The severe "hollowing out" of downtown cores in many U.S. cities in the 1970s and 1980s left behind large pockets of impoverished and dilapidated areas. And, in many of these areas, situated at or nearby their heart are abandoned, idle or under-utilized commercial and industrial properties that have either known or likely contaminants - or so-called "brownfield" developments. In addition to significant funding through the U.S. government's Housing and Urban Development (HUD) and the Environmental Protection Agency, a number of creative funding solutions have been spawned with the aim of spurring redevelopment in these heavily-challenged districts, most of which involve significant up-front investments by the public sector and/or tax incentives. These innovations are either just beginning to make their way on Canada's radar screen or have been adopted in some provinces, given the worsening pockets of poverty and significant brownfield sites in the urban cores.
Tax-increment financing (TIFs) - a more detailed discussion of TIFs is provided in Annex 2. The overall goal of TIFs is to revitalize deteriorated sections of the city (designated as a TIF area) through public investment in a variety of physical infrastructure improvements. Under TIF policy, property taxes flowing to governing bodies in the district are frozen at the level that existed prior to the injection of government investment. That revenue remains fixed throughout the life cycle of the TIF (normally 20-35 years). At the same time, the investment by the government is expected to increase the assessed real estate valuations in the district by stimulating new construction projects by the private sector, and any new tax revenues are earmarked for repayment and servicing the debt. Once the debt is retired, the increment tax is folded back into regular municipal government coffers. The debt issued to finance TIFs take the form of a revenue bond, since they are usually backed by the property tax and/or another revenue source within the district.
Enterprise Zones - like TIF districts, enterprise zones are a dedicated area for development or improvement. In this case, however, the private sector undertakes the development. In order to lure the private sector, generous tax incentives are provided, such as a corporate income-tax holiday, accelerated capital cost allowance, or reductions in property tax. Ontario has passed legislation that allows enterprise zones at the provincial level, although municipalities are still not free to use them.
Tax-exempt equivalent grants (TIEGs) - this is an example of a hybrid between enterprise zones and TIFs. In this program, the city will designate an area in need of investment, although the investment initiative is in the hands of the private sector. If a private consortium decides to invest in the area, and if the land assessment subsequently appreciates, then the government will return a portion of the tax increment to the private consortium in the form of a grant. The City of Toronto is experimenting with TIEGs in a pilot project in Etobicoke.
Asset-backed debt - asset-backed debt embeds one important conceptual feature of TIF policy: the ability to identify and secure debt against an asset in need of economic development. The city borrows against the existing value of a designated area in order to finance redevelopment. In the event of a loan default the asset is handed over to the bondholders. In many cases in Canada, municipalities have not been given the right through provincial legislation to borrow against specific assets.