An Assessment of                               Tax Increment Financing                         as a Tool for Economic Deve...
Objectives  • Draw lessons by examining Evanston’s experience with TIF and  the    experience of TIF districts elsewhere i...
Agenda                  1. TIF Districts in Evanston                      2. Major Findings          3. Recommendations fo...
Agenda                  1. TIF Districts in Evanston                      2. Major Findings          3. Recommendations fo...
Summary of Evanston TIF Districts                                 Size    Beginning                                       ...
Three well-established TIF districts provide lessons forEvanston today • Southwest TIF district provides lessons for the n...
A brief history of the Southwest TIF district  • City combined parcels to    attract a large development  • Sam’s Club ope...
Key observations for the Southwest TIF district • Addressed impediments to development • May have created positive “spillo...
A brief history of the Downtown II and WashingtonNational TIF districts • Downtown II, the first TIF   district in Evansto...
Key observations for the Downtown II and WashingtonNational TIF districts • Transformed and significantly expanded downtow...
Agenda                  1. TIF Districts in Evanston                      2. Major Findings          3. Recommendations fo...
TIF has the greatest impact when used as part of abroader economic development plan (1 of 8) • TIF is a tactical tool that...
TIF produces greater benefits when it is used to catalyzerather than create demand (2 of 8) • TIF can catalyze demand by r...
TIF is viewed more favorably by the community if a clearand objective approval process is in place (3 of 8) • Following an...
TIF projects tend to require less public subsidy if the cityleverages competitive market forces to choose developers (4 of...
The most successful use of TIF resources providesbenefits to the broader community (5 of 8) • Financial performance is eas...
development in a TIF district, the city can protect itsfinancial integrity (6 of 8) • Depending on the specific structure ...
TIF success is less debatable when clear metrics are inplace to track and monitor performance (7 of 8) • Agreeing upon cle...
TIF can be managed more effectively when overseen byan advisory board of community stakeholders (8 of 8) • Providing an op...
Agenda                  1. TIF Districts in Evanston                      2. Major Findings          3. Recommendations fo...
Evanston should approve TIF districts only after specifying howthey help the city achieve its economic development goals (...
Evanston should implement a more rigorous process forTIF approval, oversight, and accountability (2 of 4) •   TIF approval...
Evanston should shift financial risk to the privatesector (3 of 4) •   Structure deals to minimize financial risk to the c...
Evanston should maximize the usage of competitivemarket forces (4 of 4) •   When the city owns the land, require proposals...
Agenda                  1. TIF Districts in Evanston                      2. Major Findings          3. Recommendations fo...
Dempster-Dodge TIF District •   Determine the root cause of the decline of the shopping     center     • Our research sugg...
Proposed TIF District at Chicago & Main (1 of 2) •   Assess the viability of the project’s financial goals     • Ensure pr...
Proposed TIF District at Chicago & Main (2 of 2) •   Mitigate financial risk for the city     • Utilize a pay-as-you-go st...
Summary  Usage of TIF as an economic development tool in Evanston is  more effective and accepted when:     • It is aligne...
