Tax Increment Financing for Urban Projects: An Alternative to Fund Infrastructure in Latin American Cities?: The Case of Medellin's Carrera 80 Tram Project

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Aug 2020
López-Ghio, Ramiro; Salazar Echavarría, Carlos; Schloeter, Luis
In Latin America and the Caribbean (LAC) the overall infrastructure investment gap has undermined the regions ability to sustain recent levels of economic growth. Estimates suggest that the region needs to invest at least 5% of its GDP for a prolonged period of time to effectively close the infrastructure deficit. This paper examines the potential behind Tax Increment Financing (TIF), a form of Land Value Capture (LVC), to help cities invest in the much-needed urban infrastructure. Over the last 30 years, cities around the globe have been increasingly resorting to LVC to expand investments; tapping into publicly induced increments in land values to support capital projects. Despite the recognized potential that LVC offers, most city governments in LAC have been reluctant to use it, even when they have the legal authority and political support to do so. The lack of technical know-how, expertise and experience are restraining cities from piloting LVC programs, especially TIFs. This paper seeks to help municipal leaders better understand LVC and provide them with a framework to assess whether TIFs would work in their cities, facilitating an understanding of the critical design and implementation features. It illustrates the potential benefits of TIFs in LAC by analyzing the feasibility of a developing a TIF program to fund Medellíns Carrera 80 Tram Project in Colombia. Our study finds that Medellin is in a favorable position to successfully implement the regions first TIF program. It could help reach a level of funding of between 21% and 55% of the total investment costs of the first phase of the Carrera 80 Tram Project.