What are Financing Districts?

With a reduction in federal funding for redevelopment-related activities due to spending cuts, restrictions on tax-exempt municipal bonds, and increasing administrative burdens on local, lower-level governments, financing districts have emerged as an increasingly popular tool to generate revenues for much-needed infrastructure. When used successfully, financing districts provide a means of raising funds for specific local or area projects, such as improvements to local streets, refurbishing a downtown area, or even funding a transit service.

Depending on the tool implementation strategy, the financing mechanism may have to be approved through local ballot measures or authorized under state law. For instance, state-enabling legislation gives local governments the authority to designate tax increment financing districts that last 20 or more years, or enough time to pay back the bonds issued to fund the improvements. While arrangements vary, it is common to have a city government assuming the administrative role for the financing district, making decisions about how and where the tool is applied.

Why and where are they applied?

Financing districts are most applicable at the local or regional levels. At the local level, tools such as local option sales taxes, Tax Increment Financing (TIF) districts and Urban Transportation Districts (UTDs) can provide financing for facilities, roads, and transportation enhancements within the boundary of the districts. TIFs tend to be more applicable in urban or rapidly growing regions where future value capture can be leveraged within the 20-year time horizon, and UTDs are applicable in urban areas where transit can be viable either along a corridor through a network of corridors.

Resort taxes can span a more regional context, often covering multiple municipalities covered by a national park or resort site extends, although only cities with a population under 5,500 qualify. Resort taxes can be levied in rural, urban, and rapidly growing contexts, depending on the area being served. Often, the resort tax is beneficial in preventing rapidly growing tourist areas from encroaching on national park land or preserved rural areas around the tourist site.

Where can I get more information?

• Texas Transportation Institute Guide to Transportation Funding Options. This web site is designed to serve as a resource to decision-makers. It simply and clearly spells out the options that are available across all modes and all levels of government. Financing districts are examples of funding mechanisms highlighted in this broader toolkit.
• AASHTO Center for Excellence in Project Finance. "Innovative finance" for surface transportation infrastructure is a broadly defined term that encompasses a combination of techniques and specially designed mechanisms to supplement traditional financing sources and methods. This compilation highlights local revenue as a main source of innovative finance.
• Montana Infrastructure Finance Center. This website provides summary information for the most significant financing resources available from state, federal, and local institutions. It includes a section on public infrastructure and links to third-party technical assistance on specific topics. The site covers a broad array of financing tools available for use in Montana.
• Title 7, Chapter 12 of the Montana Code Annotated addresses the types of improvement districts that can be used by Montana's local governments to finance a variety of infrastructure needs. Title 7, Chapter 14 of the Montana Code Annotated provides information specific to transportation.