I. Is It Possible to Make Everybody Happy with a TIF Statute? A. Proponents of TIF state: Tax revenues are created that would not otherwise be created. 1. Local government is not giving up any revenue, as the tax increment would not exist were it not for the redevelopment activities financed by that increment. B. Opponents say: Revenues would be created anyway. 1. If tax increment financing is imposed where it is not needed to encourage development where development would have occurred in the absence of TIF then the tax increment does not represent (or only a portion represents) local government revenues that would not have otherwise been collected. Instead, the tax increment cuts into general revenue that the local government would have otherwise received.
I. Is It Possible to Make Everybody Happy with a TIF Statute?(Cont d) C. TIF is most effective and least controversial when the goals are to remove severe blight, direct public finance resources pursuant to a community plan or policy, address environmental remediation, or finance infrastructure. D. Use policies and procedures to balance effectiveness of TIF with controversy of TIF.
II. What Should a Model TIF statute include? A. Policies and Procedures. 1. Policies and procedures should serve as a foundation for sound application of TIF. 2. Policies and procedures should provide a foundation of support for local elected leaders and economic developers to use when justifying and evaluating potential projects. 3. Use of TIF in a transparent and deliberate manner tends to have greater success with fewer obstacles in the way of development.
II. What Should a Model TIF statute include?(cont d) 4. Statute should contain several controls over the TIF process. Statutory Controls TIF is used for legitimate public purposes. TIF is necessary. TIF projects are feasible. TIF projects are appropriately planned. TIF projects perform as intended. Example of Control Methods Blight Finding But For Test Feasibility Study or Cost-Benefit Analysis Project Plan Annual Report
II. What Should a Model TIF statute include?(cont d) B. Blight Finding. 1. Blight refers to conditions that endanger public health or welfare, such as overcrowding, dilapidated or deteriorating buildings, or faulty street layout. a. In Illinois, the areas within TIF districts must be designated as either blighted areas or conservation areas that may become blighted. b. Minnesota requires certain types of TIF projects to include a percentage of structurally substandard buildings. c. In Wisconsin, at least 50% of the property within a TIF district must be blighted or in need of rehabilitation or conservation work, or the property must be suitable for industrial use or mixed-use development.
II. What Should a Model TIF statute include?(cont d) d. Not all states require a blight finding. Louisiana s TIF laws do not require a blight finding. e. In Indiana, TIF areas can be created either by meeting blight findings or economic development findings (i.e. promotes employment, attracts new businesses, retains or expands existing businesses, etc.). 2. TIF typically has a larger payoff for communities with high growth rates rather than the greatest need for development. Accordingly, a very strict definition of "blight" might result in TIF only being made available to municipalities with declining property values.
II. What Should a Model TIF statute include?(cont d) C. But For Test. 1. The developments or redevelopments would not occur but for the use of TIF. The test provides a degree of assurance that a given use of TIF will serve a public purpose and that TIF will not be used where it is not necessary to support development or redevelopment. If TIF is used where it is not needed, then the tax increment does not fully represent tax revenues that would not have otherwise been collected. Also, the tax increments deprive other governmental bodies that receive tax revenues, such as school districts, other special districts, and the county, of the increases they would otherwise have received. 2. States that do not require a But For test cannot be assured that the use of tax increment to finance local economic development projects is needed to support development or redevelopment. 3. At a minimum, need local redevelopment plan. Florida does not have a But For requirement, but need blight, redevelopment plan, and public purpose.
II. What Should a Model TIF statute include?(cont d) 4. Even if the But For test can be met in one location, states need to determine the extent that the gains from TIF projects are really pecuniary transfers from other areas within the state, and also what specific types of improvements should be allowed. If every municipality uses TIF to develop a retail mall and attract shoppers from the neighboring city, the overlying governmental units and the state will not see any net benefit. D. Feasibility Study or Cost Benefit Analysis. 1. Feasibility studies and costs benefit analyses are meant to ensure that TIF projects are not undertaken unless they will generate more revenue than costs.
II. What Should a Model TIF statute include?(cont d) 2. Minnesota requires an estimate of the fiscal and economic implications of every proposed TIF district. 3. Wisconsin bases its approval of TIF proposals partly on whether the economic benefits of the TIF districts are insufficient to compensate for the cost of the improvements and whether the benefits of the proposals outweigh the anticipated tax increment. 4. The Illinois TIF law requires a feasibility study for certain types of projects. 5. Louisiana s TIF laws do not require a feasibility study or a cost-benefit analysis. 6. Indiana requires a tax impact statement disclosing the estimated economic benefits and costs incurred, as measured by increased employment and economic growth of real property assessed values.
II. What Should a Model TIF statute include?(cont d) E. Project Plan. 1. Statute should require a detailed project plan before a TIF project can be approved such as: a. Purposes and objectives; b. Boundaries; c. Proposed land uses; d. Proposed activities and timetables; e. Estimated Costs; f. Sources and uses of public and private financing; g. Terms of any bonds to be issues; h. Estimates of tax impacts on local governments; and i. Explanations as to why the areas need redevelopment.
II. What Should a Model TIF statute include?(cont d) F. Annual Report. 1. Many states have annual reporting requirements whereby local governments must keep state entities informed about the status of approved TIF projects to ensure that the projects are relevant and stay on target. 2. Many states require TIF districts to submit annual reports to the appropriate governing authorities. 3. Some states do not require local governments to submit annual reports to the state agencies involved in the TIF process.