Thank you!             30
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TIF PowerPoint Presentation

  1. 1. An Assessment of Tax Increment Financing as a Tool for Economic Development Seth Capron Nick Federowicz Eric NymanAdd photo of Evanston? Brandon Strong December 2012
  2. 2. Objectives • Draw lessons by examining Evanston’s experience with TIF and the experience of TIF districts elsewhere in the U.S. • Make recommendations on ways to improve the use of TIF as an economic development tool 2
  3. 3. Agenda 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 3
  4. 4. Agenda 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 4
  5. 5. Summary of Evanston TIF Districts Size Beginning Bond TIF District Begin/End 2011 EAV Major Projects (acres) EAV Proceeds Church St. Plaza, Hilton Garden Downtown II 1985/2008 35 $1,835,672 $145,470,000 $23,144,579 Inn, Maple Ave. Garage, Optima Sam’s Club, Ward Southwest 1990/2013 13 $1,007,606 $8,223,329 $2,100,000 Manufacturing Retail Center: Howard and 1992/2015 24 $7,034,353 $23,747,973 Target, Jewel, Best $9,069,445 Hartrey Buy, Office Max Park Evanston, Whole Washington 1994/2017 21 $25,727,379 $103,106,568 Foods, Sherman $52,061,429 National Plaza & Garage Howard and 415 Howard St. 2004/2027 11 $5,978,279 $11,808,477 None Ridge apartment building Church St. Townhomes, Greenwo West Evanston 2005/2028 116 $37,477,570 $45,084,553 None od Lofts, LSL Industries Dempster- 2012/2035 16 $10,816,879 N/A N/A None Dodge 5
  6. 6. Three well-established TIF districts provide lessons forEvanston today • Southwest TIF district provides lessons for the newly created Dempster- Dodge TIF district • Downtown II and Washington National TIF districts provide lessons for the proposed TIF district at Chicago and Main 6
  7. 7. A brief history of the Southwest TIF district • City combined parcels to attract a large development • Sam’s Club opened for business in 1992 After Image • Ward Manufacturing relocated from downtown Evanston in 1995 Thriving retail 7
  8. 8. Key observations for the Southwest TIF district • Addressed impediments to development • May have created positive “spillover” effects by drawing traffic to the neighboring retail center • Concern: Has the success of the Southwest TIF district come at the expense of retailers elsewhere in Evanston? Financially successful, but benefits for the broader community are unclear 8
  9. 9. A brief history of the Downtown II and WashingtonNational TIF districts • Downtown II, the first TIF district in Evanston, evolved from the Research Park • Downtown II closed in 2008, After Image releasing significant property tax revenues to taxing authorities • Washington National resulted in two large developments: Park Evanston and Maple Street rejuvenated Sherman Plaza 9
  10. 10. Key observations for the Downtown II and WashingtonNational TIF districts • Transformed and significantly expanded downtown Evanston • Utilized competitive bidding processes • Projects attempted to align with community strengths, market demand, and demographic trends • The city successfully reassessed goals midstream Both TIF districts benefitted from adapting to market conditions 10
  11. 11. Agenda 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 11
  12. 12. TIF has the greatest impact when used as part of abroader economic development plan (1 of 8) • TIF is a tactical tool that can be effective at furthering a city’s overall economic development goals • TIF projects that are not in sync with the city’s objectives are likely to fail • The Market Square TIF in Houston is an example of positive alignment with economic development goals Economic Development Goals Strategic Initiative TIF Selection Alternative Tools 12
  13. 13. TIF produces greater benefits when it is used to catalyzerather than create demand (2 of 8) • TIF can catalyze demand by removing barriers to development • Municipalities should listen to the market when choosing TIF projects Peninsula Town Center, Hampton, VA Market Indicators Houston Pavilions, Houston, TX 13
  14. 14. TIF is viewed more favorably by the community if a clearand objective approval process is in place (3 of 8) • Following an objective and scripted process encourages trust, generates buy-in, and ensures projects are financially and strategically sound • Gallery Place in Washington, D.C. is an example of a well-designed process Structured Approval Process Proposed TIFs Strategic Assessment TIF certified by city assigned to a official or department city official or before presentation department Financial Analysis to elected body 14
  15. 15. TIF projects tend to require less public subsidy if the cityleverages competitive market forces to choose developers (4 of8) • This option is most practical when municipalities own or control the land • Competitive bidding ensures the smallest amount of gap financing is provided to the developer • This process is illustrated by the Maple Avenue development in Evanston’s Downtown II TIF district Bid Bid #1 #2 Bid #3 Select Optimal Project Bid 15
  16. 16. The most successful use of TIF resources providesbenefits to the broader community (5 of 8) • Financial performance is easy to measure, but community benefits are the ultimate goal • Important to include measurable goals and metrics that capture community benefits • Essential to hold developers accountable for benefits to the community 16
  17. 17. development in a TIF district, the city can protect itsfinancial integrity (6 of 8) • Depending on the specific structure of a TIF deal, the municipality can bear either very little or a lot of the risk • Lynnhaven Mall in Virginia Beach, Virginia and Peninsula Town Center in Hampton, Virginia are examples with financing structures that put the risk on the private sector Lower Risk Higher Risk Note Bond Back-Up Backed only Assessment by Increment Clawback No Clawback Pay-as-you- Pay Upfront go 17
