Application of TIF in Illinois

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  • That would not otherwise occur…. Because of: Lack of public infrastructure or - Extraordinary redevelopment costs Or otherwise not financially justifiable (i.e.., rehabbing an old building)
  • TIF is available to all municipalities in IL. The TIF Act was originally enacted in 1977. Since then, just over 900 TIF’s have been established in over 400 municipalities throughout the state. TIF is initiated and controlled locally… no federal or state approval required. TIF is an economic development tool designed to achieve 2 principle goals: Removal of blight or conditions that may lead to blight Ultimately enhance the tax base of all taxing bodies All taxing bodies forgo tax revenue increases for a period of time… but benefit from the increase when the TIF district is dissolved. When pursuing the establishment of a TIF district, there are 3 key findings that the municipality must make. Qualify Lack of growth and investment… area as a whole “ But-for” test.
  • The concept of TIF is straight forward Once the District is established, the County Clerk will certify the base EAV of the District. Taxes on this base EAV continue to be distributed as before the TIF. After redevelopment projects are complete, the EAV goes up and thus the real property taxes. This increase is the “increment” The increment goes to a Special TIF Fund and is used to pay for certain eligible costs such as public infrastructure supporting the redevelopment project.
  • This provides a simple illustration of the TIF over time… maximum life of 23 years.
  • A vacant Wal-Mart in Sparta
  • Vacant Wal-Mart Center before
  • Wal-Mart site & adjacent properties redeveloped with TIF financing
  • The new Sparta Center
  • Setting up a TIF district: 1 st – Feasibility analysis… determine qualifications 2 nd – Redevelopment Plan… certain findings and other information must be provided per the TIF Act…. Evidence on lack of growth and investment… but for test… estimated redevelopment project costs, etc.
  • Once the Plan has been prepared on file with the City: Various notices required… availability of the Plan and the Public Hearing JRB meeting is convened to review the Plan and make recommendation to the City Council or Village Board. JRB made up of most taxing districts. Public Hearing is held. Not sooner than 2 weeks after the public hearing, the ordinances approving the plan and establishing the district may be introduced. Then ongoing implementation… could be a single project or many throughout the TIF district. Annually, the City must report on the progress of the TIF program to the State Comptroller and provide a copy of the report to all taxing bodies (e.g., status of redevelopment projects, where money was spent, fund balance, etc. Also, annual JRB meetings.
  • Another vacant shopping center – DeKalb, IL
  • The new Northland Shopping Center assisted by TIF Building demo & rehab Storm drainage Traffic signal
  • The amount that can be financed with TIF is predicated on the amount of increment generated by the redevelopment projects (and to some extent inflationary growth) City can pay as you go (when funds are available)… issue promissory notes to the developer (they pay for eligible costs up front)… or issue bonds (usually requires the project to be complete) Area configuration is important… timeliness the clock is running… better to have projects in cue. Support of taxing districts is crucial… When thinking about establishing a TIF have early dialogue with them… All taxing bodies are buying into the program, even though the municipality has the final call.
  • Old deteriorated neighborhood east of downtown Carbondale.
  • Vacant gas station site
  • Another vacant building (part of the old dairy building) typical…
  • New bank building about complete… Carbondale’s 1 st TIF district is well underway.
  • Within a year after adopting TIF No. 1 in Carbondale
  • Building rehab in downtown Springfield.
  • Building rehab in downtown Springfield.
  • Application of TIF in Illinois

    1. 1. The Application of Tax Increment Financing in Illinois An Overview 200 N. Broadway  Suite 1000  St. Louis, MO 63102  (314) 231-7318 PGAV URBAN CONSULTING By Mike Weber, Director
    2. 2. <ul><li>TIF is a financing tool designed to induce private sector investment in areas where such investment is lacking and would not otherwise occur because of blight or conditions that may lead to blight. </li></ul>PGAV URBAN CONSULTING
    3. 4. PGAV
    4. 6. Sale Street Looking North - Existing Sale Street Looking North - Restored
