TIF District Frequently Asked Questions

Thursday, March 12, 2015 at 11:15 AM

TAX INCREMENT FINANCING IN ILLINOIS

Overview and Answers to Frequently Asked Questions

TIF History

Tax Increment Financing, “TIF” is a tool that local governments can use to help restore and revitalize areas and stimulate improvement and investment in declining or problematic areas of their communities. With this tool, local governments can undertake a redevelopment program that requires a multi-year funding source for comprehensive and coordinated improvements and incentives.

The enabling law for TIF is the Illinois Tax Increment Allocation Redevelopment Act(“TIF Act”) that was adopted by the Illinois General Assembly in 1977. Comprehensive amendments to the TIF Act were enacted in 1999, including amendments related to eligibility definitions, housing displacement and relocation assistance, administration and reporting, and impacts to taxing districts.

Approximately 400 communities have adopted TIF in Illinois. There are over 1000 TIF districts across the state.

How does TIF work?

The tax “increment” is the difference between the taxable value of properties (equalized assessed valuation or “EAV”) before TIF district designation and the taxable value of properties after TIF designation. In general, tax increment is generated based on the following sequence:

Municipality designates a TIF District for up to 23 years

County establishes the BASE EAV = sum total equalized assessed valuation of all properties in the TIF District at time of adoption

Municipality improves infrastructure and streetscape environment

Municipality facilitates private investment (assemble/prepare/market sites)

Private investment and new development occurs

Property values increase above the BASE EAV, this generates INCREMENTAL EAV

NOTE: TIF designation does not establish a new tax rate on TIF properties

Aggregate Tax Rate x BASE EAV = Tax Revenues distributed to all taxing districts each year on a pro rata basis

Aggregate Tax Rate x INCREMENTAL EAV = Incremental Tax Revenues distributed only to municipality each year

Incremental Tax Revenues must be spent within the TIF District and can be used as a source of revenue to pay back bonds issued for "upfront" costs, or can be used as they are generated annually for individual projects ("pay-as-you-go")

At TIF termination, Incremental EAV is released to all taxing districts and is considered new EAV for the next year levy.

Why (and how) TIF in Commercial Areas?

Many older commercial areas and central business districts are characterized by a number of conditions that have led to deterioration and disinvestment and prevent private investment in the future. These conditions might include any or all of the following:

Lack of market demand for small, obsolete buildings
Obsolete platting
Diverse, multiple ownership pattern: area’s problems difficult to manage
Inadequate parking
Inadequate utilities
Deteriorating and deteriorated buildings
Mixed, incompatible land uses
Vacant or underutilized land and/or buildings
Declining or stagnant property values
Increased demand for municipal services, but
Municipality less able to provide services due to declining tax base
Deferred property maintenance, leading to further decline
Poor image and appearance

What major redevelopment costs can be paid for with TIF funds?

TIF funds may be used for:

Property acquisition
Demolition, grading and site preparation
Environmental remediation
Rehabilitation or renovation of existing public or private buildings
Construction of public works or improvements
Job retraining programs
Relocation of housing and businesses
Financing costs of municipalities
Some types of interest cost assistance to developers (annual and total limits apply)
Capital costs of other taxing districts incurred directly as a result of TIF redevelopment
Marketing of development sites in the TIF
Professional studies, surveys and plans related to redevelopment
Professional services such as architectural, engineering, legal and financial planning related to otherwise eligible projects (e.g. rehabilitation)
Construction of affordable housing

TIF funds cannot pay for:

New private construction (except for affordable housing)
New municipal buildings (unless need is a direct result from TIF development)
Incentives to “raid” retailers from another nearby community
General overhead or operating costs of a taxing district (some very limited exceptions).

TIF Eligibility Requirements

The TIF Act specifies a number of requirements that must be satisfied for an area to qualify as a TIF district. These requirements are based primarily on physical conditions of sites and buildings as well as economic and market conditions.

A TIF district must be at least 1.5 acres in size and include only a contiguous area of tax parcels. A TIF district may include both vacant areas and “improved” areas (i.e. areas with building or site improvements). Improved areas may be found to be eligible as a TIF redevelopment project area based on criteria set forth in the TIF Act. It is also important to note that tests of eligibility are based on the conditions of the area as a whole; in general, it is not required that eligibility be established for each building or property in a proposed TIF redevelopment project area.

In summary, any of the following sets of eligibility criteria may be applied for improved areas:

Blighted Area: meaningful presence and reasonable distribution of at least 5 of 13 blight factors
Conservation Area: older areas (most of the buildings are 35 years or older) plus a combination of 3 of 13 blight factors
Industrial Park Conservation Area: relatively high unemployment and labor surplus in the community are required

The 13 TIF blight factors are:

Dilapidation
Obsolescence
Deterioration
Presence of structures below minimum code standards
Illegal use of individual structures
Excessive vacancies
Lack of ventilation light or sanitary facilities
Inadequate utilities
Excessive land coverage or overcrowding of structures and community facilities
Deleterious land-use or lay-out
Environmental remediation
Lack of community planning
Total equalized assessed valuation ("EAV") is declining or lagging the growth in the EAV for the balance of the Village

TIF Process

Typically, the municipality initiates the evaluation of the feasibility of a TIF district. Once eligibility and financial feasibility are established, the municipality prepares the redevelopment project and plan for the proposed TIF District. The TIF Act requires that the eligibility study and redevelopment plan be on file for review by other taxing districts, taxpayers of record and other interested parties.

Prior to establishing a TIF District, the TIF Act requires that a Joint Review Board (“JRB”) be convened--consisting of representatives of the major taxing districts overlapping the proposed TIF district plus a public member. The role of the JRB is to provide an advisory recommendation to the municipality regarding the proposed designation of the TIF redevelopment project area and the adoption of the TIF redevelopment plan.

After the JRB meeting, the municipality must conduct a public hearing and provide notices to various interested parties by certified mail and newspaper publication. Due to the required analysis, notices and meetings, most TIF districts can be established within 6 to 12 months of getting started.

The municipality must designate the TIF district and adopt the TIF redevelopment plan by municipal ordinance. No county, state or federal approval is required.

Disclaimer

The foregoing is for informational purposes only and is not intended as, nor should it be construed as, legal advice. If you have questions regarding TIF districts, please consult an attorney.