apsil m thomas_a - Law Seminars International

Tax Increment Financing
Rhonda C. Thomas
Overview of TIF and Other
Development Incentives
• Form of Public Private Partnership
• Uses public tax and fee revenues
generated by a development project or
• Abate taxes and fees that would
otherwise be imposed by government
• To provide a source of funding to
construct the Project
Most Projects Use a
Combination of Incentives
• Important points in selecting
• Understand the tax, fees and other
revenues to be generated by Project
• Understand the other public benefits of
the Project – new jobs, public
infrastructure, trigger for
Selecting a Development
• Statutes restrict availability of
• Public Entity must approve
• Political environment and local
• Needs of Project and Attributes of
Various Incentives
Attributes of Incentive Programs
• Revenue Stream that provides
– Existing and new property taxes
– Existing and new sales taxes - hotel, food
and beverage, entertainment
– Employment based taxes and fees – head
tax, etc.
– Special Assessments / special property tax
on property benefited by improvements
Is it OPM
• Other People’s Money
– Rebate of Existing Taxes
– New Taxes paid by someone other than
the Developer
– Public entity guarantee
Typical Attributes of Incentive
• Bond financing capacity
– Pay as you go from Incentive Revenues
– Issue bonds to provide upfront funding
• Tax exempt interest -- lower borrowing costs
• Guarantee of bonds by public entity
• Power of Eminent Domain to assemble property
• Project Costs that can be funded
Public Purpose
• All incentive programs require a
finding of public purpose – can’t use
public money for private purpose
– Each statute specifies the public purpose
findings that must be made
– Vary among incentive programs and from
state to state
Tax Increment Financing –
Public Purpose Requirements
• Site Conditions – Is the area “Blighted”
• “ But-For Test” – would the Project occur
without the incentives
• Gap Funding - $ amount of incentive
required to provide Developer a market
• Extraordinary development costs
• Relocation of existing businesses
Project Costs
• Some incentive programs limited to
public improvements
• TIF typically can fund certain private
project costs
• Some incentives do not require a
tracing of incentive $ to actual project
Costs of Studies, Surveys, Development of
Plans, and Specifications, Implementation
and Administration of the Redevelopment
• Architectural, engineering, legal, financial,
planning services
• No contracts based on percentage of TIF
collected or longer than 3 years
• No lobbying expenses
• Public Entities annual out of pocket
administrative costs of the TIF
• Costs of Public Entity marketing sites within
the Redevelopment Project Area
Property Assembly Costs
– Acquisition of land and other property,
real or personal, or rights or interests
– Demolition of buildings
– Site preparation
– Clearing and grading of land
– Environmental Clean-up
– Relocation Assistance
Costs of Construction of Privately
Owned Improvements
– Costs of rehabilitation, reconstruction or
repair or remodeling of existing
buildings, fixtures, and leasehold
– No funding of costs of construction of
new privately-owned buildings
Costs of new Public Buildings
– Costs of replacing an existing public building
demolished to provide site for Redevelopment
– Funding of costs of parking garages, schools and
other public buildings required to serve the TIF
– No funding of costs of constructing a new
municipal public building (not a replacement)
principally used to provide offices, storage
space, or conference facilities or vehicle storage,
maintenance, or repair for administrative, public
safety, or public works personnel
– Exception if Public Entity finds that the new
municipal building is required to meet an
increase in the need for public safety triggered
by the Redevelopment Project
Public Infrastructure / Improvements
Roads, signalization and sidewalks
Water and sewer
Stormwater detention
Public utilities and certain utility
extensions for private utilities
– No development of a golf course or
– No development of vacant land
designated and used as public land for
outdoor “recreational activities” (limited
to camping and hunting) or for nature
Costs Attributable to an Existing Retail Business
– No direct financial support to a retail entity initiating
operations in the TIF Area while terminating operations at
another Illinois location within 10 miles of the TIF Area in
another community
– Termination means a closing of a retail operation that is
directly related to the opening of the same operation or
like retail entity owned or operated by more than 50% of
the original ownership
– Exception for closing a retail operation for reasons beyond
the control of the retail entity – requires a finding that the
current location contained inadequate space, had become
economically obsolete, or was no longer a viable location
for the retailer or serviceman
– May only apply to relocation of a business that generates
sales tax
Developer's Financing Costs
– Reimbursement of Developer’s borrowing costs
from TIF Revenues may not exceed 30% (75%
for TIF funded low income housing Projects) of
the annual interest costs incurred by the
Developer and of the total costs of the Project
– In lieu of reimbursement of financing costs
Developer receives a TIF Note which bears
