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Overview of TIF and Recent TIF Law Changes

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This presentation provides a history of tax incremental financing in Wisconsin, tax incremental financing basics, recent law changes, best practices in using TIF for community development and Examples of Projects.

Published in: Government & Nonprofit
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Overview of TIF and Recent TIF Law Changes

  1. 1. f i i i i i i vision to reality League of Wisconsin Municipalities 119th Annual Conference “Tax Incremental Financing” K t R M h Tax Incremental Financing Kurt R. Muchow Community Development Consultant
  2. 2. Session Agendag • Tax Incremental Financing History • Tax Incremental Financing Basics • Recent TIF Law Changesg • Best Practices • Project ExamplesProject Examples
  3. 3. • Planning & Civil Engineering Firm • Office Locations: - Reedsburg - Madison - Milwaukee Metro - Prairie du Chien • Vierbicher Website www vierbicher comwww.vierbicher.com
  4. 4. Tax Incremental Financing History
  5. 5. History of Tax Incremental Financingg • TIF = Tax Increment Financing • TID = Tax Increment District • First Authorized in1975, Wis. 66.1105, • TIF Law has been amended many timesTIF Law has been amended many times over the years
  6. 6. What is TIF? A municipal financing tool to accomplish specific community development objectives: • promote industrial development • promote mixed-use development • eliminate blighted areas • rehabilitate deteriorating areasg
  7. 7. What is TIF? Public / Private Partnership • Partnership of taxing entities to promotePartnership of taxing entities to promote development • Public and private sectors work together to stimulate economic growthg
  8. 8. Why TIF Was Created • Federal funding decreased for community development programs All iti & ill t k ith i t• Allows cities & villages to work with private sector to stimulate economic growth • Eliminated inequitable situation that discouraged developmentg p * Cities & villages bore the cost of development, but all taxing entities shared the benefit.
  9. 9. Purpose of TIF “Promote the orderly development of the city” ss 66.1105(4)(f)
  10. 10. Summary of TID Creations in Wisconsiny
  11. 11. Summary of TIF Districts in Wisconsin • Currently 1,238 active TIDs in Wisconsin in y 425 communities (June 1, 2017) • 2,052 TIDs created since 1976 • 822 TIDs terminated since 1976 • Average life of TIDs = 16.3 years
  12. 12. Summary of Districts in Wisconsiny • 307 Mixed-use districts • 301 Industrial districts301 Industrial districts • 295 Blight elimination districts • 156 Created before 1995 (no district type)156 Created before 1995 (no district type) • 149 Rehab and conservation districts • 16 Environmental remediation• 16 Environmental remediation • 4 Town districts • 86 Distressed districts 18 S l di t d di t i t• 18 Severely distressed district
  13. 13. Tax Incremental Financing Basics
  14. 14. TIF Basics Important TIF Definitions • Base Value: The equalized value of real and personal property in a TID when created. • Increment: The difference between the base value and the current valuevalue and the current value. • Tax Increment: Taxes levied by the overlying• Tax Increment: Taxes levied by the overlying taxing jurisdictions on the value between the base value and the current value in the TID.
  15. 15. TIF Basics
  16. 16. TIF Basics
  17. 17. TIF Basics
  18. 18. TIF Basics - Structure Tax Increment eTID Tax Increment Investment in the TID & within 1/2 mile • Capital Improvements alueinthe Capital Improvements • Infrastructure • Site Development • Land Acquisition & Assembly • Development Incentives • Administrative & PropertyVa Organizational Costs P
  19. 19. Types of TIDs • Industrial Developmentp • Mixed-Use • Blight Elimination• Blight Elimination • Rehabilitation / Conservation • Environmental Remediation • Town TIDs
  20. 20. Type of Tax Increment Districts Industrial Development TID 50% f d t b it bl f d• 50% of area needs to be suitable for and zoned for industrial development Expenditure Period 15 Years• Expenditure Period = 15 Years • Maximum Life = 20 years M i Lif With E t i 23• Maximum Life With Extension = 23 years
  21. 21. Type of Tax Increment Districts Mixed-Use TID • Must Have at Least Two Land Use (Commercial/Residential/Industrial) • No More Than 35% can be newly platted residential • TID expenditures may be made for residential if one of the following applies:  Density at least 3 units per acre  Housing located in a conservation subdivision  Housing located in a traditional neighborhood development • Expenditure Period = 15 Yearsp • Maximum Life = 20 years • Maximum Life With extension = 23 years
