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Private investment is needed to make regeneration schemes work.

Byline: KEVAN CARRICK

HOW can we make Tax Increment Finance (TIF) work in the North East? Research by the Royal Institution of Chartered Surveyors (RICS) published last week points the way to important new ways of financing infrastructure and development work.

Since 1952, TIF has been used in the United States to fund regeneration schemes. An area designated as "a TIF" results in values being "frozen".

The improvements carried out to regenerate the area result in increased values over time. The difference between the value of the improved property and the base value is the increment.

These tax increments are then channeled to the TIF authority. This growth in value can be borrowed against to provide upfront funding for the regeneration scheme and to pay for infrastructure costs by "pay as you go", bond finance or Tax Anticipation Notes.

This method has used the growth in values to achieve significantly enhanced economic development in scale and speed, as well as reducing the public sector finance burden.

Prior to 2007, developers in the UK paid for infrastructure costs out of development profit. The economic downturn has led to a fall in property values and the restriction on finance to develop properties and development schemes have stalled. Cuts in public sector investment are resulting in a reduction in infrastructure provision. There needs to be a partnership between the public and private sector to make much-needed regeneration schemes work to create economic growth.

In the UK, local authorities collect the business rate and the Treasury pool the amount and redistribute among local authorities.

In consequence, there is little direct financial incentive for local authorities to invest in areas that need regeneration.

There is a new political will to transfer power from central Government to local communities, but local authorities need the tools to raise funds for regeneration. In recent years numerous funding tools have been proposed to help fund regeneration, such as Accelerated Development Zones, TIFs, Business Rates Supplement, Community Infrastructure Levy, Local Asset Backed Vehicles, Public Private Partnerships, Regional Infrastructure Funds and a Business Increase Bonus Scheme.

Borrowing against future growth in values is a risk, especially in an area that needs regeneration. The growth in value also takes time in which to work through as the long-term regeneration schemes near completion. The key issues are whether the tax revenue is sufficient to repay the debt, the funding of the upfront shortfall in income and which party is to be held liable for any shortcomings.

The time to launch TIF is unclear but evidence suggests that they work better in a more buoyant economy when demand is higher and property values rise.

Scotland amended its rating legislation in 2010 to allow for the retention of revenue by local authorities who are operating TIF projects and six pilot schemes are being promoted. The RICS research has looked at three case studies: Edinburgh waterfront and Ravenscraig, in Scotland and Battersea, London.

The findings give some clear guidance on new ways of doing things to achieve economic growth. Similar examples are being considered by Newcastle in its bid to Government to help kick-start regeneration schemes. It is hoped that this encourages more activity from the private sector and thus leverage of private investment to boost the investment made by the council.

The RICS report on TIF can be downloaded as a pdf file from the RICS website at www.rics.org Kevan Carrick is a partner in JK Property Consultants LLP and a policy spokesman for RICS North East.

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FINANCE Scottish legislation allows local authorities who are operating TIF projects to retain revenue. Six pilot schemes are being promoted
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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Mar 7, 2012
Words:606
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