|Step 1 - The District is created. The value of ALL the properties inside the district is calculated. This becomes the frozen base amount of property tax for the area.|
|Step 2 - Redevelopment and Improvements. Public and private investments generate improvements. As property values increase, all new tax revenue above the frozen base amount go to the urban renewal fund to reinvest in the area.|
|Step 3 - District is retired. Once the City Council is finished investing in the area and the debt of the district has been repaid, the district is retired. Property taxes are distributed among the taxing districts.|
While urban renewal itself does not increase property tax rates, it does function on the increases in property tax revenues from year-to-year. An individual property tax- payer’s property taxes may increase for two reasons, one, the assessor can increase property values at a rate of 3% per year and does so in most cases, and, two, if a substantial renovation is completed on a property resulting in increased assessed valuation.
When an urban renewal area is created, the property tax revenue from that area is diverted into two revenue streams. The first stream is what is called “the frozen base”. The frozen base is the property tax revenue from the total assessed value of the urban renewal area from the year the urban renewal area was formed.
The frozen base revenue stream continues to go to the regular taxing jurisdictions, such as the city, the county, and the school district. The second revenue stream is any increase over the frozen base which is called “the increment”. The increment represents the basis for tax increment financing and is any increase in property tax revenues above the frozen base. The second revenue stream goes to the urban renewal agency for use on projects, programs, and administration throughout the life of the urban renewal area. The funds that are allocated to the Agency from the division of tases or tax increment financing are used on projects that encourage public and private development. In the chart below, you can see that Urban Renewal has a “frozen base” meaning the assessed value in the District when it was originally formed. Taxes off that goes to taxing districts and will for the length of the Urban Renewal Plan. Any taxes off growth within the District (“increment”) go to the Agency for projects in the District. Once the District is terminated, all tax revenue will go to the taxing districts according to their tax rate.