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TIF is good news for the UK economy
Published: 2009-08-17 18:26:43
“This should not be seen as a short-term measure, but a long-term solution to fund infrastructure development.”
That's according to Peter Cosmetatos, British Property Federation director, finance and investment. He has been looking at how the US tax increment financing (TIF) model could apply to the UK and has no doubt why it has received an enthusiastic response from the developer community.
“TIF offers the prospect of accessing a significant additional income stream that could affect the viability of stalled regeneration schemes,” he told SocInvest. If adopted, Cosmetatos reckons TIF could transform the economics of infrastructure investment.
"For every £100 of rental income out of which a developer has to find some support for the cost of infrastructure associated with a development, an additional £45 or so could be made available under a TIF scheme. That could be decisive for whether a scheme with a significant infrastructure component is viable."
In the recession, funding options such as section 106 contributions, government CAPEX sources or the Community Infrastructure Levy still leave many projects under-funded. "There's a limit in hoping to bleed developers dry to finance infrastructure, particularly in the current climate," agreed Cosmetatos. "Beyond a certain point, you can't rely on profits from land values to fill the gap." Which is why he believes "TIF is virtually a no-brainer".
Part of his brief has been to explore the bigger picture issues posed by TIF for the UK economy. Aware of the enthusiasm at local level for implementing this form of financing, he recognises that this poses some difficult questions for Treasury.
"Anything that stimulates growth like this costs money," he said during an exclusive interview with SocInvest. "So one of the issues is whether TIF increases the size of the national pot, or just re-allocates existing funds."
This is one area where he believes that the UK can learn from US experience, by avoiding damaging competition between TIF districts and being rigorous in allocating funds to projects that meet well-defined regeneration criteria. If that is achieved, his conclusion is that the UK would end up a net winner.
There is still plenty of work to be done to iron out the practicalities. For TIF structures that rely on initial funding from developers, for example, there is the question of whether the developer can draw funds through debt or equity finance, in partnership with institutions or local authorities.
Peter Cosmetatos will be speaking at the SocInvest Masterclass "Preparing for Tax Increment Financing and Accelerated Development Zones", 15th October 2009, London. For more information click here.