  22. 22. Type of Tax Increment Districts Blight Elimination TID • T picall Older Neighborhoods• Typically Older Neighborhoods • 50% of Area Must be Declared Blighted • Requires Formal Designation of BlightRequires Formal Designation of Blight • Letter’s Must be sent to Landowners • Expenditure Period = 22 Yearsp • Maximum Life = 27 Years • Maximum Life With Extension = 30 years
  23. 23. Type of Tax Increment Districts Rehabilitation/Conservation TID C l R f d t R it li ti TID• Commonly Referred to as Revitalization TID • At least 50% of the property must be suitable for rehabilitation or conservationsuitable for rehabilitation or conservation • Letter’s Must be sent to Landowners E dit P i d 22 Y• Expenditure Period = 22 Years • Maximum Life = 27 Years • Maximum Life With Extension = 30 years
  24. 24. Type of Tax Increment Districts Environmental Remediation • Eligible Costs: Remediation, property acquisition, demolition, asbestos removal, underground tank removal and financingunderground tank removal and financing. • Expenditure Period = 15 years • Maximum Life = 23 years ( t i ll d)• Maximum Life = 23 years (no extensions allowed)
  25. 25. Type of Tax Increment Districts Town TIDs • Act 231: Tourism, Agriculture & Forestry TIDs • Act 13: Towns with Cooperative Boundaryp y Agreements • Act 193: Provides certain Towns full TIF authority with minimum population & valuation requirements, plus sewer service agreementagreement
  26. 26. Eligible TIF Projectsg j • Eligible TIF projects can be located within the TID, or within one-half mile radius. • Eligible projects must benefit TID • Eligible projects include:g p j - Infrastructure - Land acquisition / demolition - Environmental clean-up - Site development l t i ti- Development incentives - Marketing & promotion Organization & administration- Organization & administration • Extension for Affordable Housing
  27. 27. Affordable Housing Extensiong City may extend life of TID one year: • Adopt a resolution extending life • Resolution identifies how funds to be used • 75% must be used for affordable housing • Remaining funds used to improve housing stock Aff d bl H i D fi itiAffordable Housing Definition: • Housing cost no more than 30% of h h ld thl ihousehold gross monthly income.
  28. 28. TID Creation/Amendment Process • Typically takes +/- 90 days to create a TID • Governing Body Authorizes TID Creation Process • Plan Commission (Or CDA/RDA for Blight)( g )  Identify District Boundary  Prepares a Project Plan  Holds Public Hearing  Recommends Approval J i t R i B d O i ti l M ti• Joint Review Board - Organizational Meeting • Governing Body Resolution • Joint Review Board Adoption
  29. 29. Base Year Dates Resolution Adoption Date Base Year October 1, 2017 to September 30, 2018 January 1, 2018 October 1, 2018 to September 30, 2019 January 1, 2019, p , y ,
  30. 30. Joint Review Board (JRB)( ) • Five Member Board Representing: Cit City  County  School District School District  Vocational School  Member at Largeg • Authority to Approve or Deny TID • Meeting #1: Before Public HearingMeeting #1: Before Public Hearing • Meeting #2: After Council Resolution • Standing JRBsStanding JRBs • Required to Hold Annual Meeting
  31. 31. TID Required Findingsq g • “But - For” Test - The development described in the Project Plan would not occur without the creation of TIDProject Plan would not occur without the creation of TID. • “12% Rule” - The equalized value of the TID plus the increment in existing TIDs does not exceed 12% of theincrement in existing TIDs does not exceed 12% of the total equalized value of the Community. • The District is contiguous and contains only whole units of parcels. • Planned improvements will enhance the value of property in the TID and will directly serve the purpose ofproperty in the TID and will directly serve the purpose of the TID. • Improvements to the District are likely to encourage and promote conformity with the City's planning existing plans and policies.
  32. 32. TIF 12% Rule: Industrial, Blight, Rehab & Mixed-Use TIDs • §66.1105(5)(d) states that the equalized base l f t i TID l th i tvalue of property in a new TID, plus the increment value of existing TIDs cannot exceed 12 % of the total equalized value of the community.q y • Once the 12% rule is exceeded, community may t t TID dd t it t i ti TIDnot create new TID or add territory to an existing TID. • However the community is able to amend the• However, the community is able to amend the Project Plan to add new projects and allow transfer of funds between TIDs.
