Does TIF Take Money From Schools?

Sometimes. Partially. Temporarily. And in some states, barely at all.

That’s the honest answer, and I lead with it because the dishonest answer is what gets TIF killed. I’ve watched officials stand up in a public hearing and say “TIF doesn’t take a dime from schools,” and I’ve watched a school board member with twenty years of levy statements in a binder take that apart in about ninety seconds. Once you’ve lost credibility on that question, you’ve lost the room on every other question.

So let’s do this the other way. Here’s exactly where school exposure sits, state by state, and what narrows it.

Three questions determine the answer

Strip away the jargon and the school-funding question comes down to three things.

First, are school levies inside the captured pot at all, or does the statute carve them out? Second, if they are captured, does state aid backfill the district — meaning the state formula treats the district as if that value weren’t there? Third, which school fund is exposed, since operating money and capital or debt service money are often funded very differently.

Get those three answers for your state and you can hold your own with any school board in the room.

Kansas: the narrowest exposure of the group

Kansas carves out the statewide school levy by statute. The TIF Act’s definition of real property taxes excludes school district levies imposed under K.S.A. 72-53,113 for redevelopment districts established on or after July 1, 2017 — roughly 20 mills of school general fund money that TIF simply cannot touch, plus 1.5 mills for the state.

Note the date. Districts formed before mid-2017 don’t get the same treatment, so if your city is layering a project onto an older district, confirm the vintage with bond counsel before you make the claim publicly.

Nebraska: no carve-out, but the aid formula absorbs it

Nebraska captures the increment from every taxing body — city, county, school district, community college. There’s no school exemption.

But the Department of Revenue excludes TIF excess value from the certified school adjusted valuation used in the state aid calculation. In practical terms, a district isn’t punished in the TEEOSA formula for value it can’t tax.

Here’s the honest caveat, and it’s a significant one: that only helps equalized districts. Nebraska has watched its number of equalized districts fall dramatically over the past twenty-five years. If your district isn’t receiving equalization aid, there’s nothing to backfill, and the increment is a real reduction for the length of the term. Know which category your district is in before you claim the formula protects it.

Indiana: operating money is insulated, capital money is not

Indiana is the cleanest illustration of why “which fund” matters. Since the 2008 reforms, school operating costs are funded by the state, not local property tax — so TIF capture doesn’t reach the education fund. Referendum levies are also protected: the county auditor distributes referendum-attributable proceeds collected inside an allocation area back to the unit that passed the referendum.

What isn’t protected is the capital projects fund and debt service. Because those rates are set against a fixed assessed value in a given year, TIF and abatements do reduce that revenue and can shift debt service rates onto other taxpayers. That’s a legitimate concern and I wouldn’t wave it off.

Tennessee and Mississippi: the protection is procedural

Neither state gives schools a statutory mill carve-out. Instead, the protection is an approval gate.

In Tennessee, if county property taxes are going into the increment, the county commission has to approve the plan — and county property tax is a major source of school funding. In Mississippi, the county board of supervisors must approve for county increment to be captured, and the TIF plan must include an impact statement showing the effect on every taxing jurisdiction in the project area.

That’s real leverage, but it’s leverage that only works if it’s used. The impact statement isn’t a formality; it’s the document a school board should be reading closely. Whether school district millage itself can be captured is a question I’d put directly to bond counsel in both states rather than assume.

What actually narrows the risk

Underwriting. Not rhetoric.

Every dollar of school exposure in every state above is a function of one variable: whether the increment materializes on schedule. A district that performs pays its bonds, retires early or on time, and returns the full value to the rolls. A district that underperforms extends the pain and gives critics a permanent case study.

That’s why the “who signed for the risk” question and the “does this hurt schools” question are the same question wearing different clothes. When a developer-backed structure puts a contractual shortfall obligation and a recorded lien behind the increment, you’ve narrowed the failure scenario that actually harms your schools. Not eliminated it — narrowed it. That distinction is the whole difference between a credible presentation and a sales pitch.

If a school board asks you this question, don’t tell them no. Tell them where the exposure sits, show them the term, and show them who’s on the hook if the increment misses.

Disclosure: Hageman Capital purchases developer-backed TIF bonds from commercial real estate developers, so we have a capital-side interest in these transactions. This article is educational and is not legal, tax, or financial advice. School funding interacts with TIF differently in every state and changes with each legislative session; verify your state’s treatment with qualified bond counsel and your financial advisor.

We publish free state-specific TIF guides for municipal officials, including how the increment interacts with overlapping taxing bodies, at hagemancapital.com.