BALTIMORE—A bid to use more than $500 million in future property taxes to help finance the transformation of a 260-acre peninsula here is fueling a renewed debate about the benefits and drawbacks of diverting streams of tax revenue away from schools and public safety.

The financing method, tax-increment financing, or TIF, is staging an uneven rebound nationally after a dip that began in the 2007-09 recession. Under Armour Inc. chief executive Kevin Plank plans a $5.5 billion mini-city, anchored by a new headquarters for the...