  33. 33. 12% Rule: Smaller Town TIDs & ER TIDs • Tourism, Agriculture & Forestry TIDs  Equalized value of proposed TID plus equalized value of existing TIDs may not exceed 7%. OROR  Equalized value of proposed TID plus value increment of existing TIDs may not exceed 5%increment of existing TIDs may not exceed 5%. • Environmental Remediation TIDs• Environmental Remediation TIDs  No equalized value limitations
  34. 34. TID Project Plan Amendmentsj • Process is similar to creation process • No limit on the number of amendments • Not subject to 12% Rule• Not subject to 12% Rule • Types of amendments: Additional Project Costs (In TID + ½ mile radius) Additional Project Costs (In TID + ½ mile radius)  Allocation Amendment ( transfer funds to other TIDs))  TID Life Extension  Decrement Amendment  Act 145: Tech Collage Tax Rate Extension
  35. 35. TID Boundary Amendment • Process is similar to creation process • Allow up to four boundary amendments • May add or subtract territory• May add or subtract territory • Subtractions may not make TID tinon-contiguous • May be done any time during life of TID • Expenditure period remains the same
  36. 36. Recent TIF Law Changes
  37. 37. TIF Law Changes – Oldies But Goodiesg • Extension of Expenditure Period • Sharing Revenue Between Districts • ½ Mile Radius• ½ Mile Radius • 1 Year Extension For Affordable Housing T TIF TAF• Town TIF – TAF • Town TIF – Cooperative Boundary • Multi-Jurisdictional TID
  38. 38. Recent TIF Law Changesg • Act 145: Effective March 24, 2014  Shifted a portion of funding for tech colleges from property taxes to state aid.  Reduced tech college tax rate by $0.89/$1000  Caused a reduction in tax increment • Act 254: Effective March 3, 2016  Allows municipalities to amend Project plan to request 3 year extension to TIDs life if tax increments are impacted by Act 145 (above).
  39. 39. Recent TIF Law Changesg • Act 255: Effective October 1, 2015  For TIDs created or amended after October 1, 2015: * Removed 25% vacant land restriction. * Revised TID base value calculation to exclude exempt city owned landexempt city owned land. • Act 256: Effective March 3, 2016 Ch d J i t R i B d l Changed Joint Review Board approval from 30 to 45 days to approve resolution. Changed Plan Commission notice from Changed Plan Commission notice from Class 2 to Class 1for TID amendments.
  40. 40. Recent TIF Law Changesg • Act 257: Effective October 1, 2016  Requires annual report be submitted to DOR and overlying taxing jurisdiction by July 1.  Requires standing Joint Review Board.  Requires Joint Review Board to meet annually to review TIF annual report.  May disband following termination of all TIDs.
  41. 41. Recent TIF Law Changesg • Act 15: Effective January 1, 2018  Changed deadline for terminations from May 15 to April 15.  Sets maximum penalty of $6,000 for reports not filed timely. (Penalty remains $100 / day beginning 60 days after report is past due)beginning 60 days after report is past due).  DOR reduces shared revenue payment if penalty is unpaidpenalty is unpaid.
  42. 42. Proposed TIF Law Changeg • AB179 & SB173: Environmental TIDs  Public Hearing held on 10/10/17  New ER TIDs created like regular TIDs  Maximum life increased to 27 years
  43. 43. Best Practices
  44. 44. Implementation: Issues to Keep In Mind • Need - Public Benefit vs. Private Windfall • Appropriate Payback Period • Broader Fiscal Impact Including Overlyingp g y g Taxing Jurisdictions (Housing & Schools) • Development Impacts – Traffic, Jobs,p p Environmental, Public Services • Quality of Development • Consistency with Other Plans
  45. 45. Implementation: Manage Cash Flow • To the extent possible, defer expendituresp p until increment is guaranteed • Match-up expenses to revenueMatch up expenses to revenue • Build in a cash flow cushion Be conser ati e ith TIF projections• Be conservative with TIF projections • Prepare annual TIF financial analysis • Annual review with governing board • Share revenue between TIDsShare revenue between TIDs • Use your Municipal Financial Advisor!