II. What Should a Model TIF statute include?(cont d) G. Deposit TIF in Special Account. 1. Accounting. 2. Transparency. H. Should all TIF projects receive prior approval by a joint review board of affected local taxing jurisdictions? Should some other existing or newly created regional entity to review and approval all TIF proposals within their boundaries? Are these types of restrictions problematic in creating economic development? Is it enough to be covered in the Redevelopment Plan? 1. Need flexibility to be effective, particularly in these economic times. 2. More layers of approval slow down (or stop) process some big incentive deals die due to length of process. I. TIF Statute must work well with applicable law and alternative forms of subsidy.
III. How do you Analyze TIF Law? A. Analysis is not limited to relevant TIF Statute. B. Other State Law can impact analysis. 1. Indiana Bidding Requirement. 2. State law ability or inability to loan bond proceeds or TIF cash directly to private party (Indiana-bond proceeds okay under certain statute; TIF cash cannot be given directly to developer). C. Prior Applicable Deal Standard. 1. Often, have to deal with position municipality has taken in past.
III. How do you Analyze TIF Law?(Cont d) D. Home Rule Powers. E. Politics/Policy. F. Federal Income Tax Law Tax Exempt Bond Status 1. Private Activity Bond Rules. 2. Build America Bonds, Recovery Zone Economic Development Bonds and Recovery Zone Facility bonds. 3. Rules are changed through 2010 (perhaps longer if stimulus act provisions extended). G. Make sure advisors, investment bankers, and lawyers on team understand all relevant law.
IV. Issues in TIF Statutes with Termination of TIF. A. Life of TIF Examples 1. South Dakota 15 years. 2. Illinois -- 23 years. 3. Indiana -- 25 years from date obligation incurred. 4. Texas 40 years. 5. California 50 years. 6. Florida Bonds must be repaid between 7 and 40 years. 7. Utah Depends on Agreement. 8. Maryland Not specified. 9. New York Not specified. 10. New Jersey Not specified. 11. Alaska No limit. 12. New Hampshire Life of Bonds. 13. Hawaii Life of Bonds.
IV. TIF.(Cont'd) Issues in TIF Statutes with Termination of B. Extension of TIF. 1. Illinois Can be extended by state legislation to 35 years. Need ordinance of municipality, notice to taxing bodies, surplus distributed pro rata. a. Policy in Illinois is if one taxing jurisdiction objects, TIF is not extended. b. Should statute be amended to provide for extension if have majority, 60%, 75%, 90% of taxing districts approval? 2. Indiana statutory limit is 25 years from date first obligation incurred; overlapping units do not have veto power other than filing action in court like any other taxpayer. C. Right of Parties Upon Termination. 1. In Illinois, surplus distributed pro rata to taxing districts. 2. Use for Eligible Costs before expiration.
IV. Issues in TIF Statutes with Termination of TIF.(Cont'd) D. Rights of Parties Upon Extension. 1. Example of expiring TIF with Old Redevelopment Agreement. City established TIF in 1983 that expires in 2006. In 1990 City enters into Redevelopment Agreement with Developer that provides for the issuance of TIF Revenue Notes of $5,000,000 to be paid from increment. Increment is under $500,000 through 2000, but $3,500,000 through 2006 which has been paid to Developer. City anticipates another $4,000,000 of Increment over next 7 years and wants to extend TIF. If TIF is extended, is Developer entitled to payments on the original TIF note?
V. TIF Policy in Connection with Financially Troubled Communities and Developers. A. General obligation or other revenue back-up to TIF. 1. Private credit is very tough. 2. Most units of local government, although hurting, are a better credit than most private entities. B. TIF particularly helpful in today s economy, if statute permits. 1. Example of using contiguous TIF's to finance projects. TIF I has an expiration date of 2029, TIF II has an expiration date of 2025, TIF III has an expiration date of 2017. City wants to finance $3,000,000 of Qualified Redevelopment Costs for TIF I, $600,000 of Qualified Redevelopment Costs for TIF II and $3,500,000 of Qualified Redevelopment Costs for TIF III. TIF I is contiguous to TIF II and TIF II is contiguous to TIF III. State has statute permitting use of contiguous TIF's. City would like to issue bonds to finance the projects. A bond issued for TIF I alone has coverage of 1.90 of anticipated debt service, TIF II alone has coverage of 1.10 and TIF III alone has coverage of 1.20. In the aggregate, there is coverage of 1.70 compared to anticipated debt service. If each TIF financed on their own the Revenue Bond rates would be very high or not financeable. By aggregating the TIF's and selling one Build America Bond (with separate series) rate was 5.75% taxable with a 35 % refund for a net interest rate of 3.75 %.
V. TIF Policy in Connection with Financially Troubled Communities and Developers.(Cont d) 2. Use of area-wide TIF. 3. Indiana project generally only requires finding that it is in, serving or benefitting the TIF area. C. Consider all options to fill the gap. 1. Free up TIF revenues by Refinancing Old TIF Notes. City has a developer note outstanding in amount of $7,000,000 to accrue interest at 8% and payable to extent Developer incurs qualified TIF costs. TIF has reached absorption and TIF revenue will produce coverage of over 150% if they do a bond deal. Revenue bonds refinance developer notes at lower rate or alternatively use GO backing to get even lower rate.
V. TIF Policy in Connection with Financially Troubled Communities and Developers.(Cont'd) 2. Recovery Zone Economic Development Bonds. 3. Recovery Zone Facility Bonds. D. TIF is more important in today's economy as GAP is greater. E. Need greater flexibility to be effective, particularly in these tough economic times. More layers of approval slow down (or stop) process. F. Tough to make everybody happy. Statutes need to provide tools to get project done with policies and procedures to make sure overall goals and objectives are satisfied.