    5. 7. TIF Basic Facts <ul><li>Available to all Illinois municipalities </li></ul><ul><li>No Federal or State approval required – plan your own destiny </li></ul><ul><li>An economic development tool designed to achieve 2 principle goals: </li></ul><ul><ul><li>Removal of blight or conditions that may lead to blight </li></ul></ul><ul><ul><li>Enhance the tax base of all affected taxing bodies </li></ul></ul><ul><li>All taxing districts participate & benefit </li></ul><ul><li>3 Fundamental Findings: </li></ul><ul><ul><li>Area must qualify as: </li></ul></ul><ul><ul><ul><li>Blighted area </li></ul></ul></ul><ul><ul><ul><li>Conservation area </li></ul></ul></ul><ul><ul><ul><li>Combination thereof </li></ul></ul></ul><ul><ul><ul><li>Indus. park cons. Area </li></ul></ul></ul><ul><ul><li>Lack of growth and development by private enterprise </li></ul></ul><ul><ul><li>“ But for” TIF, private investment will not occur </li></ul></ul>PGAV URBAN CONSULTING
    6. 8. How TIF Works (Example) <ul><li>Establish TIF area </li></ul><ul><li>(meeting statutory requirements) </li></ul><ul><li>Initial (base) EAV generates: </li></ul><ul><li>$50,000 real prop. tax </li></ul><ul><li>Plan implementation – after redevelopment is completed: </li></ul><ul><li>$300,000 real prop. tax </li></ul><ul><li>Tax increment calculation: </li></ul><ul><li>$250,000 tax increment annually </li></ul><ul><ul><li>Pays for eligible costs </li></ul></ul><ul><ul><li>Pay as you go or bonds </li></ul></ul><ul><ul><li>Increment stays in TIF area to carry out Plan per City/Village direction </li></ul></ul>PGAV URBAN CONSULTING $300,000 Tax after redevelopment - $50,000 Tax on base EAV $250,000 Increment Available
    7. 9. How TIF Works (Graphic Illustration) PGAV URBAN CONSULTING
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    14. 16. Sample of TIF Eligible Costs <ul><li>Property assembly </li></ul><ul><li>Building demolition </li></ul><ul><li>Building rehabilitation or retrofitting </li></ul><ul><li>Public infrastructure (e.g., streets & utilities) </li></ul><ul><li>Interest write down (30%) </li></ul><ul><li>Job training </li></ul><ul><li>Environmental remediation </li></ul>PGAV URBAN CONSULTING
    15. 17. Approval Process <ul><li>Feasibility Analysis/Findings </li></ul><ul><ul><li>Minimum area: 1-1/2 acres </li></ul></ul><ul><ul><li>Feasibility study/inducement resolution </li></ul></ul><ul><ul><li>Request for proposals </li></ul></ul><ul><ul><li>Housing unit count & displacements (75/10 rule) </li></ul></ul><ul><ul><li>Eligibility analysis – document findings </li></ul></ul><ul><ul><ul><li>Blighted area </li></ul></ul></ul><ul><ul><ul><li>Conservation area </li></ul></ul></ul><ul><ul><ul><li>Indus. park cons. area </li></ul></ul></ul><ul><ul><li>Vacant land is difficult to qualify </li></ul></ul><ul><ul><li>Developer negotiations/level of assistance </li></ul></ul><ul><li>Redevelopment Plan & Project </li></ul><ul><ul><li>Evidence on lack of growth & investment by private enterprise </li></ul></ul><ul><ul><li>Identify public and private projects </li></ul></ul><ul><ul><li>Estimate of project costs </li></ul></ul><ul><ul><li>Determine current EAV & estimate of EAV after redevelopment </li></ul></ul><ul><ul><li>Term of TIF – up to 23 years </li></ul></ul><ul><ul><li>May transfer increment to adjoining TIF </li></ul></ul>PGAV URBAN CONSULTING
    16. 18. “ Blighted Area” <ul><li>Must find 5 factors with </li></ul><ul><li>respect to improved properties: </li></ul><ul><ul><li>Dilapidation </li></ul></ul><ul><ul><li>Obsolescence </li></ul></ul><ul><ul><li>Deterioration </li></ul></ul><ul><ul><li>Structures below code </li></ul></ul><ul><ul><li>Illegal uses </li></ul></ul><ul><ul><li>Excessive vacancies </li></ul></ul><ul><ul><li>Lack of ventilation, light </li></ul></ul><ul><ul><li>or sanitation </li></ul></ul><ul><ul><li>Inadequate utilities </li></ul></ul><ul><ul><li>Excessive land coverage </li></ul></ul><ul><ul><li>Deleterious land use or layout </li></ul></ul><ul><ul><li>Environmental clean-up </li></ul></ul><ul><ul><li>Lack of community planning </li></ul></ul><ul><ul><li>Declining or stagnant EAV growth </li></ul></ul><ul><li>Vacant properties: </li></ul><ul><ul><li>Can’t include agricultural land… </li></ul></ul><ul><ul><li>unless subdivided or in an </li></ul></ul><ul><ul><li>industrial park cons. area </li></ul></ul><ul><ul><li>Very limited eligibility criteria </li></ul></ul><ul><ul><li>Flooding criteria now much more restrictive… must find “chronic” </li></ul></ul><ul><ul><li>flooding. </li></ul></ul><ul><li>Factors must be present to a meaningful extent and distributed throughout the area </li></ul>PGAV URBAN CONSULTING
