Tax Increment

Thomas ChapmanRaymond James

John RepsholdtEhlers

Steven LangertConsolidated High School District 230

What is Tax Increment Financing (TIF)?

• A tool to help local governments restore their most run-down areas or jumpstart economically sluggish parts of town.

• TIF’s help local governments attract private development and new businesses.

• TIF’s help local governments make the improvements they need, like new roads or new sewers and water mains.

• Allows redevelopment costs to equal green grass development costs, therefore “incenting” redevelopment.

What is a "Tax Increment"?

• It is not a tax increase.

• It is the difference between the amount of property tax revenue generated before a TIF district is established and the amount of property tax revenue generated after the TIF district has new development.

• TIF does not reduce property tax revenues available to other taxing bodies.

• Only property taxes generated by the incremental increase are available for use by the TIF.

What is a "Tax Increment"?

Property Tax Increment Example #1

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

Base Y

ear

3rd Y

ear

5th Y

ear

Base Value

Increment Value

What is a "Tax Increment"?

2007 Tax Bill

Land EAV $52,088Building EAV $0Tax Exemption $1,708Total EAV $50,380Tax Rate 10.264%Tax Bill $5,171

TIF $ $0

Property Tax Increment Example #2

2008 Tax Bill

Land EAV $57,743Building EAV $235,959Tax Exemption $0Total EAV $293,702Tax Rate 10.264%Tax Bill $30,155

TIF $ $24,974

How does TIF work?

• Community Creates TIF.

• Freezes EAV at current levels for all taxing districts.

• Community undertakes public improvements/ economic development incentive programs.

• Developer, local businesses, residents make improvements.

• EAV increases.

• Community pays developers/itself for improvements/incentives.

Important to Remember

“But For” Concept

Gap in Financing/Extraordinary Risk

(Without TIF, the Project is Not Possible)

Required TIF Reports

• Feasibility Report

• Eligibility Report

• Redevelopment Plan and Program

• Housing Impact Study (required, if large numbers of residential units in proposed TIF)

Feasibility Report

• Required by law if the TIF has more than 75 occupied residential units or more than 9 relocations of occupied residential units.

• Articulates need for Housing Impact Statement.

• Definition or purpose to determine whether TIF is appropriate (financial definition as opposed to physical or criteria evaluation of the area).

Eligibility Report

Review and document for criteria for Eligibility

• Blighted

• Conservation

• Combination of Blighted and Conservation

• Industrial Conservation

• Within ½ mile of STAR Line (new)

Data Inputs

• Rating survey

• Tax information

• City information

• Records

• Consultant studies

• State and federal information

Redevelopment Plan and Project

Plan

• Goals

• Objectives

• Program

• Policy

• Implementation strategy

• Budget

Redevelopment Plan and Project

Certifications and Findings• Project Cost

• Evidence “But For” met

• Assessment of Financial Impact on Taxing Districts

• Sources to Pay

• Terms and Obligations of Debt (if any)

• EAV of the Redevelopment Project Area

• EEO Compliance

• Industrial Conservation Compliance

• Not Subject to Growth and Redevelopment on its own

• Dates of Completion (23 Years or less; may be extended up to 35 years with approval of State)

• Housing Study findings

• Agreement with Comprehensive Plan

• No golf course

Other Considerations

• Must be 1.5 acres (also large enough to generate enough increment to be worthwhile)

• Increment must be projected over the period of the TIF

• Vacant property should be subdivided prior to adoption of TIF

• Unincorporated property should be annexed prior to adoption of TIF

• Must have Map of Area

• Must have Legal Description

Housing Impact Statement

Part One Data• Single vs. multi family

• Number and type of rooms

• Inhabited or uninhabited

• Racial and ethnic composition

Part Two Data• Residential Units to be removed

• Relocation Assistance Plan

• Availability of Housing for Relocation/type, location, cost

• Type and extent of relocation

Housing Impact Statement

• Low and Very Low Income requires relocation per the Uniform Relocation Assistance and Real Property Acquisition Polices Act of 1970 and its regulations.

• Municipality must make good faith effort to relocate in or near redevelopment project area in municipality.

Schools

• Students added to system as the result of activities in the TIF must be reimbursed; same for patrons of the library district.

• Municipality can assist schools with infrastructure through TIF.

• Municipality can pay for job training/retraining and welfare to work.

• Schools do not lose full EAV advantage because of State aid reimbursement (calculation on base not new EAV).

• If tax-capped, schools may not lose any funding.

• Begin discussions with schools early. Municipality may be able to out-vote them, but you are in the community together.

• Other than student reimbursement and justified capital improvements, Municipality must make payments to all taxing districts from surplus, not just schools.

Adoption Process

• Interested Parties Registry

• Notification of Property Owners and Residents within 750 Feet

• Joint Review Board Process

• Publication of Notices

• Public Hearing

• Adoption

• 100-120 days

TIF Administration and Management

• Annual Reporting

• Joint Review Board Meetings

• Make and encourage improvements in TIF District

TIF Eligible Expenses

• Only certain costs are allowed to be reimbursed• Examples

Cost of studies and surveys; Costs associated with land acquisition and site preparation

including demolition and environmental remediation; Costs of rehabilitation and repair of buildings; Costs of construction of public works or improvements (street,

water, sewer); Costs of job training and retaining programs; Relocation costs; and Certain financing costs

• Any reimbursement of expenses is based on approval of the corporate authorities.

TIF Ineligible Expenses

• Costs of new, private construction and purchase of equipment are non-eligible costs.

• New municipal public buildings.

• Golf courses.

• Demolition, removal, or substantial modification of a historic resource is a non-eligible cost, with some exceptions.

Financing TIF Improvements

• Reimburse developer on a “pay as you go” basis.

• Issue bonds to be repaid from TIF Increment, and therefore, pay for eligible project cost up-front.

• Combination of the above methods. • The developer pays until property tax is generated, then

the Village issues bonds using the increment for payment of bonds. In this case part of the developer’s finance charges can be reimbursed.

Case Study

Consolidated High School District #230

Payments made to District

by Municipalities approx $700,000

GSA Saving due to TIF 25,000

Property Taxes of Increment

At District’s total rate approx $1,536,000