Regeneration in Greater Manchester: Lovers of TIF

OF all the funding tools being brought forward in a bid to plug the gap left by the disappearance of grant funding, tax increment financing is the one which offers the most potential.

The model allows local authorities to borrow money for projects against the anticipated increase in business rates these schemes will create in future years.
It is a financing tool that has been used in the US for around 40 years, with varying degrees of success – some of the more ambitious schemes which haven’t achieved the necessary tax revenues have brought some states towards
virtual bankruptcy.

Paul Conroy, real estate partner at Addleshaw Goddard, explains: “You have to guess the uplift in 10 to 15 years on a scheme where you don’’t know who the occupiers are. There is guesswork and assumptions have to be made, which leads to a potential risk of shortfall.”

There are two types of TIF model being considered: TIF1 is for general borrowing by a local authority against a general growth in that area; TIF2 is more like the US model, where a specific ring-fenced site or infrastructure scheme is identified to generate the increase in rate revenue.

Greater Manchester’s new City Deal is a form of TIF1. Although the finer details are still being worked out with the government, there is an anticipation that the package of measures being funded – including the GM Investment fund, the business growth hub, money for housing regeneration schemes and a low-carbon hub – are anticipated to generate at least £35m a year that Greater Manchester’s Combined Authority can then recycle towards future investment projects. This has been described as a “game changer” for the city region – potentially ending the requirement for continued grant funding from Government for regeneration projects.

Enterprise Zones, meanwhile, are closer to the TIF2 model and the zones chosen – Airport City and Daresbury Science and Innovation Campus – have been picked precisely for their potential in securing the greatest amount of future tax revenues for their wider areas.

For more on the potential impact of TIF, click here to download our Regeneration in Greater Manchester supplement in association with Addleshaw Goddard.