i. is it possible to make everybody happy

I. Is It Possible to Make Everybody Happywith a TIF Statute?I. Is It Possible to Make Everybody Happywith a TIF Statute?

A. Proponents of TIF state: “Tax revenues are created that wouldnot otherwise be created.”

1. Local government is not giving up any revenue, as the taxincrement would not exist were it not for theredevelopment activities financed by that increment.

B. Opponents say: “Revenues would be created anyway.”

1. If tax increment financing is imposed where it is notneeded to encourage development – where developmentwould have occurred in the absence of TIF – then the taxincrement does not represent (or only a portion represents)local government revenues that would not have otherwisebeen collected. Instead, the tax increment cuts intogeneral revenue that the local government would haveotherwise received.

I. Is It Possible to Make Everybody Happywith a TIF Statute?(Cont’d)

I. Is It Possible to Make Everybody Happywith a TIF Statute?(Cont’d)

C. TIF is most effective and least controversial when thegoals are to remove severe blight, direct publicfinance resources pursuant to a community plan orpolicy, address environmental remediation, or financeinfrastructure.

D. Use policies and procedures to balance effectivenessof TIF with controversy of TIF.

II. What Should a Model TIF statute include?II. What Should a Model TIF statute include?

A. Policies and Procedures.

1. Policies and procedures should serve as afoundation for sound application of TIF.

2. Policies and procedures should provide afoundation of support for local elected leadersand economic developers to use whenjustifying and evaluating potential projects.

3. Use of TIF in a transparent and deliberatemanner tends to have greater success withfewer obstacles in the way of development.

II. What Should a Model TIF statute include?(Cont’d)II. What Should a Model TIF statute include?(Cont’d)

4. Statute should contain several controls overthe TIF process.

Annual ReportTIF projects perform as intended.

Project PlanTIF projects are appropriatelyplanned.

Feasibility Study or Cost-BenefitAnalysis

TIF projects are feasible.

“But For” TestTIF is necessary.

Blight FindingTIF is used for legitimate publicpurposes.

Example of Control MethodsStatutory Controls


B. “Blight” Finding.

1. Blight refers to conditions that endanger public health orwelfare, such as overcrowding, dilapidated or deterioratingbuildings, or faulty street layout.

a. In Illinois, the areas within TIF districts must be designatedas either blighted areas or conservation areas that maybecome blighted.

b. Minnesota requires certain types of TIF projects to include apercentage of structurally substandard buildings.

c. In Wisconsin, at least 50% of the property within a TIFdistrict must be blighted or in need of rehabilitation orconservation work, or the property must be suitable forindustrial use or mixed-use development.


d. Not all states require a blight finding. Louisiana’sTIF laws do not require a blight finding.

e. In Indiana, TIF areas can be created either bymeeting blight findings or “economic developmentfindings” (i.e. promotes employment, attracts newbusinesses, retains or expands existing businesses,etc.).

2. TIF typically has a larger payoff for communities withhigh growth rates rather than the greatest need fordevelopment. Accordingly, a very strict definition of"blight" might result in TIF only being made availableto municipalities with declining property values.


C. “But For” Test.

1. The developments or redevelopments would not occur but for the use ofTIF. The test provides a degree of assurance that a given use of TIF willserve a public purpose and that TIF will not be used where it is notnecessary to support development or redevelopment. If TIF is used where itis not needed, then the tax increment does not fully represent tax revenuesthat would not have otherwise been collected. Also, the tax incrementsdeprive other governmental bodies that receive tax revenues, such as schooldistricts, other special districts, and the county, of the increases they wouldotherwise have received.

2. States that do not require a “But For” test cannot be assured that the use oftax increment to finance local economic development projects is needed tosupport development or redevelopment.

3. At a minimum, need local redevelopment plan. Florida does not have a“But For” requirement, but need blight, redevelopment plan, and publicpurpose.


4. Even if the “But For” test can be met in one location, statesneed to determine the extent that the gains from TIF projectsare really pecuniary transfers from other areas within the state,and also what specific types of improvements should beallowed. If every municipality uses TIF to develop a retail malland attract shoppers from the neighboring city, the overlyinggovernmental units and the state will not see any net benefit.