  18. 18. TIF success is less debatable when clear metrics are inplace to track and monitor performance (7 of 8) • Agreeing upon clear metrics from the onset of a project ensures goals remain in sight • Creating metrics should be a joint exercise between the city and the developer • Holding developers accountable for performance is critical to ensuring success Meet Jobs Goal or Pay Penalties Coca- Example: Chicago Cola Northwest Industrial Subsidized Corridor TIF Rent City of Chicago Goal: Create 240 Jobs Develope r Tax Abatement 18
  19. 19. TIF can be managed more effectively when overseen byan advisory board of community stakeholders (8 of 8) • Providing an opportunity for stakeholders to be involved promotes buy- in • An advisory board of community stakeholders ensures local community needs are met • Community members can hold developers accountable for promised community benefits Community School Organizatio District n TIF Local Advisory Local Business Board Resident 19
  20. 20. Agenda 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 20
  21. 21. Evanston should approve TIF districts only after specifying howthey help the city achieve its economic development goals (1 of4) • Make sure that the city’s economic development goals are clear • Describe targeted areas of prioritization • Define how the TIF district will help the city achieve its goals • The objectives of the district should be aligned with the city’s economic development goals Alignment with economic development goals increases the likelihood of success 21
  22. 22. Evanston should implement a more rigorous process forTIF approval, oversight, and accountability (2 of 4) • TIF approval should require official certification • Delegate the responsibility to a specific individual within the city, such as the CFO • The individual’s responsibilities include conducting a financial gap analysis, projecting economic impacts, and ensuring strategic alignment with the city’s overall economic development plan • Create metrics and dashboards to monitor performance • Consider appointing an oversight body of local stakeholders • Hold recipients of TIF funds accountable for performance • Link subsidies received to performance A rigorous process leads to greater trust and better performance 22
  23. 23. Evanston should shift financial risk to the privatesector (3 of 4) • Structure deals to minimize financial risk to the city • Structure financing so that the private sector bears up-front costs • Create guidelines requiring a minimum level of performance before the city reimburses TIF-eligible expenses • Possible structures include: • TIF notes • Claw-back provisions • Back-up assessments • Pay-as-you-go funding Shifting the risk to the private sector protects the city 23
  24. 24. Evanston should maximize the usage of competitivemarket forces (4 of 4) • When the city owns the land, require proposals from multiple developers • Proposals must include financial information and an assessment of how the project will further the city’s strategic goals • Multiple proposals decrease the need for public subsidies • When a private entity owns or controls the land, other precautions are necessary • External validation of pro forma financial statements • A financial structure that places the risk on the private sector • Extra emphasis on identifying concrete benefits for the community Taking advantage of competitive market forces improves the chance of success 24
  25. 25. Agenda 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 25
  26. 26. Dempster-Dodge TIF District • Determine the root cause of the decline of the shopping center • Our research suggests West Evanston faces intense retail competition • Evanston Plaza is now a convenience center rather than a destination that draws traffic • Address issues in the surrounding neighborhood • Ensure plans for Dempster-Dodge TIF district do not ignore the surrounding area • Coordinate with the West Evanston TIF district • Create a specific plan for short-term stabilization • Explore earmarking some of the initial $2M of TIF funding to subsidize new tenants • Identify desired effects of TIF expenditures 26
  27. 27. Proposed TIF District at Chicago & Main (1 of 2) • Assess the viability of the project’s financial goals • Ensure projections appropriately reflect market conditions • Assess the risk of relying on a single project to generate tax increment • Focus TIF expenditures on projects that benefit the broader community • Ensure the goals of the proposed project are aligned with the city’s economic development goals • The vacant lot is a viable candidate for larger office space, however, few current tenants in Evanston occupy more than 10,000 sq. ft. • The city should carefully consider the challenges and potential consequences of attracting office tenants to a new development out of the core downtown 27
  28. 28. Proposed TIF District at Chicago & Main (2 of 2) • Mitigate financial risk for the city • Utilize a pay-as-you-go structure to provide tax abatements or subsidized rents only if tax increment materializes • Consider issuing Special Service Area bonds backed by a guaranteed stream of revenue from the property owner 28
  29. 29. Summary Usage of TIF as an economic development tool in Evanston is more effective and accepted when: • It is aligned with the city’s economic development goals • Financial risks to the city are mitigated • TIF expenditures benefit the broader community 29
  30. 30. Thank you! 30

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