    17. 19. “ Conservation Area” <ul><li>Over ½ of Buildings 35 years </li></ul><ul><li>old or older </li></ul><ul><li>Must find 3 factors with </li></ul><ul><li>respect to improved properties: </li></ul><ul><ul><li>Dilapidation </li></ul></ul><ul><ul><li>Obsolescence </li></ul></ul><ul><ul><li>Deterioration </li></ul></ul><ul><ul><li>Structures below code </li></ul></ul><ul><ul><li>Illegal uses </li></ul></ul><ul><ul><li>Excessive vacancies </li></ul></ul><ul><ul><li>Lack of ventilation, light </li></ul></ul><ul><ul><li>or sanitation </li></ul></ul><ul><ul><li>Inadequate utilities </li></ul></ul><ul><ul><li>Excessive land coverage </li></ul></ul><ul><ul><li>Deleterious land use or layout </li></ul></ul><ul><ul><li>Environmental clean-up </li></ul></ul><ul><ul><li>Lack of community planning </li></ul></ul><ul><ul><li>Declining or stagnant EAV growth </li></ul></ul><ul><li>Vacant properties: </li></ul><ul><ul><li>NOT APPLICABLE </li></ul></ul>PGAV URBAN CONSULTING
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    20. 22. “ Indus. Park Conservation Area” <ul><li>Must be a “Labor Surplus </li></ul><ul><li>Municipality” </li></ul><ul><li>Labor Surplus Municipality: </li></ul><ul><ul><li>Any time within 6 months of establishing the IPC TIF, unemployment rate must exceed 6% </li></ul></ul><ul><ul><li>Also, rate must be same or higher than U.S. unemployment rate. </li></ul></ul><ul><ul><li>Vacant land must be suitable for industrial park </li></ul></ul><ul><ul><li>Must be zoned industrial </li></ul></ul><ul><ul><li>Contiguous to blighted area or conservation area </li></ul></ul><ul><ul><li>If unemployment rate unavailable for municipality, then may use rate for the county </li></ul></ul><ul><li>Vacant properties: </li></ul><ul><ul><li>Can be agricultural… subdivision status not applicable </li></ul></ul><ul><li>Redevelopment Plan must include other information: </li></ul><ul><ul><li>Description of developer, user, tenant and facilities to be developed </li></ul></ul><ul><ul><li>Description of type & number of jobs to be created </li></ul></ul>PGAV URBAN CONSULTING
    21. 23. Approval Process (Continued) <ul><li>Plan Review </li></ul><ul><ul><li>Notify interested parties & residences within 750’ of boundary </li></ul></ul><ul><ul><li>Public “meeting” (if 75/10 rule applies) </li></ul></ul><ul><ul><li>Submit Plan to local taxing bodies (45 days prior to public hearing) </li></ul></ul><ul><ul><li>Joint Review Board (JRB) meeting(s) </li></ul></ul><ul><ul><li>Newspaper notices of public hearing </li></ul></ul><ul><ul><li>Property owner notice of public hearing (resident notice also if 75/10 rule applies) </li></ul></ul><ul><li>Public Hearing </li></ul><ul><ul><li>Interested parties get a chance to speak </li></ul></ul><ul><ul><li>Written comments heard </li></ul></ul><ul><li>Adoption of Ordinances </li></ul><ul><ul><li>Three ordinances (approving Plan; establishing TIF district: and adopting TIF) </li></ul></ul><ul><ul><li>14 to 90 days after close of public hearing </li></ul></ul><ul><li>On-going Plan Implementation </li></ul><ul><ul><li>Local administration </li></ul></ul><ul><ul><li>Annual reporting & JRB review </li></ul></ul>PGAV URBAN CONSULTING
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    27. 29. Key Considerations <ul><li>Financial </li></ul><ul><ul><li>Amount of tax increment predicated on level of private investment (maximize leverage) </li></ul></ul><ul><ul><li>Financial structure </li></ul></ul><ul><ul><ul><li>Pay as you go </li></ul></ul></ul><ul><ul><ul><li>Developer (promissory) notes </li></ul></ul></ul><ul><ul><ul><li>Bonds (G.O. or alternate revenue) </li></ul></ul></ul><ul><ul><li>Other revenues (e.g.; sales tax) </li></ul></ul><ul><ul><li>Development agreements imperative </li></ul></ul><ul><ul><li>Economic assistance policy </li></ul></ul><ul><ul><ul><li>Gap financing </li></ul></ul></ul><ul><ul><ul><li>% of increment returned </li></ul></ul></ul><ul><ul><li>Public improvement needs </li></ul></ul><ul><li>Area Designation </li></ul><ul><ul><li>Timeliness of development throughout TIF area (the clock is running) </li></ul></ul><ul><ul><li>All properties should benefit </li></ul></ul><ul><ul><li>Area size should be reasonable </li></ul></ul><ul><ul><ul><li>More properties, more complex </li></ul></ul></ul><ul><ul><ul><li>Constraints on general fund </li></ul></ul></ul><ul><ul><ul><li>Impact on taxing bodies </li></ul></ul></ul><ul><li>Support of Taxing Bodies </li></ul><ul><ul><li>Early dialogue </li></ul></ul><ul><ul><li>Investing in the future </li></ul></ul><ul><ul><li>Will benefit long-term </li></ul></ul>PGAV URBAN CONSULTING
    28. 30. PGAV
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