In cities across the country, tax increment financing has grown substantially as a tool to promote economic development. Also known as TIF, this public financing method designates an area as a TIF district and subsequently freezes the tax base at a given year’s level. Any tax revenue generated above that level then finances development projects within the district. While TIF was developed in conjunction with urban redevelopment and slum clearance statutes, today it is utilized for many development projects with economic benefits such as job creation and an increase in tax revenue.
TIF is often used in conjunction with eminent domain and results in a private entity developing the TIF project. When a city condemns private property for a TIF development only to turn it over to a private developer, the government action becomes suspect and raises constitutional and public policy issues. The United States Supreme Court, however, held in Kelo v. City of New London that a generalized economic benefit is a sufficient public use when government condemns private property and turns it over to a private developer. This holding effectively expands the traditional meaning of public use.
Because courts increasingly give deference to a city’s finding of public use and a legislature’s definition of blight in TIF enabling-statutes, the use of TIF has become lenient and strayed from its original intent. This Note maintains that courts have erred by equating public use with public purpose and that TIF is in need of reform in order to comply with eminent domain principles. It comments on the errors of the United States Supreme Court in Kelo and suggests tighter statutory standards for TIF development projects.