D. Feasibility Study or Cost Benefit Analysis.

1. Feasibility studies and costs benefit analyses are meant toensure that TIF projects are not undertaken unless they willgenerate more revenue than costs.


2. Minnesota requires an estimate of the fiscal and economicimplications of every proposed TIF district.

3. Wisconsin bases its approval of TIF proposals partly onwhether the economic benefits of the TIF districts areinsufficient to compensate for the cost of the improvements andwhether the benefits of the proposals outweigh the anticipatedtax increment.

4. The Illinois TIF law requires a feasibility study for certaintypes of projects.

5. Louisiana’s TIF laws do not require a feasibility study or acost-benefit analysis.

6. Indiana requires a tax impact statement disclosing the estimatedeconomic benefits and costs incurred, as measured by increasedemployment and economic growth of real property assessedvalues.


E. Project Plan.

1. Statute should require a detailed project plan before a TIF project canbe approved such as:

a. Purposes and objectives;

b. Boundaries;

c. Proposed land uses;

d. Proposed activities and timetables;

e. Estimated Costs;

f. Sources and uses of public and private financing;

g. Terms of any bonds to be issues;

h. Estimates of tax impacts on local governments; and

i. Explanations as to why the areas need redevelopment.


F. Annual Report.

1. Many states have annual reporting requirementswhereby local governments must keep state entitiesinformed about the status of approved TIF projects toensure that the projects are relevant and stay on target.

2. Many states require TIF districts to submit annualreports to the appropriate governing authorities.

3. Some states do not require local governments tosubmit annual reports to the state agencies involved inthe TIF process.


G. Deposit TIF in Special Account.

1. Accounting.

2. Transparency.

H. Should all TIF projects receive prior approval by a joint review board ofaffected local taxing jurisdictions? Should some other existing or newlycreated regional entity to review and approval all TIF proposals within theirboundaries? Are these types of restrictions problematic in creatingeconomic development? Is it enough to be covered in the RedevelopmentPlan?

1. Need flexibility to be effective, particularly in these economic times.

2. More layers of approval slow down (or stop) process – some bigincentive deals die due to length of process.

I. TIF Statute must work well with applicable law and alternative forms ofsubsidy.

III. How do you Analyze TIF Law?III. How do you Analyze TIF Law?

A. Analysis is not limited to relevant TIF Statute.

B. Other State Law can impact analysis.

1. Indiana – Bidding Requirement.

2. State law ability or inability to “loan” bond proceedsor TIF cash directly to private party (Indiana-bondproceeds okay under certain statute; TIF cash cannotbe given directly to developer).

C. Prior Applicable Deal Standard.

1. Often, have to deal with position municipality hastaken in past.

III. How do you Analyze TIF Law?(Cont’d)III. How do you Analyze TIF Law?(Cont’d)

D. Home Rule Powers.

E. Politics/Policy.

F. Federal Income Tax Law – Tax Exempt Bond Status

1. Private Activity Bond Rules.

2. Build America Bonds, Recovery Zone EconomicDevelopment Bonds and Recovery Zone Facility bonds.

3. Rules are changed through 2010 (perhaps longer ifstimulus act provisions extended).

G. Make sure advisors, investment bankers, and lawyers on teamunderstand all relevant law.

IV. Issues in TIF Statutes with Termination ofTIF.

IV. Issues in TIF Statutes with Termination ofTIF.

A. Life of TIF – Examples

1. South Dakota – 15 years.

2. Illinois -- 23 years.

3. Indiana -- 25 years fromdate obligation incurred.

4. Texas – 40 years.

5. California – 50 years.

6. Florida – Bonds must berepaid between 7 and 40years.

7. Utah – Depends onAgreement.

8. Maryland – Not specified.

9. New York – Not specified.

10. New Jersey – Notspecified.

11. Alaska – No limit.

12. New Hampshire – Life ofBonds.

13. Hawaii – Life of Bonds.

B. Extension of TIF.

1. Illinois – Can be extended by state legislation to 35 years.Need ordinance of municipality, notice to taxing bodies,surplus distributed pro rata.

a. Policy in Illinois is if one taxing jurisdiction objects, TIF isnot extended.

b. Should statute be amended to provide for extension if havemajority, 60%, 75%, 90% of taxing districts approval?