interest at a taxable rate equal to the interest
costs of the Developer's loan
– Expenses related to the issuance of TIF Notes or
TIF Bonds - attorneys, TIF consultants, trustees,
– Capitalized interest during the estimated period
of construction of the Project and for not
exceeding 36 months thereafter
TIF Projects That Include Housing
– 50% of the costs of construction of new housing units to be
occupied by low-income households and very low-income
households as defined in the Illinois Affordable Housing Act (In
lieu of payment of Developer’s financing costs)
– School and Library District's increased costs attributable to
housing units located within the TIF Area - Reimbursement
amount is determined pursuant to a complex formula based on
the School District's increase in attendance resulting from the net
increase in new students enrolled in the District who reside in
housing units within the Redevelopment Project Area or the
Library District's increase in persons eligible to obtain a library
card in the District who reside in housing units within the
Redevelopment Project Area
– School and Library Districts may adopt a resolution waiving the
right to all or a portion of the reimbursement otherwise required
– Acceptance of the reimbursement waives the District's right to
directly or indirectly set aside, modify, or contest in any manner
the establishment of the Redevelopment Project Area or Projects
Costs of Contiguous TIF Areas
– Can use TIF Revenues from one TIF Area
for eligible costs in a contiguous TIF Area
– Contiguous if separated only by a public
right of way from the TIF Area from
which the TIF Revenues are received
– Contiguous if separated only by forest
preserve property and the closest
boundaries of such TIF Areas are less
than one mile apart
Payments to School and Other Taxing Districts
– All surplus TIF Revenues must be distributed
annually within 180 days after the close of the
Municipality's fiscal year to the Taxing Districts
in the same manner as real property taxes
– Guaranteed pass through of a % of the TIF
Revenues must be distributed proportionately to
all Taxing Districts; i.e. can’t just pass through a
% to the School District
– Can fund certain Taxing District public
improvements (typically Elementary or High
School Building or Fire Stations or equipment)
– Requires a written agreement with the
Municipality and costs must result from the
Procedures for Use of TIF
– Redevelopment Plan
– Notice to Property Owners and
Taxing Districts
– Taxing Districts Committee
– Advertised Notice & Public Hearing
– Public Entity Approval
– Certification to Taxing Authorities
– Process takes approximately 6 months
TIF Redevelopment Plan Budget
– Must include an itemized list of estimated TIF Costs
– Should be based on TIF Act categories / not tied to specific
– Budget should estimate use of all TIF Revenue for 23 year
TIF Term / not what Municipality is willing to provide to
specific Developer
– Footnotes in Plan should authorize
• Consumer Price Index growth
• Moving costs among categories
• Use of TIF Revenues in contiguous TIF Areas pursuant to
that contiguous area’s TIF Plan and budget
– Budget amendments which increase the total estimated
TIF Costs by more than 5% (adjusted for inflation) require
the Municipality to give notice, convene a meeting of the
Taxing District, and conduct a public hearing
Redevelopment Agreement
A. Selection of Developer & Approval of
Development Agreement
B. Property Acquisition & Condemnation
C. Performance of Development Project
D. Pledge of Revenue Streams
E. Issuance of TIF Obligations
F. Developer’s/Tenant’s Cooperation in
Determining TIF Revenues
G. Remedies
Form of TIF Reimbursement
• TIF Bonds As Source of Construction
• TIF Notes with Project Costs
Advanced by Developer
• TIF Bond Take Out
• Share of Incremental Revenue Stream
TIF Project Lease Issues
Disclosure of Sales Tax, etc.
Operating Covenants, Insurance
Non-profit and Service Providers
Revenues to Augment TIF
Business Districts – Sales Tax, Special
Economic Incentive Agreements – Sales
Special Service Areas
Security for TIF Bonds
Incremental Tax Revenues
General Obligation
TIF Alternate Bonds – Back Up GO
Developer Guarantee
So How Can TIF Fund the 2016
• Chicago has an estimated 130 TIF
Areas covering 30% of the City
• Ability to use TIF Revenues in
adjacent TIFs
• Chicago has taken a creative approach
to the use of TIFs for housing, school
construction, etc.
Cost of 2016 Chicago Olympics
• Total cost estimates of $5 billion
• $1.1 billion needed for the lakeside
Olympic Village
• $366 million for a temporary 80,000
seat Olympic Stadium to be built in
Washington Park
• City of Chicago has approved a $500
million insurance policy against cost
overruns and revenue shortfalls
Olympic Funding
• Typical Developer Projects to Serve
the Olympics - Housing, Retail, Hotel,
• Public Infrastructure – roads, utilities,
• Olympic venues
2016 Olympic TIF Innovations
• Chicago school financings
• Used TIF to fund public schools
• TIF Bonds guaranteed by City of
Chicago GO backing
• Bonds paid by TIF Revenues where
school is located and adjacent TIFs
• Similar structure could be used for
2016 Olympic venues
2016 Olympics
– A dream for the City of Chicago
– TIF can help make the dream come true
– Thank you
Rhonda Thomas
[email protected]

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