California invented tax increment financing in 1952 as a way to raise the local matching funds that federal urban renewal grants demanded. Assessed value inside a designated redevelopment area is frozen for other taxing bodies, and the increment above that base is pledged to bonds that pay for land assembly, infrastructure and site preparation within the area itself. Nearly every state followed, and by the 2000s TIF was the default American instrument for downtown, waterfront and brownfield redevelopment. California dissolved its redevelopment agencies in 2011, returning several billion dollars a year of increment to schools and counties.
TIF made value capture, rather than general taxation, the normal way American cities finance their own transformation — self-funding redevelopment at the price of mortgaging future property tax and of a chronic incentive to overstate future growth. Because eligibility usually turns on a finding of blight, it also tied urban finance to the legal act of declaring a neighbourhood failed.
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