Northern Maine Development Commission

Transcription

1 Northern Maine Development Commission

2 Tax Increment Financing 101 October 26, 2017 AN OPPORTUNITY TO BUILD MEANINGFUL AND LONG-LASTING INVESTMENTS IN THE NORTHERN MAINE ECONOMY.

3 ...what on earth is a TIF...??

4 Primal skills required to 4 understand TIF s. Dave please Aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe.

5 5 A Municipal TIF is It is a local financing program, using local property tax dollars to promote job growth in the community It is a shelter against adverse adjustments to State subsidies and County taxes based on total valuation; more on that later... It is flexible economic development tool

6 How local development 6 works without TIF? A municipality s total equalized assessed value is used to compute: General Purpose Aid to Education (subsidy) State Revenue Sharing (subsidy) County Taxes (expense) State subsidies change inversely to value, county taxes change directly with value. In County talk, that means...

7 That means... 7 As the total taxable value of a town increases, Education and State Revenue Sharing subsidies will decrease, while Aroostook County Taxes will increase. Thus new tax revenues resulting from a development project end up being reduced through loss of these subsidies and increased county taxes.

8 7 What does net property tax revenue mean? Schools would receive fewer dollars for education from the State Towns would receive an increased County Tax bill Towns would also receive fewer dollars from State Revenue Sharing

9 8 A Summary of how TIF works... TIF shelters captured new value by excluding it from the total municipal value that is reported to the state. This allows towns to retain all or a portion of those new tax revenues otherwise lost to the county and state.

10 Still Paying Attention? 10

11 TIF in Graphic Form 11

12 10 How does a TIF do it? Sheltering effect achieved by designating a specific geographic area as a Development Tax Increment Financing District. This freezes the value of taxable property within the district with respect to what is reported to the state (and county).

13 Criteria for TIF districts At least 25% of the district area must be: Blighted In need or rehabilitation, redevelopment or conservation; or, Suitable for commercial sites. Municipal legislative body approval (e.g., town meeting or town/city council) required and must consider effects on other interested parties. DECD approves

14 11 4 Single district: not more than 2% of the total municipal area; Geographic (If not in PTZ) All districts: not more than 5% of total municipal area. Limitations Value (If not in PTZ) Value of all districts (at the time of their designation) cannot exceed 5% of total municipal value.

15 13 Municipal Debt Total municipal TIF debt may not exceed $50 million per county. Term TIF districts may be designated for up to 30 years. Bonds may be issued for a maximum of 20 years (with anticipation notes for 3 years) Limitations

16 Allowable project costs Capital costs, including: Construction, improvements and site work Demolition, repair and/or remodeling Purchase of machinery and equipment Financing costs, including: Interest paid to debt-holders on loans issued to pay for project costs

17 Allowable 17 project costs continued... Professional services Town administrative expenses Relocation costs Organizational costs Certain infrastructure (whether or not in the development district)

18 Allowable 18 project costs continued... Payments made at the discretion of the Towns Employee training Other improvements, including: Those creating new employment opportunities Promotion of public events Public safety

19 Funding mechanisms 19 Municipal bonds Municipality establishes a Development Sinking Fund for debt service requirements, Or Credit Enhancement Agreement A fixed amount or a percentage of TIF revenues paid into a Project Cost Account for direct payment of authorized project costs

20 District designation 20 process... Local public process, including: 10 day notice Public Hearing Majority vote of legislative body required Application filed with DECD Commissioner reviews and approves Amendments require same process as initial designation

21 Final Tips from Alain 19 Consider developing local TIF policy to guide the use of TIF. Revenues must be used for specified allowable uses and NOT General Fund purposes. Revenues can be shared between municipal uses and/ or incentive to developer/business. TIF s can be structured so that even with incentives to developer/business, the municipality is better off fiscally due to formula impacts. Once a TIF is created, be sure to implement a system for tracking values, revenues, and expenditures throughout the TIF s duration. When using TIF revenues to benefit businesses/ developers, what you provide to one will serve as a benchmark for future requests.

22 NORTHERN MAINE DEVELOPMENT COMMISSION