  46. 46. New Project TIF Analysis - Revenuej • Conservative AssumptionsAssumptions • Increment EstimateEstimate • Personal Property • Delay in Revenue • Recommend Revenue Guarantee in DevelopmentDevelopment Agreement
  47. 47. New Project TIF Analysis – Debt Servicej • Use a Municipal Financial Advisor • Capitalize Interestp to Bridge Revenue LagLag • Structure Debt Service Payments to Fit Revenue
  48. 48. New Project TIF Analysis - Cashflowj • Structure to Achieve Positive CashflowCas o • Adequate Debt ServiceDebt Service Ratio • Annual “Pay-Annual Pay As You-Go” Payments
  49. 49. Risk Managementg • Speculative TIDsp • TIDs with “Bird-In-Hand” • Risk is Always ThereRisk is Always There • Understand and Manage Risk  Timing and Phasing of ExpendituresTiming and Phasing of Expenditures Relative to Expected Increment  Development Agreementsp g * Commitments of Community * Commitments of Business * G t* Guarantees
  50. 50. Risk Managementg • Methods to Reduce Risk Through Development Agreements  Don’t give away the farm!  Be conservative. Build in a cushion.  1st Mortgage on Property. Subordinate as project is constructedproject is constructed  Developer Guarantee of Tax Increment Insurance for property damage Insurance for property damage  Performance bond or Letter of Credit  Developer financed Developer financed  “Pay-as-you-go” vs “Up-front”
  51. 51. Risk Managementg What happens when a project goes bad? • If real estate taxes are not paid, community still gets the TIF revenue. County pays. • If County sells property due to back taxes, property is generally sold at reduced price. A d l d TIF d dAssessed value and TIF revenue are reduced. • If bank forecloses, property is generally sold at a reduced price Assessed value and TIFa reduced price. Assessed value and TIF revenue are reduced. • If community has adequate security (Letter of• If community has adequate security (Letter of Credit) community is made whole.
  52. 52. Risk Managementg Why TIDs Fail or Have Cashflow Shortfalls? • Blight elimination & Rehabilitation TIDs tend to perform worse than Industrial & Mixed- UUse. • Small TIDs dependant upon 1 or 2 projects. • Recession negatively impacts tax increment. E i d l ti• Expenses incurred on speculation. • Too optimistic assumptions. • Change in state taxation laws.
  53. 53. Project Examples
  54. 54. DeForest 2016 North Business Park P j t S• Project Summary  Business Park Expansion  APC – 171,000 sf BuildingAPC 171,000 sf Building  PLC – 133,000 sf Building  Creation of 189 jobs • Project Scope  Streets & Utilities St W t M t Storm Water Management  Site Development  Pedestrian / Bicycle Trail/ y • Infra. Cost = $3,650,000 • Funding Summaryg y  DOT-TEA Grant = $945,000  TIF = $2,705,000
  55. 55. Edgar Business Parkg • Project Summary  Expansion of Existing Business  Village Infrastructure Extension New tax base = $2 297 000 New tax base = $2,297,000  Creation of 11 jobs • Total Village Cost $668 841• Total Village Cost = $668,841 • Funding Summary  $240 565 CDBG-PFED Grant $240,565 CDBG-PFED Grant  $428,276 TIF
  56. 56. Marathon “City Center” Project • Downtown Redevelopment • New Grocery Storey • New Public Parking Lot • Downtown Enhancements • Total Cost $6.1M – $340,000 CDBG-PFED Grant – $250,000 WEDC-CDI Grant – $935,000 TIF – $4 575 000 Private Investment$4,575,000 Private Investment
  57. 57. Viroqua TIF Programg • Four Existing TIDs • Projected surplus revenue • $1.5 million of new costs • Amended TIDs to:  Add additional project costs Add d ½ il j t Added ½ mile projects  Allocate funds to other TIDs
  58. 58. Viroqua Capital Improvements Plan
  59. 59. Darlington TIF Program • TID No. 6TID No. 6  $5,270,000 Est. Surplus • TID No. 7TID No. 7  $350,000 Est. Deficit • Amended TIDs to:  Add project costs  Add ½ mile projects  Allocate funds from 6 to 7
  60. 60. Darlington TID Amendmentg
  61. 61. E i ti TID City of Prairie du Chien 20 4 20 j t Existing TIDs with Eligible Projects 2014-2015 TIF Projects Project Cost Railroad CrossingDowntown R it li ti Project Cost • Lessard St. Extension = $578,000 • 22nd St. Extension = $1,615,000 • Woodridge Acres = $1,050,000 • Prairie Mason Redevelopment = $450,000 Safety Improvements Blackhawk Ave. Revitalization• Godden Pit = $395,000 • Northgate Business Park = $1,132,000 • Marq. Road Sewer & Water = $1,300,000 Total = $6,600,000 USH 18 Bypass Blackhawk Ave. Enhancements Marquette Road Reconstruction Funding Source • $502,000 DNR SDWL • $265,000 Sewer Bond • $5,833,000 Surplus TIF Funds USH 18 Bypass
  62. 62. Questions? Kurt R. MuchowKurt R. Muchow 608/768-4817 www.vierbicher.com

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