Sep 10, 2014 at 1:00 am

Tax-increment financing is a redevelopment tool that allows increased property taxes generated because of new development to be captured by a separate legal taxing authority like the Detroit Downtown Development Authority (DDA). How it works can be a bit difficult to follow. The DDA captures property taxes in its district on the increased value of property.

The Michigan Department of Treasury used this example on its website: For instance, say the initial taxable value of the DDA district when it was established is $1 million. The following year, the taxable value of the district jumps to $1.25 million. The DDA would then capture the property taxes on that increased value of $250,000. The other taxing units (e.g., cities, schools, libraries) would continue to receive taxes based on the initial taxable value.

So, Detroit's DDA captures money that would otherwise flow to the city of Detroit's general fund, which pays for police and fire services, the Detroit Public Library, Wayne County, Wayne County Community College, and the Wayne Regional Educational Service Agency. Last year, it captured roughly $11 million, of which roughly $6 million came from Detroit's general fund, records show.

Those entities still receive a cut from the DDA district's "base year" taxable value of $248.54 million, records show, which roughly translates to $15 million to $20 million. The total taxable value of the DDA district, as of last year, was roughly $587 million.

Any expansion of a TIF district in Detroit must be approved by Detroit City Council. Most recently, the DDA's TIF district was expanded to include the footprint of the new Detroit Red Wings arena. The lifeline of the plan was also extended until 2045-2046. By that time, the city's TIF plan will have existed for nearly 70 years.

According to a recent study by the U.S. PIRG, TIF districts, when they're best put to use, exist for a limited time, "at which point the property's tax revenue will once again be used for general public purposes."