Creation of Tax Increment Financing Districts Jennifer LeGrand, - - PowerPoint PPT Presentation

Creation of Tax Increment Financing Districts

Jennifer LeGrand, Vinson & Elkins LLP John Stalfort, Miles & Stockbridge P.C.

Presentation Topics

Project-Specific TIFs vs. District-Wide TIFs Public Policy Considerations Pre-District Due Diligence by TIF Proponent(s) Creation of TIF Districts in Maryland and Texas “Blight” and the “But for” Test Governance of TIF Districts TIF Districts Encompassing Multiple Local

Government’s Jurisdictions

Due Diligence and Long Lead-Time Documents for

TIF Districts

Types of TIF Approaches

Project-Specific

Single project or single piece of property. Funds typically used for public improvements

necessary to support the project.

District-Wide

Large area of land or entire neighborhood is

targeted for redevelopment.

Funds typically support major infrastructure

projects.

Project-Specific TIFs

• Smaller scale means

fewer participants and faster timeline.

• Rarely involves eminent

domain or similar legal complications.

• Useful for communities

wishing to commit fewer financial resources.

• Effective in providing gap

financing for a particular improvement.

• Greater risk when only
• ne landowner is

involved.

• Broader long-term

visioning may not be considered in plan.

• Community may perceive

TIF as giving an advantage to a single developer or landowner.

• Not suitable for

addressing larger-scale concerns, such as blight.

Pros Cons

Large-scale community

commitment encourages businesses to commit.

Can serve as a catalyst

to transform and revitalize entire neighborhoods.

More effective at

driving economic development.

Historical owners may

feel pushed to leave area.

More parties involved

and a longer timeline.

Community buy-in

needed - efforts to educate the public on rationale behind and benefits from TIF are more critical.

District-Wide TIFs

Pros Cons

Public Policy Considerations in Creating TIF Districts

Net increase in tax revenue for the local government. Parcels within TIF district should receive economic

benefit of project.

Setting TIF allowances and limits to encourage or

discourage different types of TIF projects.

TIF for “green” projects – e.g. mass transit projects. “Blighted” parcels that would not be revitalized “but

for” TIF financing.

Consider any possible negative impact on rating of

general obligation bonds.

Pre-District Due Diligence by TIF Proponent(s)

Ask if Issuer has TIF policy and practices

guidelines.

Prepare presentation for potential issuing

agencies.

Be prepared to show that project would not

be feasible but for the TIF financing.

Illustrate how the TIF project meets

Issuer’s general growth objectives and comprehensive planning needs.

Statutory Creation of TIF Districts in MD

Article 41, Sections 14-201 et seq. Issuer can be county or municipality. The types of areas that can be supported are

industrial, commercial and residential.

Costs available for TIF financing: land, site removal,

relocation of businesses and residents, infrastructure, governmental use or purpose buildings, reserves and capitalized interest, and costs of issuance.

Issuer passes resolution designating “development

district”.

District must be a contiguous area. No finding of blight necessary.

Determining Assessable Base in MD

Article 41, Section 14-206 State Department of Assessments and Taxation

(SDAT) determines assessable base as of January 1

• f year prior to resolution.

Adjusted assessable base used for farm or

agricultural property – assessable base equal to FMV without regard to agricultural use.

As Compared to Creation of TIF Districts in TX

Chapter 311, Texas Tax Code

• Created by counties or municipalities, either on own if there is a

finding that development or redevelopment would not occur solely through private investment or via a petition signed by the

• wners of at least 50% of the appraised value of property.
• Often a local government corporation is created to manage the

TIF and issue debt, although municipality can issue bonds directly.

• Requirement that the area be “unproductive, underdeveloped or

blighted.”

• Requirement that no more than 10% of the property in the

proposed TIF be used for residential purposes.

• Requirement that the total appraised value in the proposed TIF

combined with existing TIFs not exceed 15% of the appraised value of real property in the municipality.

Initial Steps in Texas

Prepare a preliminary reinvestment zone financing

plan and send to each taxing unit that levies taxes in the proposed TIF.

Provide a 60-day written notice of intent to

designate the TIF to each taxing unit that levies taxes in the proposed TIF (may be waived by the governing body).

Provide a formal presentation to each taxing unit. Hold a public hearing on the creation of the TIF.

Use of Sales Tax Increment in Texas and Other Jurisdictions

Used in the District of Columbia, California,

Colorado, Kansas, Illinois, Louisiana, Maine, Missouri, Pennsylvania, Texas, Virginia, Wyoming and more.

Allows municipalities to dedicate all or a portion of

its sales tax increment to fund TIF projects in addition to or instead of property tax increment.

Most useful in mall or largely commercial areas. Potentially enables a municipality to complete TIF

projects faster, thus enabling an earlier termination date for a TIF.

“Blight”

• More than half of TIF statutes and policy guidelines

require a finding of “blight.”

• Potential factors supporting a finding of blight:
• Dilapidation
• Obsolescence in use
• Deterioration
• Failure to meet Code
• Inadequate Utilities
• Environmental Remediation
• Deleterious Land Use
• Unsanitary or Unsafe Conditions
• “Blight” is usually broadly construed, but due to

perceived abuse, expect increased scrutiny of Issuers’ findings from the public and project

• pponents.

“But for” Test

Ensures TIF financing is necessary for project

success.

Used to determine minimum amount of TIF financing

necessary to make project feasible.

Sample but for test:

The redevelopment area on the whole… has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of the redevelopment plan.

• Missouri Revised Statutes Section 99.810(1).

Public Governance of TIF Districts

Governed by a board of directors appointed

by the creating entity and any other participating taxing units.

In some cases governed by a local

government corporation.

Negotiate an agreement between the

creating entity, the TIF board of directors, and the local government corporation detailing powers and duties of the local government corporation.

TIF Districts that Include Multiple Taxing Authorities’ Jurisdictions

Texas TIFs often have participation from taxing units

• ther than the creating entity.

Most Texas TIFs are created by municipalities. Recent

changes in law allow municipalities to participate at less than 100% .

County participation. School district participation (only if TIF created in 1999

• r before).

Other taxing unit participation.

In each case, negotiate an interlocal agreement

detailing level of participation.

Critical Long Lead-Time Documents for TIF Districts

Memorandum of Understanding between

the local government(s) and Developer.

Development Agreement between Issuer

and Developer.

Feasibility/ Market Study and Tax Increment

Projection Study.