What Property Tax Elimination Proposals Mean for Municipal Finance

Here’s the short version of what I’ve been telling municipal officials since the spring: property tax elimination is unlikely to erase your tax increment, but it is very likely to compress it. And whether that compression lands on your general fund or on a developer’s balance sheet was decided the day you approved the bond structure, not the day the legislation passes.

That’s the part I don’t think is getting enough attention. There’s been plenty of coverage of what elimination means for homeowners and school funding. There’s been almost none on what it means for the twenty-year revenue pledges cities have already made.

I’m not here to argue the policy. Home values have climbed roughly 45% since 2020 while median household income rose about 8%, and legislators responding to that are responding to something real. My interest is narrower: if you have outstanding TIF obligations, there are consequences worth understanding.

Thirteen States, Very Different Machinery

At least thirteen states have taken up proposals to eliminate, phase out, or sharply limit property taxes this cycle. The headline sounds uniform, but the mechanics may vary among these proposals.

Florida has moved furthest. Its November ballot measure raises the homestead exemption to $150,000 in 2027 and $250,000 in 2028 for non-school levies, cuts the assessment cap on non-homestead property from 10% to 5%, and directs the Legislature to build a path to full elimination. Elsewhere it’s a more mixed approach: Texas keeps targeting school levies, North Dakota is weighing a phase-out underwritten by oil reserves, Kansas has floated pairing elimination with repealing sales tax exemptions.

Two patterns hold almost everywhere. Nearly every serious proposal targets homestead property. And most preserve school levies while going after the city, county, and special district portion of the bill.

Both matter, and they cut in opposite directions.

The Reassuring Part

Increment isn’t a tax. It’s a product: assessed value above the frozen base, multiplied by the applicable millage rate.

If elimination proposals aim at owner-occupied residential property, and your district is a retail center, an industrial park, a hotel, or a market-rate apartment community, the property generating your increment is largely outside the target. In Florida, commercial real estate and investment property stay on the rolls. Say that plainly when a resident asks whether elimination blows up the city’s redevelopment financing. In most districts, it doesn’t.

The Part Nobody’s Talking About

Because increment is a product, there are three ways to damage it: shrink the base through exemptions, slow assessed value growth through caps, or cut the millage rate. Only the first looks like “elimination.” All three land the same way on a coverage schedule.

Florida’s cut to the non-homestead assessment cap, 10% down to 5%, has drawn a fraction of the attention the exemption has. For TIF it may matter more. Every twenty-year projection I’ve reviewed assumes some rate of appreciation on the developed property. Halve the maximum annual increase and you don’t eliminate the increment. You flatten its growth curve permanently, on exactly the property class TIF districts are built on.

There’s a second uncomfortable point. Many states already shield school levies from TIF capture. Kansas protects 20 mills for schools and 1.5 for the state; others have comparable carve-outs. So the mills TIF actually captures skew toward city, county, and special district levies, which are precisely the levies most proposals go after. The design choice that reassures superintendents concentrates the impact on the revenue stream TIF depends on.

The Question That Determines Your Exposure

All of that is about how much increment shows up. This is about who covers the gap when less shows up than projected.

If your bonds are general obligations backed by the city’s full faith and credit, a shortfall becomes a general fund problem, in the same budget year your general fund absorbed a cut to its largest revenue source. Two correlated problems, one budget cycle.

If the bonds are special obligation or developer-backed, payable solely from pledged increment and non-recourse to the city, the city isn’t in that conversation. The developer and its lender absorb the revenue risk they priced for.

Same project, same legislation, opposite outcome, determined entirely at closing.

The newer TIF statutes sharpen this further. They authorize a taxpayer agreement, in which the developer contractually commits to cover any shortfall between actual increment and scheduled debt service, recorded against the property and secured by a lien. The statutory language is deliberate: these agreements are expressly not taxes, not fees, not pledges of governmental credit. A contractual obligation doesn’t disappear when a tax is repealed.

Drafting quality matters here. Some statutes measure the obligation by reference to ad valorem taxes and enforce the lien like delinquent property taxes, which is elegant until the state starts dismantling parts of that apparatus. Others define the developer’s payment as the difference between the next-due debt service payment and the increment actually generated. That version is indifferent to why increment came in low. If increment goes to zero, the developer owes the full payment. If you’re a legislator, that’s a choice available to you now. If you’re a city, it’s a question for your bond counsel this month.

Where This Leaves Cities

Elimination is unlikely to destroy tax increment financing. It is likely to make increment smaller, slower-growing, and considerably less predictable than the projections sitting in your files assume. Cities holding that risk on their own balance sheets will feel all of it at the worst point in the budget cycle. Cities that structured non-recourse, with the developer’s shortfall commitment secured by a recorded lien, will feel much less.

That’s not a prediction about legislation. It’s just where the risk was assigned.

We spend most of our time on the capital side of these transactions, which means we read a lot of increment projections and a lot of taxpayer agreement language. If it would help to walk through how a specific structure holds up under compressed assessment growth, we’re glad to have that conversation. Nothing to sign, no engagement required.

This guide is for general educational purposes only and is not legal advice. TIF statutes vary by state and change frequently. Before moving on any TIF transaction, consult experienced bond counsel and a qualified financial advisor.