2. Indiana – statutory limit is 25 years from date first obligationincurred; overlapping units do not have “veto” power otherthan filing action in court like any other taxpayer.

C. Right of Parties Upon Termination.

1. In Illinois, surplus distributed pro rata to taxing districts.

2. Use for Eligible Costs before expiration.

IV. Issues in TIF Statutes with Termination ofTIF.(Cont'd)


D. Rights of Parties Upon Extension.

1. Example of expiring TIF with Old Redevelopment Agreement.

City established TIF in 1983 that expires in 2006. In 1990 Cityenters into Redevelopment Agreement with Developer thatprovides for the issuance of TIF Revenue Notes of $5,000,000to be paid from increment. Increment is under $500,000through 2000, but $3,500,000 through 2006 which has beenpaid to Developer. City anticipates another $4,000,000 ofIncrement over next 7 years and wants to extend TIF. If TIF isextended, is Developer entitled to payments on the original TIFnote?



A. General obligation or other revenue back-up to TIF.

1. Private credit is very tough.

2. Most units of local government, although hurting, are a better credit thanmost private entities.

B. TIF particularly helpful in today’s economy, if statute permits.

1. Example of using contiguous TIF's to finance projects.

TIF I has an expiration date of 2029, TIF II has an expiration date of 2025, TIF IIIhas an expiration date of 2017. City wants to finance $3,000,000 of QualifiedRedevelopment Costs for TIF I, $600,000 of Qualified Redevelopment Costs forTIF II and $3,500,000 of Qualified Redevelopment Costs for TIF III. TIF I iscontiguous to TIF II and TIF II is contiguous to TIF III. State has statute permittinguse of contiguous TIF's. City would like to issue bonds to finance the projects. Abond issued for TIF I alone has coverage of 1.90 of anticipated debt service, TIF IIalone has coverage of 1.10 and TIF III alone has coverage of 1.20. In the aggregate,there is coverage of 1.70 compared to anticipated debt service. If each TIF financedon their own the Revenue Bond rates would be very high or not financeable. Byaggregating the TIF's and selling one Build America Bond (with separate series) ratewas 5.75% taxable with a 35 % refund for a net interest rate of 3.75 %.

V. TIF Policy in Connection with FinanciallyTroubled Communities and Developers.V. TIF Policy in Connection with FinanciallyTroubled Communities and Developers.

V. TIF Policy in Connection with FinanciallyTroubled Communities and Developers.(Cont’d)

V. TIF Policy in Connection with FinanciallyTroubled Communities and Developers.(Cont’d)

2. Use of area-wide TIF.

3. Indiana – project generally only requires finding that it is “in,serving or benefitting” the TIF area.

C. Consider all options to fill the gap.

1. Free up TIF revenues by Refinancing Old TIF Notes.

City has a developer note outstanding in amount of $7,000,000to accrue interest at 8% and payable to extent Developer incursqualified TIF costs. TIF has reached absorption and TIFrevenue will produce coverage of over 150% if they do a bonddeal. Revenue bonds refinance developer notes at lower rate oralternatively use GO backing to get even lower rate.

2. Recovery Zone Economic Development Bonds.

3. Recovery Zone Facility Bonds.

D. TIF is more important in today's economy as GAP isgreater.

E. Need greater flexibility to be effective, particularly inthese tough economic times. More layers of approvalslow down (or stop) process.

F. Tough to make everybody happy. Statutes need toprovide tools to get project done with policies andprocedures to make sure overall goals and objectives aresatisfied.

V. TIF Policy in Connection with FinanciallyTroubled Communities and Developers.(Cont'd)

V. TIF Policy in Connection with FinanciallyTroubled Communities and Developers.(Cont'd)

i. is it possible to make everybody happy

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