17). 

Cover photo: Licensed / Canva